By: DailyForex.com
The Japanese Prime Minister, Shinzo Abe, has announced that parliament will be dissolved on 21st November and a snap general election held. The Japanese people are expected to go to the poles on 14th December 2014. Mr Abe had two more years of his mandate remaining before he would have been required to go to the electorate, so the question is why now?
The reason for going to the people now is that Mr Abe still enjoys considerable public support, but it is dwindling as the pain of a sales tax hike kicks in and the disposable income of the average Japanese remains broadly static. His approval rating is hovering around the 50% level which is considered good by Japanese standards. Furthermore, the opposition Democratic Party of Japan is engaged in in-fighting. There is nothing to guarantee that the economy will be firing on all cylinders in two years’ time, so by going to the electorate now, Mr Abe is increasing his chances of remaining PM for a further four years.
Mr Abe has stated: "I need to hear the voice of the people. I will step down if we fail to keep our majority because that would mean our Abenomics is rejected."
The Japanese economy lapsed into recession in the third quarter and the negative effect of a sales tax increase (from 5 to 8%) brought in in April has been widely blamed for subduing consumer demand which accounts for 60% of Japanese output. Mr Abe backs the increase which was planned in 2012 by the previous administration because the Japanese exchequer needs to raise more funds to meet increasing social security and healthcare spending and try to partially offset Japan’s debt mountain. The sales tax was set to rise to 10% (still a modest amount by many nations’ standards), but received wisdom suggests that a new Abe administration would delay the increase by 18 months. Given a fresh mandate, Mr Abe would push for more economic reform, infrastructure boosts and the re-introduction of nuclear power to the Japanese electricity generating basket. Nuclear power contributed 30% of electrical power generation to Japan prior to the 2011 tsunami. Replacing it with conventional sources of power is placing an enormous strain on the nation’s balance of payments.