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Japan's Prime Minister Shinzo Abe pins rosettes on the names of winning candidates as the results of the general election are announced on Oct. 22.   © Reuters

Overconfidence emerges as Abe's biggest risk after opposition sink

Economy, constitutional amendment remain key challenges despite victory

GAKU SHIMADA, Nikkei staff writer, and KAZUKI KAGAYA, Nikkei senior staff writer | China

TOKYO -- Voters handed Prime Minister Shinzo Abe a landslide victory in Sunday's lower house election, allowing him another run at the helm and giving a significant boost to his long-running quest for constitutional reform.

But unlike after the last lower house election in 2014, which the ruling coalition also won by a landslide, Japan no longer has a major opposition party that can serve as a counterbalance to the powerful prime minister. Abe's dominance comes with various political risks.

"This is the first time in the Liberal Democratic Party's roughly 60-year history that we have won three consecutive victories in the general election under the same party president," Abe said proudly at a news conference on Monday. He stressed that his top priority was to realize a social security system that benefits citizens of all ages, using a consumption tax hike planned for October 2019.

Since the U.S. presidential race last year, anti-establishment forces have gained momentum across the West with the support of disillusioned voters. But the Japanese people on Sunday chose to carry on with business as usual.

Japanese voters were less likely to reject the establishment than their Western counterparts because inequality in Japan is not as pronounced, according to Keio University professor Yuichi Hosoya. Although critics have pointed out the growing gap between rich and poor in Japan, Abe has adopted a number of policies designed to address the issue, including the same-pay-for-same-job policy, which has been advocated by opposition parties.

The coalition of Abe's LDP and Komeito together won the two-thirds majority needed to propose a constitutional revision.

The decisive victory has also greatly increased the chance that Abe will be selected as LDP president for a third consecutive time in party elections next fall, which would keep him at the helm until the fall of 2021.

Opposition implodes

While Abe masterfully addressed the public's concerns, the opposition completely fell apart. Tokyo Gov. Yuriko Koike set up her new Kibo no To, or Party of Hope, on hopes of bringing down Abe. But the party ultimately won just 50 seats in the lower house, down from the 57 held before.

The Constitutional Democratic Party, has emerged as the leading opposition party with 55 seats, up from the 15 held before the race.

But, party leader Yukio Edano on Monday said that he was not interested in another realignment of opposition groups, and was looking instead to grow his party. If the opposition fails to form a united front, Japan would be one step further from having two major viable parties instead of the current LDP-dominated system.

Hanging by a thread

Still, the public's dissatisfaction with Abe has not disappeared. Take the Tokyo assembly race in July, when the LDP suffered a crushing loss to Tomin First no Kai, a regional party led by Koike promising to put "Tokyoites first." One misstep could bring these frustrations back to the surface.

Abe's virtually unchallenged tenure has also bred a certain sense of complacency. When questioned about an alleged favoritism scandal involving school operators Moritomo Gakuen and Kake Educational Institution, Abe initially tried to talk his way out by vehemently denying any wrongdoing.

"I support the LDP, but am not a fan of Mr. Abe," one LDP lawmaker said, summing up sentiment among some voters. Opinion polls conducted during the campaign also showed more people disapprove than approve of the current cabinet. Public opinion can still easily turn against him.

It would be easy for Abe to postpone painful but necessary reforms to appease the public. Both the LDP and the opposition "backed myopic redistribution policies," said Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research.

"We cannot delay reforms any longer," Hosoya, the Keio University professor, said. "The question is how Abe would carry them out without giving in to populist pressure."

An aging population has led to ballooning social security costs in terms of pensions, health care and nursing care, squeezing the country's finances. Parties need to spend their political capital addressing medium- and long-term problems, such as the consumption tax, for the sake of Japan's future. At any time, Japan could be swept up by the same anti-establishment wave sweeping through the West.

Mounting problems

For the rest of his term, Abe will be working to complete his signature Abenomics policies, on which he has spent considerable energy. He pushed measures on Japan's aging population to the forefront on Monday, with plans to iron out by the end of the year a "package" of policies from free preschool to reallocating the expected revenue from the planned tax hike for that purpose. He is also eager to eradicate deflation, which was the original goal of Abenomics, but that depends on whether higher wages lead to higher consumption, and whether his reforms can lift Japan's potential growth rate.

"The key to sustainable growth is to address the aging population," Abe said Monday while discussing the economic focus of his new cabinet.

"We will fuel a further rise in wages across the entire country through productivity reforms in order to defeat deflation," he said.

For help achieving this, he intends to carry on with the monetary easing started by the Bank of Japan in 2013. BOJ Gov. Haruhiko Kuroda's term will end in April 2018. Abe aims to submit his nomination for a successor to a regular session of the Diet next year.

Despite the economy's strength, inflation still languishes below the central bank's 2% target, and wages remain stagnant even amid a labor shortage. Abe's flagship economic program has not generated the hoped-for virtuous cycle of rising individual incomes fueling consumer spending, thereby boosting corporate earnings.

Regulatory reform and productivity growth are vital to ensure continued economic expansion. Reforming work practices, in particular, is urgently needed. Passing relevant legislation in the pipeline, including a proposal that would allow compensation for white-collar workers based on results rather than time worked, will be key to this effort. The government plans to include measures to promote productivity growth in a supplementary budget for fiscal 2017.

Abe plans to promote policies that aid households rearing children at the expense of delaying debt repayment. The consumption tax needs to be raised from 8% to 10% to pay for them. Plans for free education will also be hashed out this year. The policy package will be gradually incorporated into the national budget starting in fiscal 2018. The prime minister aims to earmark roughly 2 trillion yen ($17.6 billion) for full implementation in fiscal 2020, the first full fiscal year after the consumption tax goes up.

But this comes at the expense of fiscal consolidation. Tax revenue being used to fund the package was originally meant for debt repayment. The change will make it next to impossible to achieve the government's goal of a primary surplus -- meaning that all spending aside from debt servicing can be covered with revenue alone -- in fiscal 2020. A new target will need to be set.

A softer touch

Abe's efforts to revise the pacifist constitution to explicitly recognize the Self-Defense Forces will serve as another test of whether the prime minister can meaningfully strengthen his support base.

Since the LDP extended the term limit for party president to three consecutive three-year terms, Abe -- who returned to the post in September 2012 -- can serve as prime minister until the autumn of 2021 at the latest. This means that he is already past the halfway point of his time in office. A source close to Abe named changing the charter alongside beating deflation as the prime minister's twin goals for the second half of his tenure.

But the prime minister made clear in a news conference shortly after the election that he has no intention of plowing ahead with revision. "There's no predetermined schedule," he said. "We must make an effort to form a broad consensus without distinction between ruling and opposition parties."

The nosedive in support for Abe's cabinet caused by a lack of accountability for the Moritomo and Kake scandals attests to the risks complacency poses to this administration. The prime minister seeks to counter this danger by projecting an image of humble and respectful governance.

Abe said May 3 -- the holiday marking the anniversary of the constitution's taking effect -- that he hoped to see a revised charter in place in 2020. This comment was received with dismay by Komeito, which is still ambivalent about the idea. The LDP's thrashing in the Tokyo legislative election this July forced Abe to tone down his enthusiasm. A number of opinion polls still show no public consensus that changing the constitution is necessary.

Abe is likely keen to avoid a similar misstep. Even with the necessary supermajority in the lower house, the prime minister has nonetheless stressed cooperation with opposition parties. With the ruling coalition short on seats in the upper house, the hope -- according to a source close to an Abe deputy -- is that the process will go faster if the opposition is involved from the outset.

The ruling bloc is likely to find allies among the Party of Hope and Nippon Ishin no Kai, or the Japan Restoration Party, which also favor revising the charter. But reaching a consensus on what changes to make and how to phrase them will still be no simple task.

The anti-revision Constitutional Democrats' position as the largest opposition party in the lower house may affect the debate as well. "This is politics, so naturally we can't get their understanding on everything," Abe said.

The devil they know

The prime minister must also reckon with the impact of the constitution debate on relationships with neighbors.

Some Japanese voters likely supported the Abe government for its defense spending to "protect Japan" in the face of the threat from North Korea's nuclear and missile programs. However, the ruling coalition's sweeping victory has produced mixed feelings in China and South Korea, which expect to have an easier time improving ties with the same government in place but are also wary of a tilt to the right.

Chinese Foreign Ministry spokesman Geng Shuang expressed such sentiments in a news conference, asserting that Beijing "attaches importance to developing China-Japan relations" and hopes that Tokyo will "take concrete actions to stabilize and improve bilateral relations." But he also obliquely warned Japan against changing its charter, saying Beijing "would like to see Japan remaining on the path of peaceful development and playing a constructive role in regional peace and stability."

Similarly, a representative of South Korea's Foreign Ministry expressed hope that Abe's next cabinet will "face up to history" and continue working with Seoul to develop a "future-oriented, mature cooperative partnership." But concerns are cropping up in media and political circles that the election result will add momentum to discussion of constitutional amendment.

Nikkei staff writers Hiroshi Minegishi in Seoul and Issaku Harada in Beijing contributed to this report.

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