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Economy

Japan's Abe calls snap election

PM cannot afford complacency as Tokyo Gov. Koike launches nationwide party

Japan's Prime Minister Shinzo Abe speaks at a news conference in Tokyo on Sept. 25. (Photo by Koji Uema)

TOKYO -- Japan is set for an October election. At a news conference on Monday evening, Prime Minister Shinzo Abe officially announced his intention to dissolve the lower house at the beginning of the extraordinary Diet session starting Sept. 28.

Earlier in the day, Abe had instructed cabinet ministers at a meeting of the Council on Fiscal and Economic Policy to prepare a 2 trillion ($18 billion) stimulus package for the end of the year.

Abe's campaign will focus on education and constitutional amendment. The prime minister intends to partially reassign the revenue gained from a consumption tax hike in October 2019 from paying off government debt to providing free education, while also adding language recognizing Japan's Self-Defense Forces to the constitution.

At the news conference, the prime minister laid out how basic policies on North Korea and ways to boost Abenomics would form part of the Liberal Democratic Party's manifesto.

The campaign period gets underway on Oct. 10, with polling day set for Oct. 22. On Monday afternoon, Abe met Natsuo Yamaguchi, the leader of junior coalition partner Komeito, to inform him of the dissolution. He also attended a special board meeting of the LDP to make sure the party was ready for a snap election.

The new stimulus package focuses on providing free education and parenting support. The administration will set 2018 to 2020 as the reform period for "a productivity revolution," in order to strengthen the foundations of the country's economy.

Raising the consumption tax from 8% to 10% will result in over 5 trillion yen worth of extra revenue. The government had originally earmarked 4 trillion yen to pay off government debt, and another 1 trillion yen for social services. The new plan sees the same amount split fifty-fifty across the two policy areas.

The previous budget for social services was limited to medical treatment, caregiving, pensions and child care, but will now likely include expanding the provision of free higher education.

Having lowered the amount allocated to paying off debt, the government will push back its 2020 target for regaining a primary balance surplus. The administration will not set a new date until it has devised an updated fiscal consolidation plan.

Abe made a proposal in May for an amendment that would retain the 1st and 2nd paragraphs of Article 9 of Japan's constitution, but add language recognizing the country's Self-Defense Forces. Writing the SDF into the charter's war-renouncing Article 9 would eliminate the persistent constitutionality question that has dogged the institution since its inception after World War II.

Opposition parties will now scramble to put together a challenge. Wasting no time at all, Tokyo Gov. Yuriko Koike unveiled the name of her new party as "Kibounoto," or "Party of Hope." Koike will remain in her position while leading the party as it fields candidates nationwide. "We need a reformist party in the truest sense," Koike said.

After suffering a significant decline in support, the Democratic Party, the largest opposition group, is considering a merger with the Liberal Party ahead of the election.

"The only reason Abe is up for a snap election is that he is confident of a win," said Hajime Yoshimoto, a senior economist on geopolitics at Nomura Securities. The general public seems to agree. According to a Nikkei/TV Tokyo survey conducted between Sept. 22 and 24, the LDP enjoys support levels of 44%, no other party in the Diet has more than 10%.

That is despite the fact that 56% of those surveyed did not think it appropriate to dissolve the lower house at the beginning of an extraordinary Diet session. The survey also showed Abe's cabinet has the support of 50% of the voters.

"Two to three months ago, foreign investors were worried about Abe losing his post in an 'Abexit.' But the LDP would have to lose its majority in order for that to happen, which is highly unlikely," Yoshimoto said.

The bond market seems unperturbed by the decision to postpone the target period for achieving a primary balance surplus. With the Bank of Japan's yield-curve control policy, the country's long-term rate stands around the 0% range.

"The postponement was expected by the market," said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities. "But Japan's fiscal consolidation will not get any better through this election," he warned as both the LDP and the opposition insist on more spending.

Masayuki Yuda contributed to this article.

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