Abe Set for Japan Election Win Faces LDP Dissent Risk

Photographer: Kazuhiro/AFP/Getty Images

Shinzo Abe, Japan's prime minister, delivers a speech at an election campaign rally in Tokyo. Close

Shinzo Abe, Japan's prime minister, delivers a speech at an election campaign rally in Tokyo.

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Photographer: Kazuhiro/AFP/Getty Images

Shinzo Abe, Japan's prime minister, delivers a speech at an election campaign rally in Tokyo.

Japanese Prime Minister Shinzo Abe is set to win control of both houses of parliament, giving his Liberal Democratic Party-led coalition the strongest grip on power since 2007. Winning the election will be the easy part.

While a government victory in the July 21 upper house ballot would end Japan’s recent experiment with two-party politics, internal dissent looms within months should slowing growth undermine the promise of Abenomics. Economists forecast the economy to contract after an April 2014 sales-tax rise.

With Abe pledging legislation to revamp business regulation and open Japan’s markets to more competition, his longer-term legacy will be influenced by how deep-seated the changes are. Reformer Junichiro Koizumi helmed a similarly strong LDP seven years ago, only to see his flagship postal reform measure abandoned and the party sink into internal bickering, with revolving-door leaders.

“The lifespan of this administration will be determined by whether he can manage this autumn,” said Jun Iio, professor of government at the National Graduate Research Institute for Policy Studies in Tokyo. “He has only just started work on economic policies. What he has at the moment is a kind of advance on their effects.”

The LDP and its coalition partner New Komeito are on track to win more than 65 of the 121 upper house seats up for grabs, according to a poll published in the Nikkei newspaper yesterday. Added to the coalition’s 59 seats in the uncontested half of the chamber, it will have a majority for the first time since 2007.

Half Century

The Democratic Party of Japan -- which ejected the LDP in 2009 after an almost uninterrupted half century in office only to lose the lower house again three years later -- will win fewer than 20 seats, the poll showed. That could reduce it to its lowest numbers since the party’s formation in 1998. The paper surveyed 33,831 people on July 14-16 and did not give a margin of error.

Abe has benefited from an opposition in disarray with the DPJ undermined by factional splits and an inability to set a clear policy platform. That has allowed the LDP to paper over its cracks, including skepticism from Abe’s deputy Taro Aso over the effectiveness of unprecedented monetary easing. Abe’s party leadership will be up for contest in September 2015.

“Once we get into a comfortable position there is a danger that we will become arrogant, full of ourselves and loose in paying attention,” LDP Secretary-General Shigeru Ishiba told reporters in Tokyo on July 3.

Growth Slowdown

Japan’s gross domestic product is forecast to contract by 4.4 percent on an annualized basis in the second quarter of 2014, when a 3 percentage point sales-tax increase is scheduled to take effect, according to the median forecast of 29 economists in a Bloomberg survey.

“We need to set clear priorities for what we plan to do between autumn and the beginning of next year,” Justice Minister Sadakazu Tanigaki, a former LDP leader, said in an interview. If Abe follows a coherent plan, “the way will be open for a long-lasting administration. If he fails, it may become difficult to maintain party discipline.”

A poll published by the Mainichi newspaper on July 15 found support for Abe at 55 percent, down from 70 percent in March. The paper surveyed 934 people by phone July 13-14 and gave no margin of error.

Wilderness Years

The LDP, formed in 1955 as a catch-all for non-Communist politicians, dominated Japanese politics for more than half a century. Koizumi reinvigorated its support when he took over in 2001, vowing to battle internal opposition. His resignation in 2006 triggered a rapid turnover of premiers weakened by cabinet gaffes.

Since its 2009 defeat the LDP has better maintained discipline, allowing Abe to join talks on the U.S.-led Trans-Pacific Partnership trade deal, a policy opposed by many in the farming lobby that has traditionally backed the LDP.

“There’s a bunch of people in the LDP who are anti-TPP down the line, but they’re not saying anything,” said Steven Reed, professor of political science at Chuo University in Tokyo. Election defeat taught the party a lesson in unity, he said, although it remains to be seen how long that will last.

The LDP’s coalition partner New Komeito is wary of Abe’s ideas on changing Japan’s pacifist constitution and beefing up the military in the face of ballooning public debt and social security payments.

While there is no immediate challenger for the leadership, advocates of fiscal stimulus like Finance Minister Aso and former industry minister Toshihiro Nikai could potentially form a rival focus within the party, Iio said. Aso has said Abe’s 2 percent inflation target will not be easy to achieve.

Opposition Regroup

In the longer term, the opposition parties will regroup due to public demand for an alternative to the LDP, according to Ichiro Ozawa, president of the People’s Life Party and former leader of the DPJ.

“There is a great desire among the Japanese people to have another option,” he told reporters yesterday. “By the time of the next general election there will be movement to create this. There will definitely be another change of administration.”

In the meantime, Abe must work fast if he is to avoid deflating expectations for his growth plans that have pushed the Nikkei share average up 43 percent since he took office.

“Abe has a very short window from July 21 until early next year, when the budget is passed,” said Gerald Curtis, professor of political science at Columbia University in New York. “If he’s going to do anything that’s bold it has to happen during this period.”

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: Rosalind Mathieson at rmathieson3@bloomberg.net

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