Japan electoral win brings pressure for reform

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By ELAINE KURTENBACH, Associated Press

TOKYO (AP) — After winning control of both houses of parliament, Prime Minister Shinzo Abe's government has the potential to be one of Japan's most influential and effective administrations in years.

Abe devoted the first seven months of his premiership to convincing a public weary of revolving door prime ministers that he has the wherewithal to lead a revival in the world's No. 3 economy and deserves a strong legislative mandate.

He now faces the challenge of adding substance to a recovery that so far amounts to little more than the smoke and mirrors of a surging stock market and one quarter of improved economic growth.

If it were easy, the reforms Japan needs would have been executed long ago.

Preliminary results from Sunday's election show Abe's Liberal Democratic Party and its coalition partner the New Komeito took a combined 76 of the 121 seats up for grabs in the 242-member upper house. Together with the seats they already held, they now have a combined 135 seats. The ruling bloc now has control of both chambers for the first time in three years, removing a roadblock to implementing its economic reform agenda.

Abe characterized the largely expected outcome as an endorsement of his "Abenomics" strategy aimed at wresting Japan from two decades of economic doldrums and political gridlock, but acknowledged the hard work lies ahead.

"What the people really want is to get the economy back to recovery across the country," Abe said Monday. "The severe scrutiny of the public is focused on us. We have to ensure we live up to their expectations," he said. "Today is the real start for us."

Since Abe took office following a lower house election victory in late December, aggressive monetary easing and government spending have helped pull the economy out of recession, as share prices surged and exports gained competitiveness thanks to a weaker Japanese yen.

In that effort, Abe has a powerful ally in central bank governor Haruhiko Kuroda, who committed the Bank of Japan to aiming for inflation of 2 percent within two years, vowing to end years of debilitating price falls to get growth back on track.

The economy appears headed for what Kuroda has called a "moderate recovery. It grew an annualized 4.1 percent in January-March, which along with the rising stock market has helped keep Abe's popularity ratings at robust levels of between 50 to 60 percent.

But economists say deeper, more far-reaching changes are needed to sustain growth, boost Japan's competitiveness and adapt the nation's institutions to its fast-aging population and a ballooning national debt.

"I think the honeymoon's over," said Jeff Kingston, head of Asian studies at Temple University in Tokyo. "The difficulty, it's going to be to make reforms happen."

In just a few months, Abe will face a decision on whether to raise sales tax from 5 percent to 8 percent, a move many worry could derail the recovery but is vital for Japan's financial health.

The muted reaction in Japan's financial markets Monday, with the Nikkei 225 stock index yo-yoing to end the day up just 0.5 percent, reflects the election's largely expected outcome, and also the widespread awareness of the obstacles ahead.

"We face a slew of difficult problems," Abe told reporters Monday. "But for the sake of Japan's future, we must tackle these issues."

The Liberal Democrats led Japan for most of the post-World War II era, presiding over the transformation of a defeated and devastated nation into a "miracle" of export-led industrialization. That model of growth is no longer viable for a post-industrial nation whose population is shrinking and aging and whose manufacturers have had to shift factories overseas in order to survive.

The Japanese face daunting challenges to maintaining an enviably high standard of living and vibrant democracy.

Farmers, the ruling party's traditional bedrock of support, are aging and abandoning their fields, while young, urban Japanese face dim job prospects and declining incomes — and the prospect of a government bankrupted by costs of supporting a huge elderly population.

Abe's plan to restore Japan's greatness calls for a strong economy, pragmatic diplomacy and unshakable national security under the Japan-U.S. alliance, which allows for 50,000 American troops to be stationed in Japan.

For now, the hawkish Abe appears to be setting aside the nationalistic agenda he had to shelve when he resigned from his first term in office, in 2006-2007, for health reasons.

Abe favors revising the country's pacifist constitution, drafted by the United States after World War II, to give Japan's military a larger role. Such a prospect alarms China, which suffered invasion and occupation under Japan's imperial troops a century ago.

Abe indicated Monday that the legal groundwork for such changes has yet to be laid, and that the economy would take priority.

But the Liberal Democratic-led government is certain to adopt a strong defensive posture in territorial disputes with South Korea and with an increasingly assertive Beijing.

"As the security environment surrounding Japan has grown tougher, we have to think about what we need to defend Japan from outside threats," Abe said.

Revising the constitution would require two-thirds approval by both houses of parliament and a national referendum. Polls show the public are less interested in such matters than in reviving the economy and rebuilding areas of northeastern Japan devastated by the March 2011 tsunami, where very little progress has been made on reconstruction.

Abe has pledged to join the U.S.-led Trans-Pacific Partnership, a trade bloc whose ground rules will require Japan to eventually dismantle protections for farmers and to open its markets wider to foreign goods and services, including health services. Experts say it will take years for such reforms to be implemented, against strong opposition from powerful farm and medical lobbies.

Abe has also proposed major labor market and childcare reforms to keep more women in the workplace and is pushing for stronger English-language education and more educational exchanges to help Japan shore up its global competitiveness. But many of these changes risk angering key constituencies and may be stymied by stubborn bureaucratic resistance to change.

"It is not at all clear to me that they will have the strength to break the opposition of much of urban Japan, for example, to constitutional change, to labor market reform, to social security reform," said Ken Courtis, a former Goldman Sachs vice chairman and investment banker.

The relatively low turnout in Sunday's vote, the third lowest in the post-war era, suggests the Liberal Democrats have little margin for error.

"In reality what we have is a government with a more and more narrow electoral base committing to engage in reforms," Courtis said.

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Associated Press writers Mari Yamaguchi, Emily Wang and Miki Toda contributed to this report.

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