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Abe Set for Victory as Japanese Vote in Election

Voters in Japan choose a new lower house of parliament today in an election forecast to return Shinzo Abe’s Liberal Democratic Party to power after a landslide loss in 2009.

The LDP and its coalition partner New Komeito may win more than 300 of the 480 seats in the lower house, according to a Nikkei newspaper poll published Dec. 14. Prime Minister Yoshihiko Noda’s Democratic Party of Japan may secure fewer than 70, the least since the party was formed in 1998. The newspaper surveyed 26,231 people in 70 constituencies and gave no margin of error.

A victory would give Abe a second chance to lead the country five years after he quit his first term for health reasons. He will inherit a country in recession, a split parliament, and an electorate still reeling from the 2011 earthquake and nuclear crisis.

With elections for the upper house being held in July, Abe’s plans for aggressive monetary easing and fiscal stimulus need to produce results or he may last no longer than five predecessors, none of whom stayed in office longer than 15 months.

“If he fails on the economy, there’s no doubt he will face a drubbing in the July upper house election and be forced to step down,” said independent economic analyst Tsukasa Jonen. “The real test is next year.”

A central bank report two days ago illustrated the challenges Abe will face, with confidence among large Japanese manufacturers sliding to the lowest level since the aftermath of the global recession. The quarterly Tankan index fell to minus 12 in December, the fifth straight release in which pessimists outnumbered optimists.

Sales Tax

The DPJ retreated from pledges to shrink the bureaucracy and boost child welfare, and public support for Noda dropped as he passed a bill doubling the sales tax and restarted atomic power plants after the Fukushima nuclear disaster.

Now, more than half the electorate supports neither the LDP nor the DPJ, allowing the rise of several smaller parties, including one led by former Tokyo Governor Shintaro Ishihara and Osaka Mayor Toru Hashimoto. Six prime ministers since 2006 all started with approval ratings at or above 50 percent only to see their popularity evaporate.

Revolving Door

To escape the same fate, Abe will have to negotiate with the Diet’s upper house, where the LDP and Komeito lack a majority. While the government can pass budgets without the upper house, it will need opposition support for other legislation.

“The people of Japan don’t want their leader to change every year,” said Kazuhisa Kawakami, professor of political science at Meiji Gakuin University in Tokyo. “But they want someone who can follow through on policies, and that will create demands on Abe.”

The world’s third-largest economy contracted in the second and third quarters, meeting the technical definition of a recession, hobbled by more than a decade of falling prices. Sputtering growth underscores the risk that the planned doubling of the five percent sales tax by 2015 to rein in record debt may have to be postponed.

Abe has called on the Bank of Japan (8301) to provide “unlimited easing” and set an inflation target of at least 2 percent. Stocks have gained and the yen has fallen in the past month on the prospect of more stimulus, helping exporters like Sharp Corp., whose overseas earnings are hurt by the strong currency.

At the same time, the LDP is promising to increase public works spending to boost the economy and maintain the country’s aging infrastructure, a need highlighted this month by the deaths of nine people in the collapse of a 1970s expressway tunnel.

Extra Budget

“As soon as Abe takes up his post, I think he will introduce a large extra budget,” independent political analyst Minoru Morita said. “That’s what the electorate is hoping for, so I think it will boost his support.”

The yen has fallen to a nine-month low of 83.96 per dollar on expectations of an LDP victory and more central bank easing. The Nikkei 225 Stock Average has gained about 12 percent in the past month, and bonds have rallied, with 10-year government-debt yields falling to a nine-year low of 0.695 percent on Nov. 30.

Focusing on the economy may force Abe to shelve foreign policy measures that include strengthening control over islands at the heart of a territorial spat with China, and revising Japan’s pacifist constitution to enshrine the right to maintain armed forces.

“The first priority is the economic situation,” said Etsuro Honda, a professor at Shizuoka University and former diplomat who is an adviser to Abe. Changing the constitution “takes some time.”

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

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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