- The ruling Liberal Democratic Party (LDP) and New Komeito coalition have secured an upper house majority by winning 76 seats in the July 21st House of Councilors election to reach the total of 135 seats together with the seats that were not contested this time (out of a total 242 seats). This has ended the state of a “divided National Diet,” allowing more stable management by the Prime Minister Shinzo Abe cabinet and the ruling coalition parties.
- On the other hand, the number of seats won by members who are hawkish and supportive of constitutional reform, from the LDP, Your Party, the Japan Restoration Party, etc., totaled 143 seats. This is far short of 162 seats needed to initiate constitutional reform. Since the Abe cabinet’s main aim, in reality, appears to be to establish a solid long-term government (or at least maintain a high poll rating), the constitutional reform issue will probably be sidelined in favor of implementing the economic revitalization plan. Constitutional reform could become an issue for the next upper house election in three years.
Data as of July 22, 2013
- Regarding the economic measures, we need to see whether the policy can be enacted after passing a parliamentary bill. Prime Minister Shinzo Abe has announced an extraordinary National Diet session as the venue for steady implementation of the growth strategy. Discussions on lowering taxes on investments are said to begin in August, sooner than initially planned. Relationships with China and Korea could remain tense despite the lack of emphasis on constitutional reform.
- Regarding the TPP (Trans Pacific Partnership), the focus would be on the sacrifices (not only regarding import tax) that Japan would have to pay, imposed by other member countries, in return for the exclusion of some protected sectors including agriculture. TPP members are targeting a basic agreement by October and aim to agree on any compromises by December to bring it to implementation. While the negotiations now seem to have been delayed, there is still time left before the deadline.
- Decision to raise the consumption tax is likely to be made in either September or October as planned, with the first phase of implementation in April 2014.
Major Political Economic Schedule in 2013
The Growth Strategy
- Prime Minister Shinzo Abe intends to implement his growth strategy under the legislative format of “the industrial competitiveness enhancement act (tentatively named)” by designating the next extraordinary National Diet session in the autumn as a “venue to implement growth strategies”.
- It would be very positive for the market if radical measures such as regulatory reforms to the employment system and agriculture, as well as a corporate tax cuts were implemented, but it is hard to imagine that such reforms would be implemented at the moment. However, even without such radical measures, we can expect a certain degree of effectiveness from each reform measure. From this perspective, the election win has created a solid base for the Abe government to work on implementing various policies. There is no longer a risk of legislation facing rejection in the Upper House, as we saw recently with the rejection of electric power company regulations and welfare regulatory reform.
- The new focus would be to what extent the Abe regime is able to implement measures by balancing the public and LDP coalition’s internal opinions.
- First will be the incentives for corporate investment (lowering taxes on investments) already announced as an additional economic measure. Current emergency economic measures implemented are a 30% extraordinary amortization and 3% tax allowance. Additional growth strategy measures to be examined include (i) possible refunding of corporation tax paid in previous years for losses stemming from disposal of property, plant and equipment, (ii) scheme for lump-sum depreciation, and (iii) extension of partial tax deduction program for research and development expenses. Although these would not be as effective as a uniform corporate tax cut, they are expected to have a certain positive effect on the corporate sector.
Note: the dotted part is the measures not touched in the Japan Revitalization Strategy
Data as of July 22, 2013
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