With the ballots tallied and the opposition crushed, observers predict the ruling bloc’s landslide victory Sunday amid the third-lowest voter turnout ever for a House of Councilors poll will have a positive impact on the economy and Prime Minister Shinzo Abe’s stewardship of it.
The ruling coalition of Abe’s Liberal Democratic Party and junior ally New Komeito now controls both chambers of the Diet, and no elections are required for at least three years, when the next general election must be held, unless a poll is called earlier.
“It is huge that the government will be able to make decisions quickly,” especially since the turmoil created by the gridlock in Diet since 2007 has delayed or blocked deliberations and critical legislation, said trading house analyst Shingo Kumazawa of Daiwa Securities Group Inc. during a lecture last week in Tokyo.
“This makes it easier for foreign investors to purchase Japanese stocks, and encourages them to do so,” he said.
His colleague, Takuya Takahashi, agreed.
“Generally speaking, stocks tend to go up when there is a stable government. It also helps bring transparency and consistency to policymaking,” the Daiwa analyst said.
Now appears to be the time for Abe to step forth and follow through on the grand growth strategies he has been incessantly proposing since taking office in December.
Takahashi confirmed that Abe’s plans for jump-starting economic growth have been sparse on the details. He said the focus of the next Diet session will be on fleshing them out.
Crucially, Abe has yet to map out how he intends to expand per capita gross national income by ¥1.5 million in 10 years, as he promised, or how the government will double agricultural and food exports to ¥1 trillion by 2020. Among other initiatives, specifics are required for his plan to designate areas where deregulation and tax deductions will apply.
Now that the ruling bloc has a majority in both the Lower and Upper houses, it will likely stick to steadily passing legislation related to economic growth, Takahashi predicted.
Although disclosing fuller details on Abe’s policies will not have a huge impact on the markets, some government decisions, including how it intends to handle corporate tax cuts, will come under intense scrutiny, analysts said.
There are also some risks regarding the lopsided election outcome.
One concern is that the LDP’s traditional tendency of relying far too heavily on massive fiscal spending could resurface and see public debt, already at a staggering ¥1 quadrillion, swell even further amid the hazardous risk of rising bond yields.
To reassure the markets, Chief Cabinet Secretary Yoshihide Suga reaffirmed Sunday evening that achieving fiscal balance “is a pledge of the LDP,” and that the government fully intends to reduce the debt mountain. But if the sales tax is raised in April as planned, it risks crimping domestic demand and severely retarding any recovery.
Experts have been quick to warn Abe that keeping the tax hike’s adverse side effects to a minimum, as well as exercising restraint in balancing state spending, will be no easy task.
The scale of the LDP’s victory Sunday has also shone a brighter spotlight on constitutional amendment. Although Abe wasn’t able to secure the two-thirds majority of Upper House seats necessary to revise the Constitution, some critics say he may still gear up for one final push to achieve his long-held goal of rewriting war-renouncing Article 9.
Suga acknowledged Monday that amending the 1946 charter “has for the first time become a realistic political agenda,” although LDP Secretary-General Shigeru Ishiba told reporters Sunday evening that he thought “the economy should come first.”
Analysts point out that ending two decades of deflation and economic stagnation is a huge task in itself, and that juggling it with altering the Constitution may be too ambitious an agenda even for Abe, especially given the series of major political events to come in the months ahead.
In August, the Cabinet Office will reveal gross domestic product data for the latest quarter, which will be a major factor when the government later this year finalizes its stance on whether to increase the consumption tax. Meanwhile, judgement is looming on Japan’s accession to the Trans-Pacific Partnership trade accord to be worked out by year’s end, a decision that could wildly skew the economy’s trajectory.
Even the International Olympic Committee’s verdict in September on Tokyo’s hopes of hosting the 2020 Summer Games may influence the markets.
At the same time, there are also some bright signs, Daiwa’s Kumazawa noted.
“Compared to other economies, Japan’s is in a much more stable condition,” he said, citing concerns in the United States over its exit strategy for quantitative easing, Europe’s continuing fiscal instability and the deceleration of China’s breakneck growth.
Tokyo, on the other hand, has drawn some positive remarks in recent international meetings over its efforts to end deflation, giving Abe’s government and the Bank of Japan the room to take even more radical steps if necessary.
Providing a mix of stable governance and flexibility in monetary policies can be maintained, Abe should be able to boldly forge ahead with his economic policies, Kumazawa said.