Economists: Jury still out on whether Japan’s economy would be better if LDP was back in control

Kyodo

As public support for the ruling Democratic Party of Japan wanes, the Liberal Democratic Party is set to pounce in the Dec. 16 general election, but economists and analysts are divided over how the economy would fare if the LDP regains the reins of government.

LDP chief Shinzo Abe is rocking Japan’s financial markets with his recent remarks seeking aggressive fiscal and monetary easing, including a call on the Bank of Japan to lower its key policy interest rate below zero to stimulate lending.

Yasunari Ueno, chief market economist at Mizuho Securities Co., pointed to the LDP’s call for expanded public works and said it is possible for the next administration to come up with a large supplementary budget for the current fiscal year to next March.

“The BOJ would also likely be put under increased pressure to implement more aggressive monetary easing,” Ueno noted.

Masamichi Adachi, senior economist at JPMorgan Securities Japan Co., said, “The market hopes for a probusiness, progrowth government under the LDP, although it remains to be seen how far it can go in specific policy measures.”

Meanwhile, there are not a few skeptics of Abe’s stance.

“Fiscal or monetary policy measures alone are unlikely to push up Japan’s potential growth rate. Rather, they run the risk of aggravating the fiscal position,” said Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd.

Kono stressed the need for structural reforms, including promotion of the Trans-Pacific Partnership free-trade framework and further deregulation.

Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co., said it is difficult to stimulate the economy with expanded public works projects, as proposed by the LDP.

“The economic slump could be prolonged, and that may force (the next) government to postpone the planned sales tax hike, leading to further expansion of fiscal deficits,” Kodama said.

Ueno of Mizuho Securities also noted that, under an LDP government, it may be difficult for Japan to improve relations with China that have strained greatly over the Senkaku Islands dispute, because the LDP is maintaining a hardline stance over the issue.

The boycott of Japanese products by consumers in China, Asia’s biggest economy and Japan’s biggest trading partner, to protest Japan’s effective nationalization of the uninhabited islets, which have long been under its control, is hurting the Japanese economy.