The death of Shinzo Abe — namesake of Japan's "Abenomics" policy — makes any immediate challenge to his legacy highly unlikely but could eventually allow Prime Minister Fumio Kishida to phase out Mr Abe's government spending and monetary stimulus.

In a rare act of political violence that shocked the nation, Japan's longest-serving prime minister was gunned down on Friday while campaigning for Sunday's parliamentary election, where his party's coalition expanded their upper house majority.

Analysts say Mr Kishida is unlikely to do anything immediately that could antagonise lawmakers loyal to Mr Abe, who led the biggest faction in Mr Kishida's Liberal Democratic Party (LDP) after stepping down as premier in 2020.

However, ultimately, his absence and the LDP's victory in Sunday's election — aided by a sympathy vote after Mr Abe's death — could give Mr Kishida political capital to change policy course.

Two days after Mr Abe's assassination, Mr Kishida's LDP-led conservative coalition was set to increase its majority in the upper house in Sunday's election.

People close to Mr Kishida have said the Prime Minister and his aides wanted to move toward normalising fiscal and monetary policies and gradually whittle down the Abenomics experiment launched nearly a decade ago.

"There likely won't be a quick reversal of Abenomics, or an exit from ultra-loose monetary policy," SMBC Nikko Securities' senior economist, Koya Miyamae, said.

"That will mean former or incumbent Bank of Japan executives will remain strong candidates as next central bank governor."

Mr Kishida — who belongs to a smaller LDP faction — remained under pressure from Mr Abe and his supporters to maintain massive stimulus and choose a reflationist dove as the next Bank of Japan governor in April.

Mr Abe's absence could change the balance of power within the party, diminishing the influence of advocates of big government spending and ultra-loose central bank policies.

"Abe led a group of reflationist-minded ruling party lawmakers favouring big spending, so his absence will have a huge impact on the party's power balance," UBS Sumi Trust Wealth Management's chief Japan economist, Daiju Aoki, said.

A changing balance of power

Backed by huge public support for his campaign to pull Japan out of chronic deflation, Mr Abe deployed in 2013 his "three arrows": aggressive monetary easing, flexible fiscal spending and a long-term growth strategy.

The Bank of Japan's massive stimulus — driven by Governor Haruhiko Kuroda — helped reverse a relentless yen rise that hurt Japan's exporters, boosted stock prices and improved business sentiment.

Economists, however, criticised a lack of a credible growth strategy and reforms to help the economy shift sustainably into higher gear.

So far, Mr Kishida has stuck with Abenomics, deploying big-spending packages to cushion the economic blow from the COVID-19 pandemic and, recently, to soften the impact of soaring energy and raw material costs.

He has also endorsed the Bank of Japan's ultra-low interest rate policy, even as other central banks raised rates, sending the yen to two-decade lows.

"When we look at Japan's gross domestic product, corporate profits and job conditions, it's clear Abenomics has produced great results. What's important now is to generate wage growth," Mr Kishida said on Sunday.

Eventually, Mr Kishida may seek to dial back some of the radical monetary experiment put in place by Mr Kuroda, which has strained financial institutions' profits and crippled pricing in the bond market.

Mr Kishida's administration was forced to water down Japan's budget-balancing commitment after fierce pushback from Mr Abe and his allies.

His death could pave the way for Mr Kishida to focus more on efforts to rein in Japan's government debt burden, the biggest in the industrial world.

"Abe was a flag-bearer of those who support fiscal expansion. Those people lost their driving force," National Graduate Institute for Policy Studies' professor, Mikitaka Masuyama, said.

While the Bank of Japan is unlikely to reverse ultra-loose monetary policy any time soon, the fading influence of pro-growth lawmakers could also affect Mr Kishida's choice for the bank's governor.

The Prime Minister has the final say on who will succeed Mr Kuroda — who was hand-picked by Mr Abe to deploy a monetary bazooka to eradicate deflation — when his second five-year term ends.

Career central bankers Masayoshi Amamiya and Hiroshi Nakaso are considered among strong candidates, with Mr Amamiya seen as taking a more dovish stance than Mr Nakaso, who had cautioned about the drawbacks of prolonged monetary easing.

"Abe was said to have favoured a reflationist-minded person head the Bank of Japan. The change in the ruling party's power balance could affect the choice of [Bank of Japan] governor," UBS Sumi's Mr Aoki.

Reuters