Japan's Abe Dissolves Lower House; Opposition Parties Team Up

     TOKYO (MNI) - Prime Minister Shinzo Abe dissolved the Lower House on

Thursday to call an early election to seek voter views on his proposal for a

"drastic shift" in government policy toward using the planned sales tax hike to

fund new program spending totaling Y2 trillion.

     The speaker of the house, Tadamori Oshima, declared the dissolution at the

start of an extraordinary Diet session.

     Since Abe's plan was leaked to the media last week, opposition parties have

been accusing Abe of avoiding parliamentary investigations into political

scandals over government approval of schools by dissolving the Lower House

without engaging in further debate.

     Later Thursday, the government will officially set the election day on Oct.

22. The next Lower House election must take place before mid-December 2018.

     On Monday, the prime minister said he aims to win at least a majority, or

233 seats, in the Lower House, for the ruling coalition between his Liberal

Democratic Party and its small partner, Komeito. The lower chamber's 475 seats

will be reduced to 465 as part of parliamentary reform for the next election.

     It is uncertain if the Party of Hope, the new reform-minded conservative

party launched this week by Yuriko Koike, the popular governor of Tokyo, will

become a threat to the current ruling coalition.

     There is little difference between the basic conservative political stances

of Abe and Koike. They are both business-oriented to shore up economic growth

and seek a more assertive role by Japan by rewriting the post-war Pacifist

constitution.

     However, Koike is trying to appear different from Abe by calling for a

complete shutdown of all nuclear power plants in Japan and freezing plans to

raise the sales tax. If voters see a fresh image in Koike's party, it could

emerge as an alternative to Abe's LDP.

     In a desperate attempt to remove the LDP from power, Seiji Maehara, the

leader of the main opposition Democratic Party, said Wednesday he would allow

his party members to run with the endorsement of Koike's party. DP comprises

both conservative politicians like Maehara and more liberal lawmakers who

represent the interests of labor unions.

     Some DP members worry Maehara's move will ensure the disintegration of

their party, while other members think it is inevitable following the recent

slip in voter support for their party, press reports said.

     Koike said the two parties are unlikely to fully join hands for the

election, given there has been no discussion on whether they can agree on key

policies, the reports said. 

     Abe has defended his reflationary policy mix of aggressive monetary easing,

increased fiscal spending and structural reforms, saying more jobs have been

created since he returned to power in late 2012, although inflation is far from

the 2% he had promised to achieve.

     To continue his policy of completely overcoming deflation and supporting

sustained economic growth, Abe said the government will promote business

investment in technology and urge corporate efforts to raise productivity.

     The government will also implement free high school and university

education for qualifying students from low-income families in a bid to stop

existing income inequality from widening the gap in access to higher education,

he said.

     As the working-age population continues to shrink, the government will also

provide fiscal support for child-rearing and care-giving while seeking to

further improve working conditions for care-givers, he added.

     In April 2014, the sales tax was raised to the current 8% from 5% in order

to cut the nation's huge public debt, now more than double its GDP, and pay for

an increase in government funding of public pension plans.

     The second stage of doubling the sales tax rate to 10%, which has been

postponed twice by Abe in what opposition parties called a political move to

shore up his voter support, was aimed at reducing public debt.

     Initially, the government planned to spend Y4 trillion of the estimated tax

revenue increase from doubling the sales tax rate to 10% to pay down the debt

and Y1 trillion on improving social security programs.

     Abe said he has decided to change the plan and won't use much of the tax

revenue on repaying the huge public debt -- a move economists said would further

delay the process of fiscal consolidation and reduce the flexibility of fiscal

policy.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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