Japan PM Shinzo Abe calls snap Japan poll, delays tax hike

Japan's Prime Minister Shinzo Abe attends a news conference at his official residence in Tokyo on Nov 18, 2014. Japanese Prime Minister Shinzo Abe said on Tuesday he would delay a planned rise in the nation's sales tax to 10 per cent till April
Japan's Prime Minister Shinzo Abe attends a news conference at his official residence in Tokyo on Nov 18, 2014. Japanese Prime Minister Shinzo Abe said on Tuesday he would delay a planned rise in the nation's sales tax to 10 per cent till April 2017 and call a snap election to seek a fresh mandate, just two years after taking office. -- PHOTO: REUTERS

TOKYO (AFP) - Prime Minister Shinzo Abe said on Tuesday he was calling a snap election and delaying an expected sales tax rise after figures showed Japan was in recession.

Less than two years after he swept to power pledging to reinvigorate the flagging economy, Abe will go to the polls - probably in the middle of next month - telling voters that more needs to be done to fix years of growth-sapping price declines.

"I will dissolve the lower chamber on Nov 21st," Abe told a news conference.

He did not give a date for the election, which was not due until 2016, but the media consensus is that it will be Sunday, Dec 14.

The last 24 months have seen two of the so-called "three arrows" of "Abenomics" fired - massive fiscal stimulus and a flood of easy money. A third "arrow" of structural reforms remains stuck in the quiver, a victim of the vested interests it is intended to undermine.

At its heart, Abenomics is intended to push prices up and get Japanese shoppers spending, with the aim of generating a self-reinforcing recovery as companies employ more people to meet growing demand.

The measures have sent the yen plunging, pushing up the cost of imports, including the fossil fuels used to power the country.

That stretched consumers - 60 per cent of the economy - who were then walloped again in April by a rise in sales tax from 5.0 to 8.0 per cent, resulting in two consecutive quarters of contraction.

A growing clamour has been heard over recent months to suspend part two of the tax rise, to 10.0 per cent, which was due for October.

"Today, I reached a conclusion that I will not raise the consumption tax to 10 per cent in October next year... and that it should be delayed by 18 months," he said.

But in an apparent nod to the fiscal hawks in his finance ministry who say Japan has to get a handle on its soaraway pile of national debt, he pledged the tax rise will be implemented.

"It will never happen that the government will postpone the next tax raise again after 18 months," he said.

"After postponing for 18 months I intend to raise the tax for sure, regardless of economic conditions, which is a significant change. We need to ask the approval of the people for this change (by calling an election)."

Ignoring criticism that he is currying favour with voters, Abe has ordered his ministers to compile a fresh economic stimulus package, including measures to ease the impact of rising import prices.

Opposition parties, who are still in disarray after their 2012 drubbing, will hope to capitalise on the difficulties faced by voters whose wages are at a standstill while prices rise.

"It is clear that Abenomics has not had any positive impact on people's life at all," said Banri Kaieda, head of the largest opposition Democratic Party of Japan.

Yoshiki Yamashita, a Communist Party lawmaker, said "Abenomics merely expanded the gap" between the haves and the have-nots.

But commentators across the spectrum agree that Abe, who enjoys approval ratings of around 50 percent, is likely to stroll home in the popular vote. They point out that the premier's real target is rivals within his own fractious LDP.

The thinking goes that as he faces a three-yearly party leadership election next September, he could stamp his authority over the grouping by resetting the clock now.

"I suppose Prime Minister Abe concluded that it's the best timing to extend his premiership," said Shinichi Nishikawa, professor of politics at Meiji University in Tokyo.

"But the prospects for his decision are still uncertain," Nishikawa said. "It may come at a price, depending upon election results." A new mandate would bolster Abe's case for pushing ahead with the re-starting of nuclear reactors - an unpopular idea in a nation scarred by the 2011 Fukushima disaster.

It would also strengthen Abe's hand on pet issues like reforming Japan's view of its 20th century warmongering, which he and other right-wingers say is masochistic.