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--Updates With Appointment of Cabinet, Extra Budget Plan
     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 reappointed all the ministers in the latest cabinet and retained senior
policymakers in the Liberal Democratic Party.
     Later at a news conference at around 2100 JST (1200 GMT) Wednesday, Abe is
expected to announce that the government will compile a supplementary budget for
the current fiscal year to March 31, 2018, in order to finance expedited
spending on plans to improve daycare services, one of his election campaign
promises.
     The lack of care-giving and daycare services as well as notoriously long
working hours at many firms are hampering women from joining for returning to
the workforce, a factor limiting the economy's growth potential.
     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 also retained 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
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