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November 18, 2012 4:46 pm
Welcome back to Japan’s revolving-door politics. Yoshihiko Noda was probably just getting comfortable as prime minister, after 14 months in office, when he got cornered into calling a general election. In return, the opposition Liberal Democratic party has finally stopped dragging its feet on deficit spending plans. That is just in time to stop Japan running out of money by December. But it is too late for Mr Noda – the December 16 election is almost certain to trigger the return of the LDP’s leader, Shinzo Abe, to the helm for a second time.
Whoever wins will have a tough job. Gross domestic product fell 0.9 per cent between July and September, the steepest decline since the first quarter of 2011, when the earthquake and tsunami struck. The economy is likely to shrink again this quarter. Most of the fall is the result of declining manufacturing exports. That hurts the nation’s industrial production, hits wages and bonuses, and damages confidence and personal consumption.
The danger is that the LDP is tempted to push for populist policies such as postponing the April 2014 rise in consumer taxes, which, to Mr Noda’s credit, has been approved after almost two decades of deliberation. Postponing the tax rise would be economically irresponsible. Japan’s gross debt is more than two times its GDP. There is little room for the conservative LDP to cut public spending, which accounts for a fifth of economic output, according to Capital Economics – the ageing population is causing social security costs to soar.
Mr Abe is vocal about pushing the Bank of Japan into doing more to boost the economy. He wants the central bank to engineer inflation of 3 per cent, three times its current target, to encourage savers to start spending. That may be no more than a short-term boost to the economy. But it is time Japan’s politicians focused on action, not power.
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