UPDATE2: Japan PM Abe Keeps Some Key Policymakers in Cabinet

--Updates With Comments From Abe Briefing, Background Throughout

     TOKYO (MNI) - Japanese Prime Minister Shinzo Abe on Thursday reappointed

some close allies in a cabinet reshuffle but also 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.

     Amid falling public support for the government, Abe told a news conference,

"We must go back to the basics where we returned to power from the opposition

camp in late 2012, backed by the public voice for revitalizing the economy."

     "We have been working on the economy as our top priority. But we must push

up wages much more and improve the conditions so companies will invest more and

households will spend more."

     The cabinet comprises "result-oriented professionals," Abe said.

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

76, will continue to support Abe, 61, 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 been defending

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, who had held the post of foreign minister until Thursday

morning, moved to the LDP leadership team as the chairman of the Policy Research

Council.

     "Abenomics has helped create jobs and raise wages but we still need to seek

a virtuous circle of economic growth and wealth distribution," Kishida told

reporters Thursday as he assumed the senior party post.

     By pursuing Abe's reflationary economic policy mix -- aggressive monetary

easing, increased fiscal spending and structural reforms -- the government will

tackle income inequality and sluggish consumption amid rising corporate profits

and a modest economic recovery, he said.

     Policymakers point out that compensation of employees (wages multiplied by

the number of employees) has been rising along with a modest economic recovery,

but it is mainly pushed up by a high pace of increase in lower-paid part-time

and contract workers amid labor shortages in some sectors. The year-on-year

growth in average wages remains low.

     Kishida was replaced by Taro Kono, 54, a liberal lawmaker from a political

family. Kono served as administrative reform minister from 2015 to 2016.

     Initially Abe wanted to keep Kishida, a potential rival for the top party

position, and thus premiership, within the cabinet to maintain his loyalty, but

Kishida wanted to gain more experience in ruling party policymaking in

preparation for a future bid for prime minister, press reports said.

     Kishida had also temporarily served as defense minister since Tomomi Inada,

Abe's protege, resigned last Friday over a defense ministry cover-up of daily

activity logs on peacekeeping operations in South Sudan, although she denied

that she was directly involved.

     Inada's resignation was widely expected as public support for Abe's cabinet

has continued to slide over its handling of political scandals, casting doubt

over his leadership ahead of parliamentary elections expected next year. The

four-year term of the current House of Representative, or Lower House, will end

in December 2018.

     There is speculation that Abe may dissolve the Lower House and call a snap

election this year while the main opposition Democratic Party is still reeling

from the resignation of its leader a week ago over fading support from voters

and party members.

     Asked about this possibility, Abe said, "It is completely a clean slate."

     In another scandal, opposition parties have charged that Abe showed

favoritism to a close friend over plans to open a veterinary faculty in a

special deregulation zone as part of the government's growth strategy.

     Abe's critics have said he has been too arrogant in policymaking at the

national level -- resorting to rushed voting on controversial security bills --

on the back of the majority the governing coalition holds in both chambers of

parliament. But so far opposition forces in the Diet have not been able to

capitalize on the political scandals that surround Abe.

     Itsunori Onodera, 57, will lead the defense ministry amid a growing

security threat from North Korea's nuclear ambitions. Abe wanted to bring in

somebody who is already up to speed in the field and can regain public

confidence. Onodera held the defense portfolio for a few years from late 2012.

     Abe also appointed Seiko Noda, 56, as minister of internal affairs and

communications, who is also in charge of empowering women, in a bid to show he

is listening to various opinions within his party.

     Two years ago, Noda tried to run for party leader but gave up after finding

there was not enough support. She and Justice Minister Yoko Kawakami, 64, are

the only women in the new cabinet.

     Abe stressed that he and Noda have a good working relationship. Both of

them were first elected to the Lower House of parliament in 1993, when the LDP

lost power to an anti-LDP grand coalition in general elections.

     Within the LDP, some politicians are opposed to aggressive monetary easing,

which has so far failed to raise inflation to the Bank of Japan's target of 2%.

They have also called for a shift to stricter fiscal discipline, instead of

seeking to create demand through public projects.

     Takeshi Noda, a former LDP tax panel chief who was removed by Abe, is

holding study sessions with other LDP lawmakers including Seiko Noda. They are

discussing an exit strategy for the BOJ's massive asset purchases and the need

to raise the sales tax to finance growing social security needs.

     Ken Satio, 58, joined the cabinet as minister of agriculture, forestry and

fisheries. He belongs to an LDP faction led by Shigeru Ishiba, who plans to run

in the LDP leadership race in September next year to challenge Abe's bid for an

unprecedented third term as the party chief.

     As part of its growth strategy, the government is trying to promote a

better work-life balance by slashing notoriously long working hours,

facilitating teleworking, realizing equal pay for equal work and reinforcing

day-care services.

     In the previous cabinet reshuffle exactly a year ago, Katsunobu Kato, 61,

was charged with improving work-life balance as a cabinet minister. Now he will

also serve as the minister of health, labor and welfare and work on public

pension and medical service reforms.

     Hiroshige Seko, 54, remains as minister of economy, trade and industry. In

the Abe government, he also served as deputy chief cabinet secretary.

     Economic and Fiscal Policy Minister Nobuteru Ishihara, 60, was replaced by

Toshimitsu Mogi, 61, who was the head of the LDP Policy Research Council until

Thursday.

     Among senior policymakers at the LDP, Toshihiro Nikai was reappointed as

secretary-general, as was Masahiko Komura as deputy party president.

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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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