LDP losses in poll can affect Abe's economic policies: report

New Delhi, Aug 9 (UNI) Even as Japanese Prime Minister Shinzo Abe prepares to lead a powerful business delegation to India later this month, the ruling Liberal Democratic Party's (LDP) heavy losses in Japan's upper house elections on July 29 could affect economic policies of his govenment.

A world leading rating agency today said LDP's losses are likely to make the Japanese political landscape more volatile in the coming months.

''Due to his weakened power, Prime Minister Abe's economic policies are likely to be compromised by elements inside and outside the party,'' Standard&Poor's (S&P) report 'Election Losses Increase Policy Risks In Japan' said.

''There is a real risk that political instability could adversely affect the macroeconomy,'' agency's credit analyst Takahira Ogawa said.

''As long as the LDP-led coalition only has a majority in the lower house, it will have to navigate between the two houses of parliament, which will likely constrain its efforts to pursue pension and tax reforms. Such reforms are particularly important to increase the economy's growth potential and to meet the long-term challenges of Japan's ageing population,'' Ogawa added.

Though India expects more out of Abe's visit, it, however, will focus on economic component. India's decision to set up a 90 billion dollar Delhi-Mumbai Industrial Corridor along the 1,483-km long dedicated rail freight corridor between the two metros has caught the imagination of Japanese companies.

Japan Minister of Economy, Trade and Industry Ahira Amari, who led a large business delegation to New Delhi early last month, had indicated Japanese commitment to the 250 million dollar corpus for the ambitious corridor project.

Abe is expected to lead a larger business delegation to give a boost to the project which is likely to be launched next year.

Japan's economy in the meantime continues to expand moderately, with corporate investment in machinery and equipment proving reasonably resilient, Ogawa said.

''Thus with two of the main engines of Japanese growth in recent years still intact, we expect Japan's real GDP to grow 2.3 per cent in fiscal 2007, followed by 2.1 per cent in fiscal 2008,''Ogawa added.

The S&P report said despite the continuation of virtually zero inflation, the Bank of Japan (BoJ) is expected to increase its intervention rate on the uncollateralized overnight call rate by 25 basis point to 0.75 per cent from the current 0.50 per cent this month.

''However, the uncertain political situation created by the LDP's heavy election losses and the uncertainty surrounding global capital markets stemming from the sub-prime mortgage loan problems in the U S could make the BoJ's decision more complicated,'' the agency analyst said.

UNI