In brief

EIU believes that the cabinet reshuffle in December will not bolster the government's public approval ratings in a strong and enduring manner. Consequently, we expect the prime minister, Kishida Fumio, to refrain from calling an early general election until after mid-2024, at which he will lead the ruling Liberal Democratic Party (LDP) to victory, retaining its majority. Amid growing internal discord within the LDP after several scandals, a victory in the general election will be essential to help Mr Kishida to retain presidency of the ruling party in September 2024, and to push his agenda of raising tax revenue to fund increases in the defence budget and welfare spending, with the latter aimed at boosting the birth rate. We expect the Bank of Japan (BOJ, the central bank) to keep accommodative monetary policy and keep interest rates at very low levels after its negative rate exit in March. The BOJ will continue to unwind its quantitative easing in 2024-25, as the economy maintains steady yet moderate growth while mild inflation returns.

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