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Reshuffled Abe Cabinet faces prickly issues at home and abroad

A retail store is seen congested with shoppers in March 2014 shortly before the consumption tax was raised. (Mainichi/Tomohisa Yazu)

TOKYO -- The fourth Cabinet of Prime Minister Shinzo Abe, which was launched on Oct. 2, faces numerous domestic and foreign policy challenges. The issues range from the implementation of a planned hike in the consumption tax to the tasks of advancing dialogue with Washington on trade, North Korea over its abduction of Japanese nationals, and Russia in hammering out a peace treaty.

The Abe government plans to raise the consumption tax from the current 8 percent to 10 percent in October 2019, having postponed increases twice in the past. During the campaign for the October 2017 House of Representatives election, the prime minister pledged to divert some 2 trillion yen from increased revenue from the tax hike to go toward making education free, among other policy measures.

Observations are prevalent within the government that the prime minister is highly unlikely to delay the tax increase for a third time, according to one government-linked figure. Finance Minister Taro Aso noted that the economy was continuing to expand and stated, "Conditions under which such an increase is possible are being maintained."

The government is poised to incorporate large-scale economic stimulus measures into the fiscal 2019 state budget to prevent the tax hike from adversely affecting the economy. However, concerns remain that if a massive amount of taxpayers' money is spent on such measures, the government will need to delay achieving its goal of restoring fiscal health.

Overcoming deflation also poses a challenge. The brakes have been put on a downward trend in consumer prices. Still, Japan has failed to achieve the annual inflation rate of 2 percent set as a target by the Bank of Japan (BOJ).

The BOJ's ultra-easy-money policy aimed at achieving that rate has entered its sixth year. In a debate during the campaign for the ruling Liberal Democratic Party (LDP) presidential election, Prime Minister Abe emphasized he would like to see this abnormal monetary policy end while he is in office.

On the diplomatic front, attention has been on Japan's trade talks with the U.S. government of President Donald Trump. Abe and Trump agreed last month to initiate negotiations on a bilateral Trade Agreement on Goods (TAG), under which Tokyo and Washington would reduce tariffs on each other's imports of agricultural and manufactured goods.

Furthermore, negotiations to form a Regional Comprehensive Economic Partnership accord in East Asia among 16 countries including Japan, China and ASEAN member countries will enter a crucial phase with the goal of reaching agreement by the end of this year.

On the diplomatic front, the prime minister aims to settle the issue of North Korea's abduction of Japanese nationals, and a territorial dispute with Russia over the Northern Territories occupied by Moscow by autumn 2021 when his term as LDP leader expires. However, his government has found no clues to resolving these longstanding issues.

In the past, as Pyongyang continued its nuclear weapons and missile development programs, Japan maintained pressure on North Korea. However, since the United States and North Korea began direct dialogue earlier this year, Prime Minister Abe has also begun to seek dialogue with Pyongyang to solve the abduction issue and normalize bilateral diplomatic ties.

"We must end mutual distrust and face Chairman Kim Jong Un of the Workers' Party of Korea," the prime minister told reporters at a news conference on Sept. 26.

A plan has emerged for Japan and Russia to conduct joint economic activities on the Russian-held Northern Territories east of the northernmost prefecture of Hokkaido in a way that does not harm the two countries' legal positions on the islands in a bid to break the deadlock over the territorial issue.

However, Russian President Vladimir Putin abruptly proposed in the Eastern Economic Forum in Vladivostok in Russia's Far East in September, with Abe in attendance, that Tokyo and Moscow sign a peace treaty within the year without preconditions. The proposal to effectively shelve the territorial issue is inconsistent with Japan's position to confirm sovereignty over the four islands before signing a peace treaty.

Prime Minister Abe intends to meet with Putin when they attend an international conference later this year to confirm the president's true intentions.

Abe is also scheduled to visit Beijing later this month on the occasion of the 40th anniversary of the establishment of the Treaty of Peace and Friendship between Japan and China. Tokyo is trying to arrange a visit by Chinese President Xi Jinping to Japan next year in a bid to stabilize bilateral relations, as tensions remain between the two countries over the Senkaku Islands, which are claimed by Beijing, in the southernmost prefecture of Okinawa.

In addition to these diplomatic issues, there are further challenges for the Abe administration at home. The prime minister has announced his intention to reform the social security system into one covering all generations as Japanese people's lifespan is expected to increase to 100 years in the future.

However, the government is not expected to announce the increased burden on the public from such measures -- such as rises in the premiums of health and nursing care insurance programs -- until after the next House of Councillors election in 2019.

As specific measures to reform the social security system, Prime Minister Abe has so far suggested requiring that employers continue to employ workers until the age of 70 instead of the current 65, and allowing people to choose to begin receiving pension benefits beyond the age of 70. The government aims to submit relevant bills during a regular session of the Diet in 2020.

The government intends to encourage healthy elderly people to work longer in a bid to reduce social security expenses. However, such measures, which would increase companies' personnel expenses, could meet resistance from businesses.

The Health, Labor and Welfare Ministry estimated in May that Japan's social security spending will balloon from the current figure by 68 trillion yen to some 190 trillion yen by fiscal 2040.

The Abe government is also considering lowering mobile phone charges. Chief Cabinet Secretary Yoshihide Suga pointed out in a speech this past August that rates could be slashed by about 40 percent.

Internal Affairs and Communications Minister Masatoshi Ishida told a news conference on Oct. 2. "We'd like to consider whether the current prices are appropriate from the viewpoint of users," he said.

(Japanese original by Wataru Okubo, Business News Department, Yoshitaka Koyama, Political News Department and Ryosuke Abe, Medical Welfare News Department)

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