Prime Minister Shinzo Abe, the longest-serving prime minister in Japan’s history, announced his resignation on Friday due to poor health.
Abe’s resignation ended his position at the helm of the world’s third-largest economy, where he was trying to stimulate growth and strengthen defense.
“I decided to leave the prime ministry, believing that I will not be able to continue if the people do not have the confidence that I can do the job that they have entrusted me,” the 65-year-old Abe, who went to the hospital for the last two weeks and had his health checked, said at a press conference.
Abe said he has now decided to resign in order not to create a political vacuum while trying to overcome the new coronavirus outbreak.
“I apologize from the bottom of my heart for leaving exactly one year before the end of my tenure in the midst of the coronavirus crisis,” Abe said. Similarly, Abe resigned in 2007 due to illness after serving as prime minister for a year and returned to politics as his condition improved.
As the news of the resignation spread, Japan’s Nikkei stock exchange N225 fell 2.12% to 22,717.02, while the wider TOPX index was traded at 1,599.70, down 1.00%. Sales wiped out $47 billion in Tokyo’s $5.7 trillion stock exchanges which more than doubled during Abe’s tenure.
The resignation will likely trigger a leadership race in the ruling Liberal Democratic Party (LDP) within two or three weeks. The winner of the internal party leadership must be officially elected prime minister by parliament. The new party leader will remain in office for the remainder of Abe’s term.
According to media reports, former defense minister Shigeru Ishiba and former foreign minister Fumio Kishida quickly expressed interest in the office. Among those who want the prime ministry is Yoshihide Suga, Cabinet Secretary-General, from Abe’s close political team.
Suga, in an interview with Reuters yesterday, argued that Abe would not resign and said that he was not willing to be the prime minister.
No matter who wins the party poll, while Japan is struggling with the coronavirus crisis, the new PM is expected to continue Abe’s reflationary “Abenomics” economic policies.
Historical policy change at the Fed
A speech Thursday from Jay Powell, chairman of the US Federal Reserve Fed, may have finally put one of the fundamental theories of the modern economy aside.
A few years before the coronavirus epidemic brought the global economy to its knees, Fed policymakers watched the continuous decline of the US unemployment rate and expected a jump in inflation typically associated with such a tight labor market.
Expectations were based on a rule that shaped decades of monetary policy decisions: the Phillips curve. That is the concept that inflation tends to rise when the unemployment rate falls and vice versa.
However, the inflation increase that Fed officials expected did not materialize. Powell announced yesterday that the wait for policymakers is over.
Speaking to the Kansas City Fed’s annual Jackson Hole symposium on Thursday, Powell unveiled the central bank’s new monetary policy approach that puts more emphasis on employment gaps and less on the fear that lower unemployment could trigger higher inflation.
With the landmark policy change, the Fed decided to support the labor market and focus less on inflation. Instead of using an inflation target number, the Fed promises to target average inflation of 2% over a period of time.
Fed officials say that with their new approach, they will no longer worry about the unemployment rate being too low. Now that inflation expectations are fixed at low levels, the economy has room to continue creating more jobs.
Statements from Merkel
German Chancellor Angela Merkel said Friday that the coronavirus epidemic will worsen in the coming months, and her government will take measures by prioritizing community welfare, especially children and the economy as a whole.
Merkel said that although the increase in cases continued, the government would not go to the path of shutting down the economy.
Germany has managed to keep COVID-19 cases and deaths relatively low compared to some other major European countries. However, the number of new daily infections has been increasing since the beginning of July and has accelerated in recent weeks.
Merkel also reiterated at the conference that she rejects US sanctions on the German-Russian gas project Nordstream pipeline.