Breaking News

Tweet TWEET

Japan’s LDP Reclaims Power in Landslide With Abe Stimulus

Japan’s Liberal Democratic Party won a landslide victory that returns it to power three years after surrendering a half-century grip on the government.

Shinzo Abe’s LDP yesterday captured 294 seats in the 480- member lower house of parliament, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-fourths of its lawmakers, according to public broadcaster NHK’s vote count. Abe, 58, is set to replace Noda, returning to the office he left five years ago for health reasons.

The yen fell to a 20-month low against the dollar and stocks rose to an eight-month high on expectations Abe will expand monetary and fiscal stimulus in a bid to defeat deflation. Japan’s seventh leader in six years, he inherits a country in recession, still reeling from the 2011 earthquake and nuclear disaster, and embroiled in a diplomatic dispute with China, with an upper house election only seven months away.

“Abe’s popularity will disappear very quickly if he does something wishy-washy or overreacts and leads Japan into a real crisis with China,” said Aiji Tanaka, a political science professor at Waseda University in Tokyo. “If he is calm and handles the situation well, he can keep up the momentum until July. The DPJ is now a medium-sized party. They performed very badly and disappointed almost everyone in Japan.”

A special parliamentary session to vote on the new prime minister may be held Dec. 26, Abe said today, adding that he had not decided on any Cabinet appointments yet. Former Prime Minister Taro Aso may be named finance minister, Kyodo News reported, without saying where it got the information.

‘Break Out’

“Japan is currently in a crisis in terms of the economy, diplomacy, education and recovery from the catastrophe in the northeast,” Abe said at a press conference in Tokyo. “The job we have been given is to break out of this crisis.”

The DPJ, which had 230 lower house lawmakers before the election, won 57 seats. Noda, 55, said he will step down as party leader to take responsibility for the loss. Eight Cabinet ministers lost their seats, including Finance Minister Koriki Jojima and Chief Cabinet Secretary Osamu Fujimura. The party plans a leadership election on Dec. 22, Kyodo News said.

LDP partner New Komeito won 31 seats, giving the coalition a two-thirds majority that would enable it to override most decisions by the upper house, where the DPJ is the largest party. The Japan Restoration Party of ex-Tokyo Governor Shintaro Ishihara and Osaka Mayor Toru Hashimoto won 54 seats.

A dozen parties campaigned for the lower house, which is made up of 300 single-member constituencies and 180 proportionally apportioned seats. Turnout was 59.3 percent, the worst for a lower house election since World War Two, NHK said.

Personal Comeback

The DPJ, undermined by internal squabbling, retreated from pledges to shrink the bureaucracy and boost child welfare. Support for Noda, the party’s third premier in as many years, fell as he passed a bill doubling the sales tax and restarted atomic power plants after the Fukushima nuclear crisis.

The LDP victory marks a personal comeback for Abe, who quit as premier in 2007 after a year in office, citing a stomach ailment. His economic policies include “unlimited easing” by the Bank of Japan (8301) to reach a 2 percent inflation target and increased public works spending.

“We got a lot of support for our plans during the election,” Abe said. He added that he expects the BOJ to take the election results into account and make “appropriate decisions” at its next policy meeting on Dec. 19 and 20.

Market Reaction

The yen fell to as low as 84.48 per dollar, the weakest since April 2011, while the Nikkei 225 Stock Average rose .09 percent to close at the highest level since April 3. Japanese government bonds fell, driving up 10-year yields 1 basis point to 0.735 percent, the highest since Nov. 26.

A central bank report last week illustrated the challenges Abe will face, with confidence among large Japanese manufacturers sliding to the lowest level in almost three years. The Bank of Japan’s quarterly Tankan index fell to minus 12 in December, the fifth straight release in which pessimists outnumbered optimists.

The world’s third-largest economy contracted in the second and third quarters, meeting the technical definition of a recession.

The LDP leader has also called for strengthening control over the islands known as Senkaku in Japan and Diaoyu in China, and has pledged to boost defense spending. Japan’s purchase of the island chain in September sparked violent demonstrations in China and damaged the $340 billion trade relationship between the world’s second-and third-largest economies.

China Ties

“The relationship with China is one of the most important for Japan,” Abe said, while adding that “we are not in a situation where we could hold a summit straight away, or where I could visit China.”

Failure to make progress on the economy or regional ties could mean Abe loses support as rapidly as his five predecessors, each of whom was out of office within 15 months.

“In all likelihood, the bloom will be off the rose by next summer’s upper house election,” said Gregory Noble, a professor of politics at the University of Tokyo. “The underlying fact is that the economy is terrible and is not likely to get better soon, and as a result voters are unhappy.”

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.