Japan’s PM Shinzo Abe Calls for Elections!

Well, here we go! Japan is headed to the polls. However why? People are confused at Prime Minister Shinzo Abe’s sudden call for snap elections.

Why? Well he is buying time for his policies called Abenomics to spur Japan’s long stagnant economy. Domestically with delaying the second part of the tax hike there was no eminent risk to his coalition. The main goal of his policies is to spur inflation, end deflation and kick start economic growth.

This means he has to increase wages, which are stalling even though we are seeing record corporate profits. Salaries only increased a meager 0.5 percent in September. This was biggest increase in over six years. Unemployment is low at 3.6 percent and we have seen two years of one percent growth here. Soon the unemployment rate will fall to a hot three percent. With this tight labor market, wages should begin to rise.

Third quarter gross domestic product (GDP) contracted by 1.6 percent. This follows the Q2 contraction of 7.3 percent and has sent Japan into another recession.

Another reason for his decision is that the lower house of the parliament is set to dissolve on November 21. A vote would come sometime in mid-December. Abe is playing the long game.

He is buying precious time for Abenomics. He is trying to increase his tenure as PM in a country which usually has a high turnover rate for ruling coalitions. Abe is justifying his decision to delay the sales tax hike and calling for early elections by saying there is a major shift in long term policy coming. He wants a fresh mandate for this.

He is also looking at next year’s leadership vote in his political party. The Liberal Democratic Party LDP) holds over 60 percent of the lower house. There is a lot of time between December’s lower house vote and the party leadership vote next fall.  In Japan a prime minister’s popularity declines over time. He knows he has no guarantee he will get the economic response he needs so he is buying time.

This is a smart move on Abe’s part. He also needs more support for less popular policy changes like the “collective self-defense” which would see Japan increasing its military. This year, Japan ended the ban prohibiting its military from fighting overseas. This was the first time since the end of the Second World War that the country made a sea change since its pacifist constitution.