Second Abe Poll Win Would Jump Start Reform Drive, Aide Says

Japanese Prime Minister Shinzo Abe would view a victory in next week’s election as an endorsement of his economic policies and speed up reforms that have fallen behind schedule, a top aide said in an interview.

“If we receive a mandate in this election, Prime Minister Abe will gain a great deal of power to move forward with reforms,” Deputy Chief Cabinet Secretary Hiroshige Seko said at the prime minister’s official residence on Dec. 5. “Where progress has been a little slow, it will mean a leap forward.”

Abe’s Liberal Democratic Party could gain a two-thirds majority in the lower house of parliament after the Dec. 14 election even without its coalition partner, according to a forecast by the Mainichi newspaper. That could give him as long as four more years in office, extending a window of opportunity to push through economic changes he promised when he took office two years ago.

Since his election, Abe has implemented a policy of unprecedented monetary easing that weakened the yen and sparked a boom in stock prices and corporate profits. While fiscal spending has helped maintain domestic demand, progress has been slow on the third leg of his “Abenomics” economic package: structural reforms that economists say are needed to make Japan more competitive.

Seko declined to say which areas would be given priority. Reforms to the labor market, tax structure and immigration will be the focus of intense investor interest after the election, Robby Feldman, Chief Japan Economist at Morgan Stanley MUFG Securities Co. in Tokyo, said in a report last month. Feldman credited Abe’s government with a good performance in reform of corporate governance and agriculture.

Sales Tax

Abe announced the vote on Nov. 18, a after data showed an April sales-tax increase had choked consumer demand and unexpectedly pushed Japan into recession. Revised data issued today showed the contraction was worse than initially thought. The tax boost had been adopted by the previous government and in announcing the election, Abe suspended a second increase in the levy slated for October 2015.

“The results of two years of Abenomics are completely different from Prime Minister Abe’s bragging,” said Tetsuro Fukuyama, policy chief of the main opposition Democratic Party of Japan in a faxed statement after the gross domestic product figures were announced. “Anyone can see that Abenomics is collapsing.”

The government underestimated the impact the hike would have on the economy, Seko said. Formulating the extra budget promised by Abe will be the top priority after the election, he said.

Stimulus Plan

“Of course we will do this as soon as possible. The end of the year is one target,” Seko added. He declined to comment on the size of the economic stimulus package. Abe adviser Etsuro Honda said last week Japan needed a 4 trillion yen extra budget, compared with a 5.5 trillion yen package a year ago.

Correcting a strong yen “that had gone too far” has been one of the most important achievements of the Abe administration to date, Seko said. Abe’s policy of unprecedented monetary easing has pushed the yen to a seven-year low, with the currency trading at about 120 to the dollar from levels around 80 yen when he took office.

While the Topix stock index has risen about 80 percent since his first election victory and profits at corporations like Toyota Motor Corp. and Fuji Heavy Industries Ltd. have boomed as a result of the weaker yen, Seko acknowledged that the resulting rise in fuel and raw material prices was hurting some smaller businesses. About 300 companies have gone bankrupt so far this year due to the weaker yen, three times the number in the same period last year, according to Teikoku Databank.

GDP Data

Revised data issued today showed the economy is in a deeper recession than previously thought.

“The results of two years of Abenomics are completely different from Prime Minister Abe’s bragging,” said Tetsuro Fukuyama, policy chief of the main opposition Democratic Party of Japan in a faxed statement after the gross domestic product figures were announced. “Anyone can see that Abenomics is collapsing.”

The government plans to pressure larger companies to allow suppliers to pass on price increases, Seko said. A panel will also review government policies to help firms cope with fuel price rises, he added.

Constitutional Change

Abe’s coalition has been forecast to retain the “super-majority” that allows it to over-ride decisions in the upper house. If he gains a similar majority in the less powerful upper house in the next election in 2016, he might have enough support to seek to amend the U.S.-imposed pacifist constitution as part of his long-held aim to strengthen the country’s defense posture.

“I do not think the results of this election will spark any sudden moves relating to the constitution,” Seko said. “Prime Minister Abe has shown over the past two years the policies that need to be enacted, including non-economic policies like security and education. If he gets a mandate in this election, he will simply proceed with those policies.”

The election has attracted relatively little interest among voters, polls show, and turnout could fall below 2012’s postwar low.

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