Japan's Kishida championed 'new capitalism' but was undone by yen

TOKYO — Fumio Kishida pushed through Japan's biggest wage increases in decades, but it was not enough to make up for the impact the battered yen has had — or keep him in his job as prime minister.

Kishida on Wednesday (Aug 14) succumbed to months of woeful public support numbers and said he would step down next month. While his tenure was marred by scandals, including one involving party slush funds, the weak yen was arguably his undoing.

The currency's long slide to an almost four-decade low against the dollar last month has driven up prices of food and fuel and badly hurt consumer confidence in an economy just emerging from years of deflation.

It is not clear who will succeed Kishida. But whoever does will face the pain of trying to tame higher prices from the yen.

"The advent of exchange-rate inflation really, really hurt the prime minister," said Michael Cucek, a professor specialising in Japanese politics at Temple University in Tokyo.

The currency — under pressure from a wide gap between ultra-low Japanese rates and those in other major economies — ultimately blunted the impact of wage increases, the central plank of Kishida's "new capitalism" policy. He repeatedly called on companies to increase pay, saying it was needed for broader economic growth.

Big companies duly listened, delivering the largest annual increase in three decades this year at 5.1 per cent, with smaller companies averaging 4.5 per cent, according to the Rengo union group.

The numbers do not include wages at many non-unionised, smaller companies where increases have been more modest, and in some cases non-existent.

Yet real wages, which are adjusted for inflation, have barely moved, meaning that people were earning far less than headline numbers