Japanese Economic Update – 24 November 2014

Shinzo Abe defers sales tax increase, dissolves parliament and calls for snap elections

Just days after the Japanese economy was revealed to have slipped back into recession during the previous quarter, Japanese Prime Minister Shinzo Abe announced that the second sales tax hike scheduled for October 2015 would be deferred until 2017, before sparking another round of elections with an order that parliament be dissolved.

It is believed that the Prime Minister has deferred the increase in sales taxes from 8% to 10% until 2107 in order to bolster support for the current cabinet as he intends to use another round of elections to seek public approval for his “three arrows” program of stimulus and structural reforms.

In addition to the economic agenda behind the elections, the Prime Minister is also believed to be seeking a public consensus on several controversial policies that have been tabled by his government. The first of these being the reinterpretation of the Japanese pacifist constitution, which will allow the nation to take part in future overseas military campaigns.

The second is the domestic decision to restart the nation’s nuclear reactors following the Fukushima disaster in 2011. This is a particularly sensitive subject in Japan given the damage caused by the Tsunami and the consequent impact upon the Fukushima plant’s nuclear reactors.

While many people died as a result of the tragedy, energy costs have soared in Japan since 2011 as the nation has been almost entirely dependent upon electricity imports which have been made more expensive by the stimulus driven depreciation of the yen.

The two policies are believed to be the main factors behind a slide in public approval ratings for Shinzo Abe, although the Prime Minister and his party still remain the most popular by a comfortable distance.

The NIKKEI went largely undeterred by the announcement as the elections are thought to pose little threat to Abe’s premiership. While this may be the case, it is possible that if a sufficient number of voters prove to be disenchanted with the incumbent leadership, the coalition government could lose its parliamentary majority; therefore hampering progress by making further reforms more difficult to pass.

The elections are due to be held on 14 December 2014.





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