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Japan's Abe announces $17.8 billion economic stimulus package

Japanese Prime Minister Shinzo Abe's new stimulus package could be a way to lure voters
Japanese Prime Minister Shinzo Abe's new stimulus package could be a way to lure voters

Japanese Prime Minister Shinzo Abe said today he would dissolve parliament's lower house this week for a snap election.

Abe is seeking a mandate to stick to his tough stance towards a volatile North Korea and rebalance the social security system. 

Abe, in power for five years, had been expected to call the election for next month to take advantage of improved support and disarray in the opposition camp. 

"I'll demonstrate strong leadership and stand at the forefront to face a national crisis," Abe told reporters, mentioning Japan's fast-ageing population and North Korea.

The Prime Minister said he would redirect some revenue from a planned sales tax hike in 2019 to child care and education rather than paying back public debt, although he added he would not abandon fiscal reform. 

Rebalancing the spending would offset the potential negative effect on consumption from the tax rise, he said.

"We will turn Japan's social security system into one that responds to all generations by boldly diverting policy resources to resolve the two major concerns - child rearing and (elderly) nursing care - that working generations confront," he said. 

Abe rejected criticism that holding an election would create a political vacuum at a time of rising tension over North Korea's missile and nuclear arms programme.

Pyongyang has fired ballistic missiles over Japan twice in the last month and conducted its sixth and biggest nuclear test on September 3. 

"We must not give in to North Korea's threats. By gaining a mandate from the people with this election, I will forge ahead with strong diplomacy," Abe said, adding that now was the time to put more pressure on Pyongyang, not open dialogue.

Abe's image as a strong leader has bolstered his ratings amid the North Korea crisis and overshadowed opposition criticism of the premier for suspected cronyism scandals that eroded his support earlier this year.

Given the results seen in other major developed countries, however, some political analysts are not ruling out the unexpected.

Abe today asked his cabinet to compile a 2 trillion yen ($18 billion) economic package by year-end to focus on child care, education and encouraging corporate investment. 

He said that diverting sales tax revenue would make it "impossible" to meet the government's target of balancing Japan's budget - excluding debt servicing costs and bond sales - by the year beginning April 2020.

"But we are absolutely not lowering the flag of fiscal consolidation," he said.