Abe’s ‘shock and awe’ tactics win approval

Japan’s Prime Minister, Shinzo Abe, has won fresh backing at the ballot box for his “shock and awe” strategy to revive the economy, sending Asian shares higher.

Mr Abe’s coalition now has control of both houses of the Japanese parliament for the first time in three years – helping the leader press ahead with his “third arrow” of structural reforms to shake the country out of its lengthy malaise.

His coalition won 76 of 121 seats up for election, giving it 135 seats in the upper house. He has already begun a huge monetary stimulus and a public spending programme with the Bank of Japan, boosting exports with a much weaker yen since taking office and pushing the economy to 1 per cent growth in the first three months of the year. A similar pace is expected in the second quarter.

Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: “Abe has dramatically shifted the Japanese economy on to a growth trajectory – now he needs to make sure that it stays there.”

Mr Abe now has more political capital but he still has to battle against vested interests on a range of mooted reforms, from making the nation’s labour market more flexible to joining the Trans-Pacific Partnership regional trade agreement. Michael Hewson, an analyst at CMC Markets, said: “Abe has got no excuses now: the market has given him the benefit of the doubt. We could be about to find out whether it is more ‘bow and arrow’ than ‘third arrow’.”

The premier also has a difficult decision to make on whether to press ahead with the proposed rise in VAT from next April, from 5 per cent to 8 per cent, to shore up Japan’s public finances. Many experts fear the move could hit the recovery.

A further rise to 10 per cent is slated for October 2015.