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Can Japan make light of latest new dawn?

Update: December, 21/2012 - 09:34

by Mai Phuong

 

Japan's Liberal Democratic Party (LDP) leader Shinzo Abe speaks at a press conference in the LDP headquarters in Tokyo on Monday. The incoming Japanese prime minister came out fighting after his sweeping election victory, saying there can be no compromise on the sovereignty of islands at the centre of a dispute with China. — AFP/VNA Photo
Three years after a crushing defeat, the landslide victory of the Liberal Democrat Party in the recent election has pushed Japan – the third-largest economy in the world - into a new era that will decide the future of both national development and regional security.

Sunday's victory marked a return to power for the party's leader Shinzo Abe, along with a re-energized conservative administration and the departure of Yoshihiko Noda.

The LDP led the polls in the run-up to the election by an overwhelming majority, gaining 294 seats in the 480-seat lower house of parliament. By campaigning heavily for fiscal stimulus and reform at the central bank, promising to stimulate Japan's struggling economy, Abe carried his party to victory.

Choosing the economy as his top campaign priority was a wise decision, as the country is in its fourth recession since 2000 and declared its fifth recession last week.

Abe pledged to put Japan's moribund economy back on track after years of deflation, made worse by a soaring currency that has put significant pressure on exporters.

Topping his agenda was a promise to pressure the Bank of Japan (BoJ), which holds a policy meeting this week, into more aggressive easing policies aimed at kickstarting growth.

With a monetary policy that many call aggressive, the new PM is stirring up a war against the deflation which has been worsening for nearly 15 years, resulting in falling wages and a continuous increase in unemployment.

The new government is regarded as more pro-business than the current government, according to analysts – a positive sign for the market.

Immediately upon winning the election, the incoming prime minister reportedly asked the BoJ governor to set an inflation target of 2 per cent, higher than the current goal of 1 per cent, as part of a more aggressive fiscal stance.

Business and fund managers welcome the accompanying financial stimulus, although they warn political change will not act as a magic bullet.

Abe has vowed to end the deflation by ending the falling prices through "unlimited" bond purchases by the Bank of Japan; classical economics would argue this would create inflation expectations, which would translate into consumption and in turn boost economic growth.

The recent rise in the stock market after the weekend election looks promising for the whole monetary market, although it is still early for optimism.

Investors cheered the return to power of the business-friendly LDP as the yen plunged on speculation of more central bank easing, boosting exporters' shares.

The LDP is viewed as more pro-nuclear than the ousted Democratic Party of Japan, which had pledged to work towards a nuclear-free country in the wake of last year's atomic crisis.

The new ruling party is likely to move towards resuming operations of some nuclear power plants.

There is a growing doubt whether plans to eradicate nuclear power in Japan by 2030 will be supported by the pro-nuclear conservative party, which has so far been indecisive about the issue.

In the plan set out by the defeated DPJ, nuclear energy was to gradually be removed from the country's energy mix. Existing reactors would be limited to 40 years of operation and the construction of new plants would be prohibited.

On the issue of foreign relations, the new PM is expected to make efforts to repair Japan's relationship with the US and avoid escalating tensions with China, following the conflict over the Diaoyu/Senkaku islands.

However, many analysts said that the victory of the LDP with Abe coming back as prime minister, "will probably mean an escalation of tensions with China. Both countries are embarking on a fresh burst of nationalism, but for different reasons".

The return of conservative Abe has raised hopes in Washington for closer security ties, although US officials hope he keeps a lid on his more strident views.

A champion of revising the post-World War II pacifist constitution Abe may take shorter-term steps such as boosting defence spending and allowing greater military co-operation with the United States.

James Schoff, a former Pentagon official who is a senior associate at the Carnegie Endowment for International Peace, is quoted by AFP as saying Abe's effort on defence could be "a net benefit for everyone" if Japan complements the US.

"But if the focus is more toward building up offensive capabilities vis-a-vis China, that's going to create probably more problems than it's worth from a US perspective," he said. — VNS

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