UPDATE2: Japan's Ruling Coalition Retains Lower House Control

--Updates Projections For LDP, Ruling Coalition In Paragraphs 6-8

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 284 seats, NHK reported based on its

exit polls. The party held the same number of seats before the chamber was

dissolved last month.

     The LDP was initially reported to have gained 283 seats but more

information has become available at one of the four constituencies where rain

storms have delayed vote counting. 

     The coalition between the LDP and its smaller partner Komeito, which held

318 seats before the election, is estimated by NHK to have won 313 seats (up

from 312, as reported previously), 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

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