After vowing to restore Japan’s economy, Kishida leaves unfinished business

Fumio Kishida, who took office as Japan's Prime Minister in October 2021, aimed to revitalize the economy after decades of stagnation. His administration largely followed the economic strategies of his predecessors, focusing on creating a virtuous cycle of rising wages, growth, and inflation. Despite some positive developments, such as a 1.9% GDP growth in 2023 and significant wage increases, the overall economic landscape remains challenging, with stagnant domestic consumption and vulnerability to external shocks. Kishida's policies included a major expansion of tax incentives to encourage public investment in the stock market, and while Japan's largest companies announced their highest pay rises in over three decades, real wage growth has only recently begun to outpace inflation. Analysts express mixed views on the sustainability of these gains, with some attributing wage increases to inflation rather than productivity improvements. The Bank of Japan's recent decision to raise base rates to 0.25% signals an expectation of economic improvement, yet the economy continues to face headwinds from geopolitical instability and a weakening Chinese economy. The Nikkei 225 stock index, despite reaching a peak earlier this year, has experienced volatility, raising concerns about the durability of market gains. Looking ahead, expectations for Japan's economic growth remain modest, with forecasts predicting only 1% growth by 2025. The country’s declining population poses a significant challenge, and while immigration could provide some relief, it is unlikely to fully counteract long-term stagnation without substantial technological advancements.