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Sunday, Dec 16, 2012 1:00 PM UTC

Economic implications of Japan’s election

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Topics: From the Wires,

TOKYO (AP) — Many in Japan are hoping that the landslide victory of the opposition Liberal Democrats and trouncing of the Democratic Party in Sunday’s parliamentary election will help the country break out of a 20-year economic slump. Here is a summary of the possible economic implications of the coming change in leadership:

— ECONOMIC STIMULUS: Liberal Democratic Party chief Shinzo Abe, who is almost certain to replace Democrat Yoshihiko Noda as prime minister, favors raising spending on public works and setting a 3 percent economic growth target. He has lobbied for stronger action by the central bank to create more demand and break Japan out of its deflationary trap. Critics say that boosting deficit spending too aggressively, though, could undercut confidence in the government bond market, destabilizing Japan’s finances.

— TRADE: The Liberal Democrats back Japan’s involvement in the Trans-Pacific Partnership, a region-wide free trade initiative backed by the U.S., but demand protection from foreign competition for farmers and other traditional supporters. The party’s nationalist policies could hurt exports and industries with heavy investments in China, but powerful business interests — and the Liberal Democrats’ coalition partners in the Komeito — will likely push Abe to cool tensions with Beijing.

— REFORMS: The party says it will revamp Japan’s economic strategy but offers few details on overhauling the bureaucracy and other institutions. It plans corporate tax cuts to help make Japan the “most business-friendly country in the world,” but is conservative on such issues as labor market and social reforms offering more opportunities for women.

— ENERGY: Under pressure from the electricity lobby, the Liberal Democrats want to defer decisions on long-term energy strategy for a decade, raising questions over Japan’s commitment to using renewable energy to offset capacity lost with the closure of most nuclear plants following the disaster at the Fukushima Dai-Ichi plant in March 2011.

— COALITION: The Liberal Democrats’ likely coalition allies, the Komeito, are backed by small businesses and the lay-Buddhist organization Soka Gakkai. Komeito’s peace-oriented, anti-nuclear weapons stance could help balance Abe’s hawkish views. Komeito favors phasing out nuclear power over 40 years and opposes the TPP but supports other free trade pacts.

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