Cabinet Shake-Up Shows Abe Keen to Deliver on Economy

Japanese Prime Minister Shinzo Abe’s new cabinet appointments signal his determination to deliver on pledges to overhaul the pension system and bring more women into the workforce to revive Asia’s second-biggest economy.

In yesterday’s reshuffle, Abe made Yasuhisa Shiozaki health minister, giving him a mandate to change the Government Pension Investment Fund, the world’s largest retirement fund, to let it buy more risky assets. He also appointed a record number of female ministers in a step toward his goal of having women in 30 percent of management positions by 2020. Abe is trying to lure more women to work to offset a shrinking labor force.

“Abe is ready to deliver on reforms,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo and former Bank of Japan official. “The appointment of Shiozaki shows that he wants to reform the ministry most resistant to change.”

The changes to Japan’s longest-serving unchanged cabinet since World War II come 20 months after Abe took office pledging to reflate the economy. Even with the Topix index rising more than 50 percent under Abe, wages have failed to keep pace with inflation and public support for the cabinet has drifted below 50 percent from highs of more than 70 percent in April last year.

The Topix rose for a third day, gaining 0.4 percent, to close at its highest since January.

’Top Priority’

“The economy will remain the top priority,” Abe told reporters in Tokyo after the shake-up. “It is the duty of the new Abe cabinet to make the economic recovery more certain, so that people really feel it in every corner of the land.”

Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong, said Abe’s personnel changes alone don’t guarantee Abe will be able to overcome vested interests and deliver reforms in areas such as social security, labor markets, and public pension management.

“It does show the Prime Minister is serious about pushing his reform agenda forward,” she wrote in an e-mailed note.

Abe kept his senior team of Chief Cabinet Secretary Yoshihide Suga, Finance Minister Taro Aso and Economy Minister Akira Amari. Foreign Minister Fumio Kishida also remains.

Tax Increase

JPMorgan’s Adachi said this would mean no substantial change in policies, including the pledge to further raise the sales tax to 10 percent next year, especially with the appointment of Sadakazu Tanigaki as secretary-general of the ruling Liberal Democratic Party.

Tanigaki was the party’s leader in opposition when it signed a deal in 2012 with the then-ruling Democratic Party of Japan for a two-stage increase in the tax to help reduce the world’s largest debt burden, currently more than twice the size of the economy.

Etsuro Honda, a government adviser, and Kozo Yamamoto, a ruling party lawmaker, have been reported as calling for postponement of the planned tax hike in October next year after recent weak economic data.

An increase in the levy to 8 percent from 5 percent in April caused the economy to contract the most last quarter since the 2011 earthquake and tsunami. Household spending and retail sales dropped in July, pointing to weakness this quarter.

Tanigaki told reporters in Tokyo yesterday that the government should go ahead with the planned sales tax rise to 10 percent. The increase would contribute to fiscal stability and help expand policy options, he said.

Promoting Women

Finance Minister Taro Aso, who retained his post as deputy prime minister, said Tanigaki’s appointment was “not a negative” for raising the tax. Barclays Plc economists Kyohei Morita and Yuichiro Nagai said in a report yesterday it would further strengthen the prospects of passage.

Abe has made promoting women a centerpiece of his economic policy. Yuko Obuchi, dubbed by monthly magazine Sapio as the “next prime minister-but-one,” will oversee the nuclear industry in the Ministry of Economy, Trade and Industry post.

In addition to Obuchi, Abe appointed Sanae Takaichi as communications minister, Midori Matsushima as justice minister, Eriko Yamatani as minister in charge of the abduction issue, and Haruko Arimura as minister for promoting women. Tomomi Inada was named LDP policy chief.

Former Vice-Defense Minister Akinori Eto was appointed defense minister and minister in charge of passing a raft of security bills to reinterpret Japan’s pacifist constitution to enable collective self-defense. Shigeru Ishiba, the previous secretary-general who ran against Abe for leadership of the LDP two years ago, took a new post in charge of regional economic revitalization.

“While not as liberating as a return to the backbenches, this post may still give Ishiba space to challenge Abe in next year’s LDP leadership election,” Tobias Harris, an associate and analyst of Japanese politics at Teneo Intelligence, wrote in an e-mailed note.

Before it's here, it's on the Bloomberg Terminal.