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Japanese voters will head to the polls on Oct. 22.

Party of Hope could be the devil's advocate the LDP needs

Tokyo governor's new party may not be all bad for Abe after all

TOKYO -- Although Japan's ruling Liberal Democratic Party considers the Kibo no To, or Party of Hope, a major threat ahead of a general election on Oct. 22, some have begun counting on the upstart party to voice controversial opinions that the LDP may not be ready to raise itself.

On Friday, Party of Hope chief and Tokyo Gov. Yuriko Koike announced that her party will pledge to create a tax on corporate internal reserves "in order to prompt a fluid movement of money." She claimed that the tax will encourage companies to spend more on capital investment, dividends and employee benefits instead of sitting on their cash.

The official government position is that such a measure amounts to double taxation, coming on top of the regular corporate tax. But "I appreciate that she is raising these questions," said one cabinet member in a economics related field.

Behind the scenes, some LDP members have also wanted to start a debate on an internal reserve tax. Although Abenomics has bolstered macroeconomic factors, like the ratio of job openings to seekers, much of the public has yet to see an improvement in their everyday lives.

Meanwhile, corporations held a total of 406 trillion yen ($3.61 trillion) in internal reserves as of the end of March, according to the Ministry of Finance. Although they are continuing to add over 20 trillion yen to the pile each year since Abe began his second stint as prime minister, Finance Minister Taro Aso said they have only spent 4 trillion yen on wage increases over the four years.

But the LDP is reluctant to actively support the tax ahead of an election, given its close ties to the business sector. It did not address the idea at all in its campaign platform.

An internal reserve tax "will not be a stable source of income," Prime Minister Shinzo Abe said Sunday, slamming Koike in a debate with other party leaders.

His comment suggests that while he may be opposed to the tax as a stable source of government revenue, he may consider it a tool to bolster Abenomics and encourage companies to make use of their cash. Regardless of whether he goes through with it, the debate alone could push corporations to raise wages in order to reduce their reserves. The Party of Hope would also be unable to oppose a measure it originally supported, even if the government uses it to boost Abenomics instead of tax revenue.

All of this depends on the outcome of the upcoming vote. If the LDP loses too many of the 290 seats it previously held in parliament's lower house, Abe's grip on the government will weaken, and his plans could fall apart.

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