Japanese PM likely to focus on further reforms: experts

By Belgin Yakisan Mutlu and Burhan Sansarlioglu

ISTANBUL

Japanese Prime Minister Shinzo Abe has a golden opportunity to make structural changes in the country and continue economic progress, specialists said on Tuesday.

This weekend, Abe's Liberal Democratic Party (LDP) and coalition partner Komeito won the snap elections for Japan's lower house of parliament and secured a two-thirds majority of 465 seats.

"Shinzo Abe’s decision one month ago to call snap elections has paid off handsomely," Mickey Levy, chief economist for the Americas and Asia at Berenberg Capital Markets, told Anadolu Agency.

"This increases the chances that Abe will succeed to reform Japan’s pacifist constitution, enabling Japan to take a more assertive approach to foreign policy," Levy said.

Levy added that two thirds of lawmakers must back any proposed revisions to alter the Japanese constitution which must then be supported by a majority in a national referendum.

"In the economic sphere, Abe will likely step up his fiscal and supply-side reform efforts which have raised Japan’s potential growth," he noted.

According to OECD, Japan's economy, which is the third largest in the world, grew 0.34 percent in 2014, 1.07 percent in 2015, and 1.04 percent last year.

"The economy is growing faster than [its] potential," Levy said. "The economy's outperformance is reflecting the labor force and productivity."

Since 2009, the country's unemployment rate has been falling gradually, from 5.07 percent to last year's figure of 3.12 percent.

"Further reforms and an aggressive monetary policy will likely set the stage for the Japanese economy and its financial markets to sustain their recent positive momentum," Levy added.

- Ease monetary policy to continue

"In terms of policy, the election victory means that Abe is more than likely to move forward with his plan to amend the constitution," Sian Fenner, senior Asia economist for Oxford Economics, told Anadolu Agency.

Fenner pointed out that the economic situation was the status quo, and said: "At the moment, the LDP still plans to raise the consumption tax from 8 percent to 10 percent in October 2019."

"However, Abe has delayed this twice before and we still do not think it is a sure thing," she said. "Abe has sweetened the deal with his plan to divert revenue raised from the higher tax to child care placements and free education to low income households."

"The election win is likely to be viewed positively by markets in that the BoJ’s [Bank of Japan] aggressive monetary policy stance is here to stay," Fenner said.

Since the late 1990s, Japan has been fighting with continuous fall in consumer prices -- deflation -- and it is expected that the BoJ to continue with its ultra-ease monetary policy in accordance with the country's inflation targeting at 2 percent for a higher economic growth.

According to OECD, the annual inflation rate was minus 0.1 percent last year while it was 0.8 percent in 2015. In the last 30 years highest rise in consumer prices was recorded in 1991 (up 3.3 percent) and the steepest fall was seen in 2009 with minus 1.4 percent annual inflation rate.

"It will be hoped that Abe will use his super majority to enact further structural reforms, albeit in the five years since Abenomics was introduced progress has been gradual," Fenner said.

"But, as our previous modelling shows, a bigger reform push could reap large benefits, nearly doubling the pace of longer-term growth," she added.

*Muhammed Ali Gurtas contributed to this report from Ankara