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Election Win Could Allow Japan's Abe to Push Through Reforms

Japan's Prime Minister and the leader of the ruling Liberal Democratic Party (LDP), Shinzo Abe (C) makes an appearance before the media at a news conference following a victory in the upper house elections by his ruling coalition, at the LDP headquarters
This week's sweeping election victory by Japan's ruling coalition could give Prime Minister Shinzo Abe a chance to implement some of the more politically difficult parts of his so far successful economic policy known as "Abenomics," analysts say.

Prime Minister Abe's Liberal Democratic Party and coalition partner New Komeito won control of both chambers of Japan's parliament in elections Sunday. It's the first time in three years the ruling bloc has taken control of both houses.

The conservative coalition could retain a parliamentary majority for the next three years, bringing on what would be a rare period of political stability in a country that has cycled through seven prime ministers in the past seven years.

The victory is seen by many as an endorsement of Mr. Abe's three-part plan to re-energize Japan's stagnant economy.

Encouraging early results for 'Abenomics'

The first two "arrows" of Abenomics - aggressive monetary easing and massive stimulus spending - have achieved encouraging initial results. Stock markets have surged, business confidence is improving, and Japan posted an annualized growth of 4.1 percent in the first quarter of 2013.

But the third and most politically tricky arrow of Abenomics - encouraging long-term growth through structural reforms - has yet to be fired, says Jeff Kingston, the Director of Asian Studies at Temple University in Japan.

"The first arrow in Abenomics, quantitative easing - you know, increasing the money supply - that doesn't hurt anybody. Spending lots of money on fiscal stimulus - the second arrow - doesn't hurt anybody," he tells VOA.

"But structural reforms are going to hurt certain sectors of the economy, and these people are going to dig their heels in. And their party is Abe's party. So there's going to be some interesting battles looming in the next few months," he said.

Tough decisions ahead

Among the looming issues for Mr. Abe is whether to go ahead with the tough agricultural reforms that could be necessary in order for Japan to join the Trans Pacific Partnership free trade agreement.

Heavily subsidized farmers, who make up an important constituency for Mr. Abe's LDP, are reluctant to open Japan's economy to foreign competition. They want assurances that the elimination of tariffs on imports would not destroy their livelihoods.

Mr. Abe must also decide whether to continue pushing for a controversial sales tax increase from 5 percent to 8 percent. The tax hike would help Japan deal with its soaring national debt, but has proven unpopular with many voters.

Following Sunday's election, Mr. Abe acknowledged these steps will not be easy. "Bold deregulation and structural reform, TPP negotiations, and raising consumption taxes, all these are difficult tasks," he said. "But I must make a decision for the future of Japan."

Election win could help advance reform agenda

But if ever there were a time to push through such wider structural reforms, it would be now, says Masamichi Adachi, a senior economist at J.P. Morgan in Tokyo.

"It definitely makes it easier for Prime Minister Abe to go through (with these tougher measures)," he says. "Because almost all important measures need to get approval from both the lower house and upper house."

However, Adachi tells VOA that it remains to be seen whether Mr. Abe will spend the political capital necessary to go ahead with sweeping reforms.

"The reform agenda is still difficult. Even though I say there's a high possibility Abe will go through with this agenda, this should be a very painful path for him and the country as a whole," he says.

VOA's Victor Beattie contributed to this report