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 The world's third-biggest economy unexpectedly shrank for a second
consecutive quarter in July-September, a sign the pain from an
initial rise in the sales tax to 8 percent from 5 percent in April
was lasting longer than expected.
Abe said he would delay a second increase to 10 percent that had
been scheduled for October 2015 for 18 months. He added he would
dissolve the lower house on Nov. 21 for an election that must be
held within 40 days. The vote is expected on Dec. 14.
The prime minister - who returned to power in December 2012 pledging
to revive growth with a radical mix of hyper-easy monetary policy,
spending and reform - insisted his policies were working and
challenged the opposition to come up with an alternative.
"I am aware that critics say 'Abenomics' is a failure and not
working but I have not heard one concrete idea what to do instead
... Are our economic policies mistaken, or correct? Is there another
option?" he asked at a televised news conference. "This is the only
way to end deflation and revive the economy."
But Abe pledged that the sales tax rise, needed to fund swelling
social security costs and curb Japan's massive public debt, would be
implemented without fail in April 2017.
Abe is seeking to renew his mandate just as doubts about the success
of his strategy are deepening.
No election for parliament's lower house needed to be held until
late 2016. But Abe is hoping to cement his grip on power before his
support ratings, now below 50 percent in some surveys but still
sturdy by Japanese standards, slip further.
His voter support took a something of a hit from funding scandals in
his cabinet last month, and next year he is expected to tackle
unpopular policies such as restarting nuclear reactors that went
off-line after the 2011 Fukushima crisis.
FLAG OF FISCAL REFORM
Critics say that Abenomics has benefited big companies and affluent
city dwellers by weakening the yen and boosting the stock market,
but that ordinary Japanese have been hurt because inflation has
outpaced wage increases.
Abe told reporters earlier, after meeting his economic advisers,
that consumption was stalling despite other positive signs and he
would prepare stimulus steps, especially for smaller firms and
regions.
Media reports said the package could be worth 2-3 trillion yen
($17-$26 billion).
The sales tax has been a jinx for Japanese leaders in the past,
several of whom lost their jobs over the levy. A hefty majority of
voters were opposed to raising it now.
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Still, Abe took care to avoid the impression that Japan was
abandoning fiscal reform despite a public debt that is already twice
the size of the economy.
"We are by no means surrendering the flag of fiscal reform," he
said. "(The tax rise) will not be delayed a second time."
The bad economic news has given the opposition camp ammunition for
the election campaign, although the parties are weak and divided and
likely to have trouble cooperating.
Tatsuo Kawabata, a senior official of the opposition Democratic
Party, told a news conference that the prime minister was attempting
to cover up signs that Abenomics was failing.
"Abe is trying to rest everything by dissolving parliament,"
Kawabata said in comments shown on NHK public TV.
Few expect the LDP and its smaller ally to lose their majority. But
financial markets and analysts are now contemplating the possibility
that the ruling bloc might fair less well than initially anticipated
and that Abe could emerge weaker after the vote.
Abe said he would resign if the ruling coalition, which now holds
two-thirds of the seats in the chamber, failed to win a majority.
"A recession will give opposition party attacks on Abe more
salience, suggesting the possibility that the ruling coalition could
lose seats," wrote Tobias Harris at consultancy Teneo Intelligence.
The LDP and the Komeito party now hold a two-thirds majority in the
lower house.
Abe, who is serving his second term as prime minister after a
troubled 2006-2007 term, inherited the sales tax plan from his
predecessor based on a ruling-opposition party agreement in which he
played no direct part.
(Writing by Linda Sieg; Editing by Alex Richardson)
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