Next PM will benefit from vaccine booster

The race to become the new LDP leader – and with it PM – formally began on Friday. With Delta cases plunging and the vaccination rate having caught up with many other advanced economies, whoever wins should be able to lift domestic restrictions and ride a strong recovery in Q4. Kono is by the far the most popular of the four candidates with the LDP-supporting public and, along with Kishida, currently has the most support amongst LDP lawmakers. (See Chart 1). Ishiba Shigeru – a rival to Kono in the popularity stakes who announced last week that he will not stand – is backing Kono, as is outgoing PM Suga. Ex-PM Abe’s long-term rival Ishiba has criticised Abenomics for favouring corporate profits over wages, and Kono appears to have absorbed some of his new supporter’s thinking in demanding this week that “we must shift our focus toward boosting household income, from corporate profits”. Kono has suggested a lower corporate tax rate for firms that distribute a high share of their income to their workers. And like all the other candidates, Kono has pledged to compile a stimulus package – to focus on renewable energy and 5G – which would provide another tailwind to the recovery over the coming months. We expect output to return to pre-virus levels in Q4 and to return to near its pre-virus path around the middle of next year.