Has Japan Found Its Margaret Thatcher?

Sanae Takaichi is a hawk on China but a muddle on economics.

Japan may soon have another Prime Minister after Sanae Takaichi this weekend won the race to lead the (barely) ruling Liberal Democratic Party (LDP). There are reasons to be modestly hopeful, but also reason to curb your enthusiasm.

Sanae Takaichi is poised to become Japan's first female prime minister.(REUTERS)

Ms. Takaichi, who would become Japan’s first female leader, defeated Shinjiro Koizumi in a runoff in an intraparty campaign centered on whether the LDP can get its mojo back. The party hasn’t had compelling leadership since Shinzo Abe’s retirement and then assassination. It’s been buffeted by election losses as voters flee to upstart parties, especially on the right.

To become Prime Minister Ms. Takaichi must survive a vote of lawmakers later this month in a parliament where the LDP now leads a minority government. This is an indignity for a party that has governed Japan more or less uncontested for decades.

The list of voter complaints against the LDP will sound familiar. One is immigration, which in Japan refers as much to an onslaught of foreign tourists—read: Chinese—as to economic migrants or asylum seekers. Ms. Takaichi promises to crack down on this perceived problem, although how remains unclear.

On foreign policy Ms. Takaichi is a hawk in the mold of her mentor Abe. She says she’d ramp up defense spending and support closer military cooperation with the United States. She says she’ll abide by the current U.S.-Japan trade deal, but President Trump should expect a tough negotiator in the woman who says she wants to make Japan great again.

But Ms. Takaichi will rise or fall on the economy, and here the outlook is cloudy. Inflation is the main voter worry by a wide margin, and Ms. Takaichi’s mandate is to improve living standards. She cites Margaret Thatcher as an inspiration and said during the leadership campaign that “the important thing is growth.” Yet her policy plans are a mishmash.

She’s generally described as a “fiscal dove” in the Abe mode, meaning she’s not afraid of deficit spending in pursuit of economic growth. This has failed every time it’s been tried when Tokyo threw borrowed cash at industrial-policy subsidies or public works—and Ms. Takaichi promises both.

That may explains why bond traders reacted poorly, with yields on 20- and 30-year government bonds jumping. The yen fell against the dollar and euro. Japan can’t afford to waste money on no-growth gimmicks when debt is above 200% of GDP and debt service and old-age pensions consume a combined 58% of the budget. But Keynesian economists and Ministry of Finance scolds will oppose supply-side tax reform. Ms. Takaichi has to pick a door.

Stocks surged because she also wants to pressure the Bank of Japan to halt its monetary normalization and perhaps even cut interest rates, which would push up asset prices. Whether she can bring pressure to bear on the independent central bank is unclear, and this isn’t a good idea when voters are vexed by inflation. If rate increases trigger a mild yen appreciation in contrast, that could help restore purchasing power.

For now Ms. Takaichi promises some respite from the LDP’s political crisis, given her strong popularity among younger voters and others who have recently fled to other parties. Japan has never been short of the optimism that comes with a new Prime Minister. It’s short of economic revival, and now Ms. Takaichi gets a chance to deliver.