Japan Gets a New Government

The Democratic Party of Japan has taken control of Japan's Lower House with an historic election victory

By Ian Rowley

After 54 years of almost unbroken rule, Japan's Liberal Democratic Party government has been expelled from office. At 10:21 p.m. local time, national broadcaster NHK announced that the opposition Democratic Party of Japan had won a decisive 241 Lower House seats. When votes for all 480 seats are counted, NHK projects that the DPJ alone will go on to win more than 300 seats, marking a huge swing against the LDP. "We have to make this a victory for the people. We have to respond to the needs of the people," DPJ chief Yukio Hatoyama, who will become Japan's new Prime Minister, said in a televised interview.

Incumbent Prime Minister Taro Aso had conceded defeat a few minutes earlier. "The result of this election is very severe. We have to accept the result and think clearly [about where we go] from here," he said. "People showed their disappointment with the LDP." After ruling Japan uninterrupted, except for a 10-month hiatus in the 1990s, the LDP is expected to be left with just 100 representatives in the Lower House.

Aso, at least, won his seat. Other party bigwigs, including former Prime Minister Toshiki Kaifu and current and former Finance Ministers Kaoru Yosano and Shoichi Nakagawa—best known outside Japan for a slurring appearance at a G8 meeting earlier this year—are among the senior LDP casualties.

The victory for the DPJ, a party formed only 11 years ago, confirmed the LDP's worst fears. Last week former Prime Minister Junichiro Koizumi, who didn't stand for reelection, seemed to accept that defeat for the DPJ was inevitable. "Unless something big happens, it's possible that we'll see a change in government," he said. And on Aug. 25, Finance Minister Yosano, perhaps sensing his impending defeat, added another despondent voice. "The Democratic Party of Japan is engulfing Tokyo like a massive wave," he said at a press conference in Tokyo.

a deep recession and much-needed reforms

Yet while the DPJ's landslide victory is as impressive as the LDP's campaign was insipid, the important question of whether a new government can carry out much-needed reforms and pull Japan's economy out of a deep recession is far harder to answer.

Disappointing economic data released on Aug. 28 show the weight of the challenge for a DPJ-led administration. The Internal Affairs Ministry reported that unemployment reached a postwar record of 5.7% in July, breaking the previous record of 5.5% recorded in April 2003. Just as worrisome, the Ministry said the core consumer price index fell 2.2% in July, the fifth month in a row and the biggest fall in prices since it began compiling the index in 1971. Adding to the gloom, the Ministry noted that household spending was down 2% year-on-year. This year, Japan's GDP is expected to plunge 6%.

Still, there are some reasons to be upbeat. For one thing, today's decisive victory gives the new DPJ government a far stronger mandate than had been previously expected. In addition to a huge Lower House majority, the party already controls the Upper House. In practice, the DPJ should be able to enact legislation with relative ease. "The real problem post-Koizumi has been policy stalemate. Parliament was gridlocked, and nothing got done," says Jesper Koll, president and CEO of Tantallon Research Japan. "[Today's result] tells you people are ready for big change."

Of course, recent elections in other countries show that when the economy is bad, honeymoon periods can be short-lived. In the U.S., the popularity of President Obama's Administration has waned amid rising unemployment and controversy over health-care reform. In India the stock market rallied after the Congress Party's big election victory in May, but optimism subsequently dimmed.

an economic upswing is expected

The DPJ's timing may be better. First, while the July unemployment, deflation, and household spending numbers are grim, economists expect Japan's economy to improve in the months ahead. Hiromichi Shirakawa, an economist at Credit Suisse (CS) in Tokyo, expects unemployment to stabilize around the current level as the ratio of job offers to job-seekers gradually improves. "Given the rebound in industrial production, we believe the pace of contraction [in the job market] will slow and then begin to turn positive," he wrote to clients in a research note.

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