Economic Research View
Japan: Kishida Cabinet Reshuffle and Its Impact on BOJ Policy
Nomura Asset Management Co., Ltd. Published September 14, 2023

Rumi Kurumizawa, CMA
Chief Economist
On September 13, Prime Minister Fumio Kishida announced the new members of his Cabinet following
a reshuffle. Economic policy is unlikely to change, with most of the economic ministers and the LDP
policy chief retaining their posts. The Deputy Chief Cabinet Secretary will be replaced by Hideki Murai,
a Special Advisor to the Prime Minister, from Seiji Kihara who has been a key figure in policymaking.
The question is whether this reshuffle will boost the Cabinet's approval rating. If not, Kishida may
postpone the dissolution of the Diet’s lower house and the subsequent snap election until after theSeptember 2024 LDP presidential election, which could have a major impact on the timing of BOJ
policy decisions.
Reshuffle of Kishida Cabinet■

The lineup of Prime Minister Fumio Kishida’s reshuffled Cabinet was announced on September 13. Of
the 19 new Cabinet members, there are a record 5 female ministers and 11 first-time appointees.
Finance Minister Shunichi Suzuki and Economy, Trade and Industry Minister Yasutoshi Nishimura willremain in office, while Yoshitaka Shindo (Acting Chairperson of the LDP Policy Research Council) will
replaced Shigeyuki Goto as Minister in charge of Economic Revitalization. Since Toshimitsu Motegi,
Secretary-General of the LDP, and Koichi Hagiuda, Chairperson of LDP Policy Research Council, willremain in office, no change in economic policy is expected. On the other hand, Deputy Chief Cabinet
Secretary Seiji Kihara, who is believed to have formed the main pillar of the Kishida administration'spolicy, has retired, and his role has been succeeded by Hideki Murai, a Special Advisor to the PrimeMinister. Kihara is reportedly set to be appointed as both the LDP’s Acting Secretary-General andActing Chairperson of the Policy Research Council, implying that he will act as a liaison between theLDP and Prime Minister Kishida and will also be in charge of LDP policy planning. "Mr. Kihara was asenior in the Ministry of Finance that inspired me to apply to the Ministry when I was in college, andhe was also a senior in the world of politics who I always consulted when I set out to become apolitician ..." Murai wrote on his blog.

■The appointment of Ms. Yoko Kamikawa is the centerpiece of the Cabinet reshuffle. Ms. Kamikawa,
who has served as Minister of Justice three times, becomes the first female Minister of Foreign Affairs
since the Koizumi administration. Also notable is the appointment of Hideki Murai, Special Advisor tothe Prime Minister as the Deputy Chief Cabinet Secretary, taking on from Seiji Kihara. The Kishida
Administration, which holds the G7 presidency this year and is considered skilled with diplomacy, may
have hoped for a boost in its approval rating by having a female minister in an important cabinet
position with high exposure. The foreign ministers of France, Canada and Germany in the G7 arewomen. According to a published profile, Kamikawa, who is strongly associated with her former roleas Minister of Justice, completed a master's degree in political administration at the JF Kennedy Schoolof Government at Harvard University and served as a policymaking staff member for a U.S. senator,according to media sources.
■Though support for the Cabinet had been on a downward trend, it is showing signs of a turn toward
recovery. In September, an NHK poll showed the approval rating rose slightly to 36% from 33%. A
strategy for the dissolution of the lower house will be devised after the Administration can judge how
the Cabinet reshuffle and the appointment of party officials has affected approval ratings. The term ofoffice of lower house members expires in October 2025, but the LDP presidential election is scheduledfor September 2024. If Kishida seeks re-election as LDP president, he might time the dissolution ofthe lower house so that LDP victories in the snap general election help secure his position as LDP
president. Alternatively, he may consider aligning the timing with the special election to fill vacant Dietseats planned for October 22. In fact, dissolution of the lower house has often been timed to coincidewith the extraordinary Diet session in autumn in recent years. If the Administration’s approval rating isslow to recover and the dissolution doesn’t happen within 2023, the end of the regular Diet session
around June 2024 could be the next opportunity. On the other hand, if a strong rival to Kishida does
not emerge, we can envision a scenario in which he will accelerate policy discussions within the LDP
as part of the September 2024 presidential election, increase his media exposure, and then dissolve
the lower house after winning the election.

■

This fluid political schedule will influence the Bank of Japan's (BOJ’s) monetary policy decisions. Given
its moves from June to July 2023, it seems that the BOJ has taken political considerations into account.
If the BOJ assumes that politicians would not welcome any changes that could be interpreted as an“abolishment of Abenomics", as such changes would harm Kishida’s support from the Abe faction in
the presidential election, it is difficult for the bank to enact any major shifts in the policy framework,
such as the elimination of the YCC and negative interest rates, ahead of the presidential election andthe snap general election. If the snap general election is completed before the September 2024 LDP
presidential election, the BOJ will be able to move more easily in October 2024 and thereafter.
However, it will be more difficult to do so if the snap election is to be held after the presidential election.
It is also possible that the BOJ will seek to take action in January or April 2024 in order to minimize theimpact of the busy political schedule. The introduction of flexibility of the YCC in July 2023 may havebeen fortunate timing given the coming elections and the growing uncertainty in overseas economies.

■

Based on the above, we confirm the schedule for each BOJ Monetary Policy Meeting in 2024.
Although BOJ Governor Kazuo Ueda said there is a "not zero" chance that they will recognize avirtuous cycle of wages and prices within 2023, it will take a considerable upswing in the economy,
prices and wages spanning several months for the Bank to acknowledge a virtuous cycle inJanuary 2024 and change the policy framework. There is also the question of whether, if the policy
framework is to be changed, some kind of review should be made. Although the “Review from aBroad Perspective” is not supposed to be directly linked to short-term policy changes, it would beeasier to explain changes in policy framework by linking them to the Review’s results. The final
results of the Review will probably not be available in April as the second workshop with experts
is scheduled to be held around May 2024, but there is a possibility that the date will be moved up.

If the BOJ misses the April 2024 timing for implementation, the policy meetings in July andSeptember could be influenced by the LDP presidential election. The October policy meeting
could be an opportune time if the snap election is completed prior to the September 2024 LDP
presidential election. If the final results of the Review are postponed until October 2024, policychanges could be taken at the same time as their publication. But there are risks in October, suchas the risk of the financial market instability ahead of the U.S. presidential election on November
5. If BOJ were to wait this long, it may instead choose to wait another month and a half and decide2

at the December policy meeting. BOJ might feel more comfortable explaining that its decisions
incorporate the analysis of the Review.

Figure 1. Bank of Japan Monetary Policy Meeting Schedule
U.S. and European
Monetary Policy
Forecasts

Bank of Japan
Review ofMonetar
BondOutlook
Monetary Policyy Policy
MarketReportfrom a Broad
MeetingSurvey
Perspective
Jan-24

22-23

Political Schedule

Spring Labor Negotiation
FED

ECB

Convention of the regular Dietsession

P

Dissolution during the ordinary
Diet session?
(1990)

Feb-24Mar-2418-19

Apr-2425-26

P

End of month: Initial budget and tax
reform bills

P

In the mid-month: The Basic Policy
on Economic and Fiscal
Management and Reform approvedby the Cabinet.

Early: summation of the demandsof the spring labor negotiations
Mid: First summary of responses

PThe U.S. andEuropean economies
expected to marks
negative or zero
growthMay-24Jun-24

Jul-24

13-14

30-31

April - October:
Final results ofthe Review

P

Dissolution at the end of theregular Diet session? (1993,2005, 2009, etc.)

Early: Summary of the final
responses to the spring labor
negotiations
Late to early August: Report by theCentral Minimum Wage Council on
the revision of the minimum wage

25 bpsrate cut

50 bpsrate cut

25 bpsrate cut

50 bpsrate cut

25 bpsrate cut

25 bpsrate cutAug-24

Sep-24Oct-24

P

19-20

30-31

Dissolution at the extraordinary Diet
session in autumn?
(1996, 2003, 2012, 2014, 2017, 2021,etc.)

PNov-24

Dec-24September: Term of office of LDP
President Kishida expires

5: US presidential election

18-19

25 bpsrate cutP

Note: The BOJ Outlook Report will be released in its entirety on the following business day, with the basic views released after the decision meeting. The bondmarket survey is released in February, May, August and November on the first business day of the following month. U.S. and European monetary policy forecasts
are based on company's forecast. Source: Nomura Asset Management based on various reports by the Bank of Japan, the United Nations and Reuters3Figure 2. Approval Rating of Abe and Kishida cane

Figure 3. Changes in Cabinet approval ratings in the first twoyears of the administration

(%)

(%)

Dissolution of the Lower House (House of Representatives)7080
Abe administration
Suga administration

60

70

50

60

40

Kishida administration

50

30

40

Approval Rate

2030

Disapproval rate
10
14

15

16

17

18

19

20

21

22

20

23

1M
2M
3M
4M
5M
6M
7M
8M
9M
10M
11M
12M
13M
14M
15M
16M
17M
18M
19M
20M
21M
22M
23M

13(Yr)

Note: The Abe administration was in power until August 2020, the Suga administration Note: Average of the Nikkei TV East, Asahi, Yomiuri, Mainichi and NHK surveys.
Source: Nomura Asset Management based on Real Politics Japan datafrom September to September 2021, and the Kishida administration thereafter.
Average of the Nikkei TV East, Asahi, Yomiuri, Mainichi and NHK surveys.
Source: Nomura Asset Management based on Real Politics Japan data

*This commentary is based on personal views of the author and does not necessarily represent Nomura AssetManagement house view.

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