Japan's new cabinet to aim at overcoming deflation

Japan new administration led by Liberal Democratic Party (LDP) President Shinzo Abe, which is expected to be launched today, will focus on revitalising the economy and reconstruction from last year's earthquake and tsunami, according to informed sources.

Abe, who is almost sure to be elected prime minister today, hopes to produce results in domestic affairs by focusing on economic issues and emphasising the stability of his government. By doing so, Abe and his party will make an all-out effort to win the House of Councillors election to be held next summer and establish a lasting administration.

Abe, who is close to naming the members of his cabinet, is reportedly focused on selecting skilled and experienced members. He is hoping they will hold their own when responding to questions in the Diet to avoid censure motions in the upper house, which is expected to be dominated by the opposition parties.

Economy comes first

"The new cabinet should focus on measures for disaster reconstruction and revitalising the nation's economy until the next upper house election. In these areas, we can separate ourselves from the Democratic Party of Japan (DPJ) administrations," an aide close to Abe reportedly said.

The incoming Abe cabinet plans to start by focusing on economic policies, according to the sources. By producing results bringing about an economic recovery and promoting disaster reconstruction, Abe and the ruling bloc hope to show the positive effects of the change of government.

If the LDP and New Komeito secure a majority of seats in the upper house election, the Abe cabinet would gear up for promoting policies in line with Abe's pet ideas. These include a constitutional revision and a review of the interpretation of the Constitution to allow the nation to exercise the right to collective self-defence, according to sources.

In promoting economic stimulus measures, overcoming the prolonged deflation will be crucial.

Concerning a supplementary budget for fiscal 2012, which will be compiled from the end of this year, and the budget for fiscal 2013, the focus will be on reconstruction in disaster-hit areas and measures to end the nation's deflation.

The fiscal 2013 budget will be delayed until around May due to the December 16 House of Representatives election. Because of this, Abe plans to include economic stimulus measures, which will have immediate effect, in the 2012 supplementary budget, which the LDP hopes will pass the Diet in February.

Regarding the supplementary budget, Abe has clearly stated the budget is aimed at overcoming deflation, and has suggested a budget of about 10 trillion yen (US$117.25 million). By overcoming deflation, Abe and the ruling bloc will show they can achieve results.

As defined by the International Monetary Fund, deflation means a decline in prices continuing for more than two years.

Former Prime Minister Taro Aso will concurrently serve as deputy prime minister, finance minister and minister for fiscal services. It is believed Aso will spearhead measures to revitalise the economy.

Monetary policies another focus

Abe also attaches great importance to monetary easing to overcome deflation, saying he hopes the Bank of Japan will set an inflation target of 2 per cent at the bank's next policy meeting in January.

By threatening to revise the Bank of Japan Law, making clear the bank's role in prices and employment, Abe reportedly plans to have the central bank accept his unusual request for an inflation target. The bank is reportedly considering the request.

As bank Gov. Masaaki Shirakawa's term will expire next April, Abe plans to appoint a person who will aggressively carry out monetary easing policies.

By reviving the Council on Economic and Fiscal Policy, which has been dormant under DPJ administrations, and creating a government task force to revive the economy, Abe's government will be ready to take all possible measures to improve the economy.

One senior LDP official said, "We'll employ all fiscal and monetary measures without regard to our image to overcome the deflation."

In addition to economic stimulus, the LDP will start full discussions on electoral system reform, including a plan to reduce the number of lower house seats. The party plans to launch a panel tasked with the issue within the party.

The reduction in the number of lower house seats was one of the conditions set by Prime Minister Yoshihiko Noda to dissolve the lower house, and the DPJ, the LDP and New Komeito agreed to begin in-depth discussions aimed at achieving the goal in the next ordinary Diet session.

The LDP does not want to provide ammunition to the opposition, and will work to tackle all reforms, even those requiring lawmakers to sacrifice their interests.