Bloomberg News

Abe Coalition Cements Hold on Japan’s Diet

July 21, 2013

Japan's Prime Minister Shinzo Abe

Shinzo Abe, Japan's prime minister and president of the Liberal Democratic Party (LDP), places a red paper rose on an LDP candidate's name to indicate an upper house election victory at the party's headquarters in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Japanese Prime Minister Shinzo Abe’s coalition won a majority in an election to parliament’s upper house, offering a broader mandate for reform as he seeks to revive the economy and strengthen defense.

Abe’s Liberal Democratic Party and its partner New Komeito will win at least 74 of the 121 seats up for grabs in today’s election, while the Democratic Party of Japan, previously the largest party in the upper house, will get a minimum of 15 -- its worst such showing since it was formed in 1998, state broadcaster NHK estimated after polls closed.

The win hands the coalition a majority in the 242-seat chamber and control of both houses for the first time since 2007, after its landslide lower-house win in December. With another national ballot not due for three years, Abe has an opening to carry out the third strand of his economic revival program -- structural deregulation aimed at boosting investment and wages.

“This is a powerful message telling me to proceed with my economic policies,” Abe, 58, said on NHK after polls closed. “I want to make sure people feel the effects of the economic recovery as soon as possible.”

Abenomics has already brought unprecedented monetary easing led by Bank of Japan Governor Haruhiko Kuroda and 13.1 trillion yen ($130 billion) in stimulus spending.

The first two of the “three arrows” of Abe’s program have helped push up the Topix Index of shares about 45 percent since he took office for the second time in December. The yen has tumbled 16 percent against the dollar in that time, offering exporters a more competitive exchange rate.

Turnout Slides

Turnout tumbled in the election, which coincided with the first weekend of school holidays. Kyodo News estimated the share of voters casting ballots at 51.57 percent, down from 57.92 percent in 2010, and reported that the final figure could be the lowest since 1998.

“It’s not like there’s a groundswell of enthusiasm for him,” said Koichi Nakano, professor of politics at Sophia University in Tokyo, in reference to Abe. “If he misreads that and gets complacent, he could be punished very quickly in cabinet support levels.”

Support for the main opposition DPJ collapsed, and party secretary-general Goshi Hosono, a former environment minister, said he bore responsibility for failing to restore public trust in the party. He nonetheless criticized Abe’s record.

“It’s true that there have been gains in terms of share prices, but that means nothing if it does not lead to stable employment and incomes,” Hosono told NHK.

Reform Agenda

Abe must walk a fine line to avoid disappointing investors with tepid measures or sparking dissent among allies with bolder moves. Economists including Robert Feldman, head of Japan economic research at Morgan Stanley MUFG Securities Co., have called for Abe to cut corporate taxes, loosen labor regulations to make it easier to fire workers and tackle the world’s biggest debt.

Slowing economic growth may stir concern among LDP lawmakers and limit support for more painful measures to end a decade-long deflationary malaise. Growth will ease to an annualized 2.8 percent in the three months through June, compared with 4.1 percent in the first quarter, according to a survey of 29 economists by Bloomberg.

“We’re not going to see anything dramatic,” Feldman said. “It’s not flashy stuff, it’s small step-by-step actions.”

Sales Tax

Speaking on Asahi TV after polls closed, Abe said a decision on whether to carry out a rise in the sales tax was “difficult,” and he would closely examine the April-to-June economic data before making a decision. The LDP and New Komeito agreed with then-ruling DPJ last year to increase the sales tax to 8% in April 2014 from the current 5%

Abe has confronted the agriculture lobby within his own party by taking Japan into talks on the Trans-Pacific Partnership trade deal. Japanese negotiators are set to join the discussions two days after the election.

Abe was estimated to fall short of the two-thirds majority in the upper house that would have let him fulfill his long-held aim of revising Japan’s pacifist postwar constitution without having to secure cooperation from opposition parties. The LDP will also not secure a unilateral majority in the upper house.

Abe told NHK he wanted to deepen the debate on constitutional change in a calm and stable atmosphere. He said Japan’s door was open to talks with China and declined to say whether he would visit Yasukuni Shrine, which is dedicated to Japan’s war dead including leaders convicted as Class A war criminals by an Allied tribunal after World War II.

An advocate of a stronger military and more assertive diplomatic policy, Abe in recent weeks stepped up rhetoric against China over a territorial dispute that has frozen bilateral ties. Last week, he visited a Self-Defense Force base close to Japan-controlled islands in the East China Sea also claimed by China, to express support for the troops.

“We should take a firm stance toward China and South Korea on territorial problems, history and so on,” said Masahiko Kanno, 67, who said he had voted for the LDP in Fukushima City.

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net


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