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Repeats Story Initially Transmitted at 07:50 GMT Oct 10/03:50 EST Oct 10
--Survey Details Seen By MNI Reveal Growing Concerns
By Max Sato
     TOKYO (MNI) - The uncertainty created by Japan's snap election and the
lingering North Korean nuclear arms threat are clouding consumer and business
sentiment, Japanese government officials said Tuesday about the results of a key
government survey released Tuesday.
     Confidence among retailers and in the tourism sector tend to slump ahead of
national elections but comments made by those polled in the latest Economy
Watchers Survey indicate concerns are greater this time than during the last
Lower House elections three and five years ago, an examination of survey details
by MNI revealed.
     Unlike in late 2012, when voters expected change for the better after the
yen's appreciation had choked economic growth and political stalemate had hurt
sentiment, there seems to be greater uncertainty over the domestic and global
political outlook.
     The Economy Watchers outlook index showed sentiment regarding the next two
to three months marked the first month-on-month drop in two months on a
seasonally adjusted basis, slipping to 51.0 in September from 51.1 in August.
     "North Korea and the election are generating uncertainty. There were many
Watchers comments about an expected slowdown in the movement of people and goods
during the election campaign," said Cabinet Office director of regional
economies Shigeru Hirota.
     He said he could not immediately compare the current political uncertainty
ahead of the Oct. 22 vote with the periods before the previous Lower House
elections in 2014 and 2012.
     But MNI's examination of comments by survey respondents show fading
confidence in the government of Prime Minister Shinzo Abe, who returned to power
in a landslide win in late 2012 with the promise of correcting the yen's rise
and regaining Japan by a reflationary policy mix and more aggressive diplomacy.
     More than four years of large-scale monetary easing, increased fiscal
spending and planned structural reforms have failed to pull the economy
completely out of deflation and guide inflation to a stable 2%, which Abe had
said would be achieved quickly.
     "Consumer expectations for the government are becoming thinner. I expect
consumers to stay cautious about spending for a while and business conditions to
become tougher," said a book store owner in northern Japan.
     "The economic and fiscal policy minister told a news conference that the
current economic expansion appeared to have surpassed the second-longest
post-war stretch but we cannot feel it in the rural areas," said a
telecommunications firm owner north of Tokyo.
     A supermarket manager also said consumer confidence was expected to
deteriorate now that Prime Minister Abe declared he would go ahead with the plan
to raise the 8% sales tax to 10% in October 2019.
     In December 2014, Abe led the ruling coalition to a landslide victory in
early general election in the absence of strong opposition. In the previous
month, he decided to delay the second stage of the planned doubling of the sales
tax hike to 10% by 18 months until April 2017 and called a snap election to ask
for public support for shelving government plans to raise taxes to finance
growing social security costs.
     Since then he has again delayed the timing of the tax hike but is now
proposing  to use the planned 2019 tax increase to pay for free high school and
university education to eligible students from low-income families, a move that
could worsen uncertainty over the outlook public pensions and medical plans.
     Government officials have said concerns about the social security system
are causing households to save more and spend less.
     Leading up to the 2014 Lower House elections, those polled in the Watchers
Survey were more concerned about rising import costs amid the depreciation of
the yen as well as the lingering negative impact of the last sales tax hike in
March 2014.
     The number of Watchers' outlook comments on the North Korean risk increased
to 73 in September from 52 in August and just eight in July, as saber rattling
between the U.S. and North Korea continued over Pyongyang's threat of using
nuclear ballistic missiles.
     The uncertainty among Watchers over the domestic political climate appears
to be greater. The number of Watchers' outlook comments on Japan's election
jumped to 218 in September from two in August and three in July. Most believe
economic activity will slow down as people are mobilized to help election
campaigns and firms cancel leisure trips for employees before the election.
     By contrast, the Economy Watchers' sentiment index for Japan's current
economic climate rose to a nine-month high of 51.3 in September after being
unchanged at 49.7 in August. Lower temperatures boosted demand for autumn
clothing and the lingering effect of new models supported automobile sales.
     The Cabinet Office upgraded its overall economic assessment for the first
time since the May report, saying, "The economy is picking up steadily."
Previously, it said, "The pickup continues."
     "Looking ahead, there are expectations for continued business investment,
although there are concerns over labor shortages and overseas developments," the
government said, largely maintaining its recent outlook.
     Prime Minister Abe is expected to lead his Liberal Democratic Party and its
smaller coalition partner Komeito to a moderate victory over opposition parties
in the Oct.  22 vote.  
     The biggest threat to Abe is the new national political party created by
Tokyo Governor Yuriko Koike, a former LDP lawmaker in the national Diet.
     There is little difference between the basic conservative political stances
of Abe and Koike. They are both business-oriented with the aim of shoring up
economic growth and both seek a more assertive role by Japan by rewriting the
post-war Pacifist constitution.
     This means means Koike's Party of Hope could steal some LDP supporters if
her promise of faster reforms appeals to them.
     The ruling parties are likely to lose some seats but are fully expected to
retain their majority. If the coalition doesn't win enough seats for a majority,
Abe would resign unless an additional coalition partner was found to create a
majority.
     If the loss is bigger than expected while the coalition retains a majority,
it would indicate voter confidence in Abe's reflationary policy mix is fading,
diminishing the nationalist politician's grip on power within the LDP.
--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