Abe's so-so victory is good for Japan's economy


By Pete Sweeney

HONG KONG, July 22 (Reuters Breakingviews) - Shinzo Abe's so-so victory in Japanese elections over the weekend will keep his focus on the Japanese economy, where it should be. The prime minister's ruling coalition won a majority in Japan's upper house, but slack turnout denied him enough seats to scrap the country's constitutional commitment to pacifism. That clears away an unhelpful political distraction.

The world's third-largest economy is having a rough year. Better workforce participation, inflation and business investment have been offset by trade war tensions. The benchmark Topix index is down roughly 5% from the year's peak in April. U.S. President Donald Trump has deemed automobile imports a security risk, threatening an industry that is one of Japan's largest employers. And Toyko has unwisely lowered itself into a trade spat with South Korea, a major market for Japanese products ranging from electronics to beer.

The risk of a further yen rally rises as other central banks consider easing, as the U.S. Federal Reserve Board and European Central Bank have signalled. Japan's benchmark interest rates are around zero so they can't really go lower. Lower yields on U.S. sovereign bonds will increase the relative attractiveness of their Japanese equivalents to investors, pushing the currency up further. That will make it even harder for Japan to put rates up and prune massive government debts incurred by stimulus efforts. A weak economy could also throw a wrench into Abe's plans to hike the sales tax.

Had Abe's coalition won two-thirds of the upper house, his administration might have turned to pushing through a controversial constitutional amendment releasing the Japanese army from pacifist constraints. But trade wars, not real wars, are the areas in which his efforts are best focused.

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- Japanese Prime Minister Shinzo Abe's ruling bloc won a solid majority in an upper-house election on July 21, but fell short of the two-thirds majority needed to fast-track an amendment to the country's pacifist constitution, public broadcaster NHK said.

- Voter turnout fell below 50% for the first time in a national election since 1995, the second-lowest level since records began after World War II, the government said.

- For previous columns by the author, Reuters customers can click on SWEENEY/

This article appears in: Politics , Stocks , World Markets , Economy

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