Inflation to nuclear power: What's at stake in Japan's election



By Elaine Lies

TOKYO, July 7 (Reuters) - Japan will vote in upper house elections on Sunday that have implications for Prime Minister Fumio Kishida's grip on the ruling Liberal Democratic Party (LDP) and his ability to push through legislation.

Following are some details about why the poll matters and some main policy issues:

WHY IS THE ELECTION IMPORTANT?

While the upper house is the less powerful of the parliament's two chambers, the vote is a gauge of support for the ruling bloc. If the LDP wins by a solid margin, as the polls suggest, Kishida would be able to consolidate control of the party with three years to drive through legislation before another election has to be held.

A setback for the government could expose Kishida to challenges from rivals in the factious LDP.

ALL ABOUT INFLATION?

Rising prices are the key issue. Global commodity prices have been rising and a sliding yen has in turn driven up fuel, electricity and food costs. Voters are sensitive to even tiny price increases because of years of deflation and flat wages.

The government has rolled out 2.7 trillion yen ($20 billion) in extra budget to help. That includes plans to soften the blow from oil prices via subsidies to gasoline wholesalers and other measures.

The extra budget will be funded by bonds, which could put more pressure on public debt already more than twice the size of gross domestic product (GDP). Kishida has signalled readiness to take further steps, but hasn't given details.

DEFENCE

Kishida has promised to "substantially" increase defence spending in response to what he sees as fragile security in the region. Japan is chiefly worried about China's growing might, concerns that have been given a new urgency by Russia's invasion of Ukraine.

Kishida has not said how much the defence budget will increase in the next fiscal year or how any big increase will be funded. The defence budget this fiscal year is 5.4 trillion yen, less than a quarter of what China spends.

In its election manifesto, the LDP has called for defence spending to double to 2% of GDP, which would be on par with the minimum level North Atlantic Treaty Organization (NATO) members have pledged to spend.

Opinion polls show almost two-thirds of voters support bolstering the military.

NUCLEAR RESTART

Soaring energy prices and the threat of power shortages during a recent heatwave have boosted expectations the government will restart some of the dozens of nuclear reactors idled after the 2011 Fukushima nuclear disaster.

Japan gets most of its primary energy needs from crude oil, while liquefied natural gas (LNG) accounts for more than a third of its electricity production. LNG supply has been complicated by Russia's invasion of Ukraine.

Only 10 of Japan's nuclear reactors are operational, compared with 54 before 2011. Kishida has said Japan must make "better use" of nuclear energy. Last month, he said Japan would make the "greatest possible" use of nuclear power as long as safety was secured.

THE CONSTITUTION

Revising the constitution, specifically the war-renouncing Article 9, has long been a goal of conservatives who view the U.S.-drafted document as out of touch with today's needs.

A strong showing by the LDP, its Komeito junior coalition partner and smaller, right-wing opposition parties, such as the Japan Innovation Party, which is seen gaining ground, could create momentum for constitutional change.

The public has traditionally been skittish about revision, although the crisis in Ukraine has bolstered support for more muscular defence.

Kishida, who hails from Hiroshima, the first city to ever suffer an atomic bombing, was on the more dovish side of the LDP, but has since tacked rightwards.

He said parts of the constitution may have elements that "are outdated and lacking" and hoped discussion on revising it could proceed.

THE CENTRAL BANK

The search for the next Bank of Japan (BOJ) governor is likely to intensify after the election. The incumbent, Haruhiko Kuroda, will end his second five-year term in April.

Kishida's choice is likely to determine whether the bank will stay on a dovish course or change tack after years of ultra-easy policy that has now weighed on the yen and drawn fire from the public as prices rise.

Two people seen as top candidates are incumbent deputy governor Masayoshi Amamiya, who masterminded many of the BOJ's stimulus measures, and former deputy governor, Hiroshi Nakaso, who has hinted the bank's near-term focus should be on ending Kuroda's stimulus.

($1 = 135.5100 yen)
Reporting by Elaine Lies; Additional reporting by Tetsushi Kajimoto, Tim Kelly and Leika Kihara; Editing by David Dolan, Robert Birsel

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