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UPDATE: Japan's Ruling Coalition Retains Lower House Control

--Updates Projections in Story Published at 2241 JST (1341 GMT) Sunday
By Max Sato
     TOKYO (MNI) - Japan's ruling coalition retained a majority in the Lower
House in Sunday's election, based on exit polls from public broadcaster NHK and
other media, as the opposition was fragmented and voters preferred the status
quo of lukewarm economic recovery and no drastic structural reforms.
     Stormy weather in much of the country is believed to have led to a low
voter turnout, making it easier for incumbents to win votes. With the economy on
a prolonged modest recovery track amid slow wage hikes, voters sought stability
instead of looking for change from the current environment.
     In addition, the two main oppositions parties didn't have enough time to
develop specific policy targets and drum up voter support because they were
created just a few weeks before the election, failing to challenge the dominance
of the Liberal Democratic Party led by Prime Minister Shinzo Abe.
     While Abe has failed to deliver on his campaign promise in late 2012 to
boost inflation to a stable 2% within a few years, he has also stolen the
political show from opposition parties in recent elections by giving top
priority to supporting working families with children and seeking equal pay for
equal work.
     The election results also mean the ruling coalition is edging closer to
starting debate in parliament for Prime Minister Abe's pet project to rewrite
the post-war pacifist constitution to allow the government to be more military
leeway.
     Abe's LDP is projected to have secured a comfortable majority of the
465-seat House of Representatives, winning 283 seats, NHK reported based on its
exit polls. The party held 284 seats before the chamber was dissolved last
month.
     The coalition between the LDP and its smaller partner Komeito, which held
318 seats before the election, is estimated by NHK to have won 312 seats,
securing two-thirds of the powerful lower chamber of the Diet. Komeito's seats
decreased to 29 from 34.
     After calling a snap election, Prime Minister Abe set a conservative target
for the vote, saying he would stay in power as long as the coalition retained a
simple majority of 233.
     Abe is expected to be re-elected as prime minister in a special Diet
session on Nov. 1 and form a new cabinet.
     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.
     The Party of Hope, which was created last month by Tokyo Governor Yuriko
Koike, a former LDP lawmaker, failed to threaten the ruling coalition's
dominance. The new conservative party could not present a notable difference
from the LDP. It is projected by NHK to have won 49 seats, down from 57 seats it
held before the election.
     The main opposition Democratic Party split, just before the election
campaign period. Some conservative DP members joined Koike's party while liberal
DP members launched a new party called the Constitutional Democratic Party of
Japan led by Yukio Edano, a former chief cabinet secretary when DP was in power.
What is left of the DP remains in the Upper House.
     Edano's party is estimated by NHK to have increased its presence in the
Lower House from 15 to 54. His campaign slogan to "step forward, not going right
or left" appeared to have won support of liberal voters who are concerned about
Prime Minister Abe's pro-business approach in revitalizing the economy and his
push for a more assertive role of Japan's military overseas.
     The Japanese Communists Party, which has gained popularity among various
age groups in recent years, is projected by NHK to have won 12 seats, down from
21 before the election.
     Abe is expected to 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 remains 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 his successor. Kuroda's five-year terms ends on April 8.
     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.
     When Abe dissolved the Lower House and called an early election late last
month, 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 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.
     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. The sales tax was
last raised to 8% to 5% in April 2014, which caused a prolonged slump in
consumption.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
[TOPICS: MAJDS$,M$A$$$,M$J$$$,MC$$$$,MT$$$$,MGJ$$$]

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