What effect might the election have on the economy?

July 30, 2007
By Ken Worsley

Just a day after Newsweek published what I mentally dismissed as a fluffy, alarmist piece on the state of Japan’s economy (Japan’s markets are in danger of slipping back into irrelevance), the Nikkei has published an editorial with the title Ruling Party Defeat Bodes Ill For Economy.

The Nikkei has been as critical of Abe’s misguided economic policies as any other paper, so it surprised me a bit to not see them say that a ruling party victory could be just as bad for the economy. Nonetheless, the Nikkei has two reasons why the LDP’s crushing defeat may be bad for the economy: 1) It may cause “upheaval” in the stock market, and 2) It may slow the implementation of economic policy.

I thought Abe already took care of the second one, but Takahide Kiuchi, the author of this piece, seems unconvinced, stating, “There are worries that structural reforms and the trend toward fiscal health started by the Koizumi government will change.” I tend to think that those worries were already in place, and that however the DPJ’s takeover of the majority in the Upper House affects these issues, it would be hard for it to be worse than what Abe is already doing.

In truth, I don’t see this election having much direct effect on the economy at all. The Upper House is ceremonial, and the LDP supermajority in the Lower House means they can override any rejections from the Upper House. If the Lower House can get its act together and approve next year’s budget within thirty days of convening, it has no need for Upper House approval anyway.

The real effect would be if Abe decides to (or is pressured into) calling a snap election, which it doesn’t seem like he will. Nakagawa and Aoki’s resignations seem to be the initial offer, and it’s hard to imagine the stubborn Abe yielding any further. That said, the longer Abe is in the job, the worse for both the LDP and the economy.

Besides, tomorrow the US House of Representatives votes on the ‘comfort women’ resolution and the LDP should thus have a perfect opportunity for distraction, if they’re politically savvy enough to exploit it properly.

Filed Under Japan, Politics