Japan Backs Shinzo Abe's Reforms

The decision to hold snap parliamentary elections in Japan appears to have been a shrewd move by that country’s reform-minded Prime Minister Shinzo Abe as his center-right coalition government won a major victory in these elections.  Prime Minister Abe made sure that voters in Japan considered this election to be a referendum on his government’s economic reforms, and so this victory will allow him to continue with his radical transformation of the world’s third-largest economy.  However, a sluggish economy, coupled with rising tensions in East Asia, are likely to make Prime Minister Abe’s next term in office particularly challenging.

As expected, Prime Minister Abe’s Liberal Democratic Party (LDP) won a crushing victory in these early parliamentary elections, winning 291 of the 475 seats in the lower house of the Japanese parliament.  As the LDP’s Buddhist-backed allies, the Komeito party, won additional 35 seats, the two-party coalition government will now control a two-thirds majority in the lower house, allowing them to push through major economic and political policy changes without the need for opposition support.  However, support for the LDP-led government remains relatively tepid, as evidenced by the record-low voter turnout of just 52% for these elections and the fact that its victory was due in now small part to the fact that the political opposition was unprepared to effectively contest these elections.

These elections were clearly a referendum on the economic reforms that Prime Minister Abe has enacted in recent years that have been designed to eliminate deflation in Japan and improve the country’s economic competitiveness.  Moreover, after witnessing the disastrous effect of this year’s sales tax increase on Japan’s domestic market, Prime Minister Abe wanted the voters’ backing for postponing the next planned sales tax increase in 2015.  Despite this year’s struggles, Japan’s economy appears move healthy than at any time in recent years, having overcome two decades of deflation and stagnation.  For this, Japanese voters have rewarded Prime Minister Abe with as many as four more years in office to continue to restore Japan’s economic fortunes and improve the country’s public finances.

One of the reasons why it was a clever move on the part of Prime Minister Abe to hold early parliamentary elections is the fact that the outlook for Japan’s economy and security is uncertain as 2015 approaches.  On the economic front, domestic demand will remain very weak in the coming year as Japanese businesses and consumers continue to deal with the impact of a higher sales tax and higher import prices.  Moreover, export demand will remain uneven in 2015, as slower growth in China and Europe’s continued slump hold back Japanese export growth from reaching its full potential.  As for Japan’s security situation, tensions with China over their shared maritime border in the East China Sea are likely to worsen in the coming year, forcing Prime Minister Abe to push for more changes to the country’s defense policies, something that his coalition partners are unlikely to agree with.  Altogether, Prime Minister Abe and his government will be happy to have won such a clear victory, but should harbor no illusions as to the magnitude of the challenges ahead.