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Next innings

5 December 2014 By Andy Mukherjee

Shinzo Abe could be heading for a landslide election win. A big victory for the Japanese prime minister would revive investor confidence in Japan’s economic reforms and help shore up his anti-deflation campaign.

According to most recent projections by Japanese media, Abe’s Liberal Democratic Party (LDP) could garner 300 or more of the 475 seats in parliament’s lower house in the Dec. 14 poll. Including the smaller Komeito party would almost certainly take the ruling alliance above the 317-seat threshold it needs for a super majority with veto powers over the upper house.

A convincing win for Abe would be something of a surprise. The prime minister was forced to call the snap poll barely two years into his term after an April increase in Japan’s sales tax tipped the economy into a recession. Abe’s own popularity was slipping before he delayed a planned second increase in the tax by 18 months and sought a fresh mandate.

A resounding re-election would weaken internal challenges to Abe’s leadership from within the LDP. That in turn would give him wiggle room to push through unpopular reforms. Among other things, he needs substantial political capital to dismantle high tariff barriers on rice, wheat, beef, pork, dairy and sugar – products the powerful domestic farm lobby considers to be highly sensitive.

Concessions on agriculture are crucial for the success of the 12-country Trans-Pacific Partnership trade pact. Not only will the TPP make Japan’s own agriculture more competitive, it will also gain the country’s manufacturing exports a bigger share in world markets. Only then will the helpfully low yen persuade investors – both domestic and foreign – to build new factories in Japan.

New investment would create jobs, boost wages and make a permanent end to deflation possible. Higher tax revenue could also bring the government closer to the daunting goal of eliminating its primary budget deficit by 2020.

Voters might choose LDP for a more prosaic reason: the opposition doesn’t offer a credible alternative. Nevertheless, as long as Abe interprets the victory as a go-ahead for tough reforms, investors, who have pushed the TOPIX stock market index to a seven-year high, will have their renewed faith in Abenomics confirmed.

 

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