Japanese prime minister Shinzo Abe calls election

Japanese prime minister Shinzo Abe has called a snap general election following the release of surprise data showing the world's third-largest economy is in recession.

The downturn in July-September has thrown Mr Abe’s ambitious plans to revive the economy into doubt and prompted his critics to declare his strategy dead.

Mr Abe is gambling that with Japan’s political opposition in disarray, voters will return him to power with a mandate to push on with unpopular policies.

His conservative government wants to cut corporate taxes, boost defence and reduce Japan’s huge public debt by raising the sales tax by 2 per cent next year.

Mr Abe launched his cabinet in late 2012 with a three-pronged plan consisting of fiscal expansion, loose money and economic reforms - known as “Abenomics.”

His plan included one of the biggest gambles in modern politics; to end serial recessions and 15 years of corrosive deflation by flooding the economy with money.

Shock treatment

This shock treatment was supposed to boost economic growth by creating what Mr Abe called a “virtuous cycle” that would raise wages and lift consumer spending.

Many analysts now say that the government helped sabotage this strategy in April by hiking the sales tax by three per cent. In response, Japan’s economy dived by over seven points between April and June.

Rising prices and the weaker yen, which has boosted the fortunes of Japan’s giant exporters but made imports more expensive, have left ordinary people feeling poorer.

The fall in real wages and growing wealth gap under Mr Abe has emboldened critics who say his policies only benefit the rich, with the number of Japanese millionaires surging by over 20 per cent in 2013, according to the Nikkei business newspaper.

"It is clear that 'Abenomics' has not had any positive impact on people's lives at all," Banri Kaieda, head of the main opposition party, the Democratic Party of Japan, told reporters this week.

Profits at Japan’s biggest corporations, meanwhile, have swelled under the government. Japan’s private companies sit on one of the world’s biggest reserves of cash and deposits 229 trillion yen (about 1.57 trillion euro).

Mr Abe admitted this week that the latest GDP figures showing the economy shrank 1.6 per cent in the third quarter “were unfortunately not so good.”He has told his minister of finance Taro Aso to postpone the unpopular sales tax hike, probably until 2017, according to local media.

Even as governments elsewhere slash budgets, however, Japan seems to be doubling down on its stimulus bet. Last month Bank of Japan governor Haruhiko Kuroda said he would swell the country's monetary base by about 80 trillion yen (about 546 billion euro) each year.

Risky strategy

Mr Abe has already compiled about 19 trillion yen in supplementary budgets since taking office and many economists expect another package in March. Some consider that a risky strategy in a country with one of the developed world’s highest debt-GDP ratios.

The government is hoping that these expansionary policies will tip the economy back into growth while Mr Abe lets fly with the third arrow of his strategy- reforms of agriculture, trade policy and corporate tax rates. He is also trying to shift Japan away from its postwar pacifism, a controversial move that has alienated many voters.

Analysts say Mr Abe may be trying to pre-empt calls for his resignation by trying to define the election in his own terms. Most believe the coalition government is unlikely to lose power - Mr Abe’s Liberal Democrats (LDP) are aligned with the Buddhist-backed New Komeito party, one of the country’s most effective vote-gathering machines.

This strategy could backfire, however, on Mr Abe himself. “He may have thought that by calling an election and catching everyone by surprise he might push the reset button for everything he has done in the past two years and claim a mandate for another four,” says Koichi Nakano, a political scientist at Sophia University.

“But the media could say that ‘Abenomics’ is not trickling down and he is wasting a whole month at a busy time of the year, when the economy needs urgent attention. If that [feeling] grows and the loss of seats is substantial, there will be voices even within the LDP that Abe will have to go.”