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Abe easily wins Japan upper house election but more fiscal stimulus is needed to prop up economy

The impressive performance of Japan'sruling coalition government at parliamentary elections on Sunday is a reminderto Prime Minister Abe that his first and foremost priority remained theeconomy, not political reforms.

Abenomics, the set of radical economicpolicies designed to end Japan's deflation funk, has experienced a number ofsetbacks in its three-and-a-half-year existence, but the ruling coalition partystill managed to secure 70 out of the 121 seats up for grabs in the upper houseat Sunday's vote. That means the Liberal Democratic Party (LDP) and the NewKomeito Party now have a majority in both houses of parliament.

Voters endorsed Abenomics despitewidespread dissatisfaction with controversial legislation that Abe intends toexecute. The PM wants to revise the nation's post-war pacifist constitution toenable military action under the doctrine of collective self-defense amidChina's growing military clout. Having now obtained a parliamentary majority,Abe could officially start the constitutional amendment process, set to be oneof his key legacies, alongside Abenomics.

But unless the economy improved, Abe couldnot afford to push through with any controversial reforms, Martin Schulz, asenior economist at Fujitsu Research Institute, told CNBC's "TheRundown." The leader first needed to deliver on his economic promises tovoters and be as expansionary as possible, which meant unveiling robust fiscalstimulus to shore up spending and push consumer prices higher, he said.

"Most [voters] are concerned abouteconomic revival and social security reform, and that there is very littlepublic appetite for constitutional reform. It is unlikely that the Abenomicspolicies and the economic policy agenda will be abandoned in exchange forconstitutional reform after the upper house election," summed up SocieteGenerale in a Monday note.

The government plans to roll out a stimuluspackage that could exceed $99 billion, Reuters reported on Sunday.

Eisuke Sakakibara, a former vice financeminister and currently a professor at Aoyama Gakuin University, said heexpected Abe to soon announce a supplementary budget worth $48.7 billion."Then, he will eventually move to change the constitution. Because heneeds to consult the opposition party, any constitutional reform will be doneslowly and carefully."

Despite aggressive rounds of monetaryeasing, the world's third-largest economy has been stumbling in terms ofprivate consumption. The price outlook further worsened last week when thequarterly Tankan business sentiment survey indicated Japanese companies hadlowered their inflation forecasts for the fourth consecutive time.

Labor market reforms should be one of thekey policy items on Abe's post-election agenda, not drawn-out constitutionalrevisions, amid the economy's secular stagnation, echoed Tomohiko Taniguchi, aspecial advisor to the PM's Cabinet and a professor at Keio University.

"Reforming hiring practices is moreimportant because the economy must be more inclusive for women....a variety ofworking practices must be part of the economy. It has to take place soonerrather than later."

Taniguchi attributed Abe's sweeping victoryon Sunday to an absence of real opposition, not faith in Abenomics. Theopposition essentially stopped talking about their economic policies as thecampaign drew on, leaving voters with a lack of alternatives to Abenomics, heexplained.

Stimulus aside, a cabinet reshuffle is alsoexpected to be high on Abe's post-election agenda. Reuters reported thatfinance minister Taro Aso and justice minister Mitsuhide Iwaki may be ousted,but no official details have been given so far.

While monetary support is also expected toaccompany Abe's renewed fiscal drive, the Bank of Japan will likely await thegovernment's program before announcing any new action of its own, observedVishnu Varathan, Mizuho Bank's senior economist.