As the results of the election became apparent this Monday, it was clear that Prime Minister, Shigeru Ishiba, was facing the heat. He had taken a bargain by declaring a fresh election, hoping to muster a convincing majority which could have given him a far more solid say.

However, the results came in the reverse. The long ruling Liberal Democratic Party —LDP— ended up losing its majority on its own strength. It had 247 seats in last parliament, against the required majority of 233. It got only 191 now.

The compulsions before the LDP is clear. It will have to bring around some of the smaller parties into the fold and thus jostle up a simple majority, in which it would be a major player.

The numbers be whatever these are. But the state of affairs on the ground level were not very favourable. Japan had been languishing with a sluggish economy for years and decades. The primary feature of that economic stagnation was deflation.

Deflation is a phenomenon which is far more difficult to fight with copy book economics than inflation as such. When prices keep falling over a period of time, it generates a psychology which is against any growth in the economy. Consumers do not spend their money on goods and services anticipating that these should fall in the near future. So consumption expenditure falls.

That has been the bane of Japanese economy in three decades when the economy had really failed to grow to its capacity. The Japanese economic mangers tried every medicine in their arsenal that could be applied as a remedy. The Bank of Japan had lowered interest rates to historic low levels.

In fact, the central bank had introduced negative interest rates which was unprecedented in the annals of central banking. That means you would lose your savings if you keep these in the banks and they would deduct a tiny amount as keeping charge instead of paying you interest.

Such a situation was reversed only recently. Bank of Japan had an inflation target of 2% which was never achieved for years. This situation had changed and inflation rate touched 3% this year in October. This should have been welcome. But actually, inflation rate had been resented and it was one of the principal reasons for the disastrous results. People complained of rising prices, which they have not seen hitherto.

Secondly, Japanese wage rates had remained stable and did not rise significantly for years. The erstwhile government of Shigeru Ishiba had advocated raising wages and urged companies to give higher wages. This was also part of overall changes in the Japanese economy.

Until recently, Japan had witnessed the cultural of life-time employment. People entered the labour stream joining a company for their entire career and ending their working life in the same employment. This trend is changing of late. Young people are changing jobs and negotiating for higher wages with alternative employers.

The Ishiba government had supported this idea as well. The prime minister of the last government had actively backed ideas of overall wage hike and competition among employers for talent. Industry level wage negotiations were taking shape for wage revisions.

The entire idea was that with rising wages and tepidly rising prices, consumers would like to spend their disposable incomes than raise their financial savings. It is consumption which acts as an incentive for growth and development rather than rising levels of overall savings.

The last feature of Japanese economy was rising levels of public debt and massive interest burden on the stock of public debt. Japanese public debt has outstripped 260% of the country GDP. Naturally, such a burden of debt would impose a massive interest servicing burden.

The government was aware of this aspect of Japanese public finance and it was thinking of reducing the levels of public debt. One instrument for that was to raise taxes. A tax was proposed on consumption goods and imposition of sales tax. However, these moves were opposed and criticised on the ground that such move would discourage rise in consumption.

In fact, the Japanese federal government was caught in a fix. Its efforts at countering these economic ills met with resentment.

Coupled with these was the revelation of political malfeasance for private gains. When prices were rising or public finances were hobbled by debt burden, politicians were feathering their own nests at the cost of the public. The politicians were getting money at the costs of the public.

Political funding was raised by the ruling party but it was discovered that some portions of the money was channelized into the coffers of the lawmakers. The discovery of these irregularities created severe reactions among the people against the ruling Liberal Democratic Party.

The new prime minister’s prevarications on a variety of issues had also conveyed a sense of uncertainty. Even some apparently innocent matters gave rise to avoidable irritations. The prime minster had mooted that women should be allowed to retain their maiden names after marriage. However, he backtracked on that promise stating that the issue called for further considerations.

On security matters as well, the prime minister had been equally uncertain and lukewarm. As defence minister, Shigeru Ishiba had advocated a strong and assertive Japan. He had even suggested creating an Asian counterpart of western alliance, NATO.

However, the idea did not find favour with USA and it was suddenly dropped. Beefing up the Japanese security forces and military dispensation was not followed up.

Nonetheless, in the face of clear defeat, the prime minster has ruled out resigning. He is hoping to cobble together a fresh coalition and lead the coalition government. That imposes major burden on him. Others in the ring are thinking of throwing their hats in.

The upshot is that Japan would be facing some political uncertainty for a while. That would not be very welcome for the world’s fourth largest economy. (IPA Service)