Japan's Abe Re-elected Prime Minister, To Reappoint Cabinet

     TOKYO (MNI) Japanese nationalist politician Shinzo Abe was reelected prime

minister in a special Diet session Wednesday after leading the ruling coalition

to a two-thirds majority of the Lower House in the Oct. 22 parliamentary

elections.

     Abe is expected to reappoint all the ministers in the current cabinet and

retain senior policymakers in the Liberal Democratic Party.

     In a cabinet reshuffle on Aug. 3, he reappointed some close allies and

distributed ministerial posts to various factions in the ruling party in a bid

to refresh the image of his scandal-plagued administration and cement his grip

on power.

     Among the key names, Deputy Prime Minister and Finance Minister Taro Aso,

77, will continue to support Abe, 63, in his efforts to overcome deflation and

raise the economy's low growth potential.

     Abe is also set to retain his key ally in the cabinet, Yoshihide Suga, 68,

as chief cabinet secretary. As the top government spokesman, Suga has defended

Abe's economic, legislative and diplomatic policies.

     Both Aso and Suga have been supporting Abe since the nationalist blue-blood

politician led his Liberal Democratic Party to a return to power in a landslide

win in late 2012 Lower House elections with the promise to "regain Japan" by

correcting the high yen, overcoming deflation and conducting more assertive

diplomacy.

     Fumio Kishida, 60, will stay in the LDP leadership team as the chairman of

the Policy Research Council. He is considered a future candidate for prime

minister.

     The election results mean the ruling coalition is close to starting debate

in parliament on Prime Minister Abe's pet project to rewrite the post-war

pacifist constitution to allow the government more military leeway.

     Abe will also continue his reflationary policy mix of aggressive monetary

easing, increased fiscal spending and structural reforms, although the pace of

reforms in public pension and medical services as well as labor practices will

remain slow, limiting a rise in the economy's growth potential.

     Under Abe's government, the Bank of Japan is also expected to maintain its

large-scale easing until it achieves its 2% inflation target under Governor

Haruhiko Kuroda and any successor. Kuroda's five-year term ends on April and he

could be reappointed.

     The BOJ will continue its "powerful monetary easing" following the Lower

House election, Kuroda told a news conference Tuesday.

     Asked about what he would request of the government, Kuroda repeated his

earlier comments that the government must win market confidence through its

fiscal reforms in the longer term.

     When Abe dissolved the Lower House and called an early election in late

September, he sought 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.

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

revenue increase from raising 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.

     To continue his policy of completely overcoming deflation and supporting

sustained economic growth, Abe has 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.

     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.

--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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