Bloomberg News

Kan Signals He’ll Resign After Post-Quake Japan Crisis Over

June 02, 2011

(Updates market reaction in fifth paragraph.)

June 2 (Bloomberg) -- Japan’s Prime Minister Naoto Kan signaled he’ll resign once a solution to the nation’s post- earthquake crisis is in sight, in an appeal to ruling party lawmakers to reject a no-confidence vote today.

Today’s motion could attract enough support within his Democratic Party of Japan to pass, requiring Kan either to call new elections or resign within ten days. Rising discontent over his handling of the March earthquake that precipitated the worst nuclear disaster in 25 years has emboldened opposition lawmakers to force the vote.

“I’d like to pass on my responsibility to a younger generation once we reach a certain stage in tackling the disaster and I’ve fulfilled my role,” Kan said in a nationally televised meeting of DPJ lawmakers ahead of today’s vote. “Until then I want to fulfill my responsibility with you. I ask you to unite and reject the motion.”

The possibility of yet another change in government has rattled markets, adding to concerns over the nation’s debt burden and sending bond yields up. Even if Kan survives the vote, the lack of ruling party unity may leave his government paralyzed amid the country’s biggest crisis since World War II.

Japanese government bond futures rose after Kan’s statement. with ten-year yields dropping the most in about four weeks, falling five basis points to 1.13 percent. The yen was little changed at 81.01 per dollar at 2:15 p.m. in Tokyo, while the benchmark Nikkei 225 Stock Average fell 1.6 percent.

Hatoyama Urges Unity

Former Prime Minister Yukio Hatoyama urged party unity in defeating the measure, telling lawmakers at the same meeting that he would like Kan to step down once a second post-quake reconstruction bill is drafted.

“Regardless of the outcome, the process will further divide the DPJ, further weaken Kan and make it all the more difficult to deal with this crisis,” said Gerald Curtis, a Japanese politics professor at Columbia University in New York. Politicians “are so focused on their petty power struggles that the national interest has clearly taken a back seat.”

The main opposition Liberal Democratic Party, the New Komeito party and the Sunrise Party of Japan yesterday evening submitted the motion to the Diet’s lower house. The chamber began debate around 1:30 p.m. The vote will take place around 3 p.m., NHK Television said.

LDP leader Sadakazu Tanigaki yesterday repeated his call for Kan to step down in a parliamentary debate, saying the prime minister’s resignation “would pave the way for cross-party unity.” Kan, 64, reiterated his intention to remain in office.

Vote Support

Sixty-two ruling party legislators expressed their intention to support the measure, the Asahi newspaper reported today. The DPJ and its allies hold 309 of the seats in the 480- member House of Representatives. The motion needs 240 votes to pass as the parliamentary speaker doesn’t vote, though the threshold may drop if some lawmakers abstain.

The Asahi reported that many of the DPJ members who said they would support the motion are part of a group headed by indicted former party chief Ichiro Ozawa, who in an interview last week with the Wall Street Journal said Kan should quit as soon as possible. Ozawa will vote in favor and may form a new party if he is expelled from the DPJ, Kyodo News reported, citing an unidentified person close to him.

“At this moment, I think passage of the no-confidence motion will be difficult,” Tokyo-based independent political analyst Hirotada Asakawa said in a phone interview. “But the DPJ will essentially be split and Kan will have to step down as early as this month.”

Kan Successor

Possible successors to Kan include Chief Cabinet Secretary Yukio Edano, former foreign minister Seiji Maehara and DPJ Secretary-General Katsuya Okada. All were among a group voters cited as preferable candidates in a Nikkei newspaper survey published May 30.

Kan’s approval rating was 26 percent in an Asahi poll published May 16, up five percentage points from a month ago, while his unfavorable rating was 51 percent. Almost two-thirds of those asked disapproved of his response to the crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic power plant, where reactor meltdowns sent radiation into the air and sea and prompted the evacuation of 50,000 households.

The International Atomic Energy Agency yesterday said Japan underestimated the tsunami hazard at several nuclear power plants and called for greater independence for its regulators.

Rise to Power

Several opposition groups coalesced to form the DPJ in 1998 and the party came to power in 2009, ending the monopoly of the LDP, which had ruled for all but 10 months since 1955. Kan took office after Hatoyama resigned in June last year when he reneged on an election pledge to move a U.S. military base from the island of Okinawa, angering local residents and prompting a coalition partner to bolt the government.

Kan has been unable to reach common ground with the LDP over efforts to rebuild in the wake of the disaster, which left almost 24,000 people dead or missing. He has also failed to win opposition support for legislation authorizing 44.3 trillion yen ($545 billion) in government bond sales to finance Japan’s debt.

Moody’s Investors Service on May 31 put the country’s debt rating on review for a downgrade, citing concerns over the government’s ability to fashion and “achieve a credible deficit reduction target” and the “intensifying level of political challenges” for Kan.

Japan’s bonds yesterday fell for a second day, pushing 10- year yields near a two-week high, on political concerns.

‘Political Vacuum’

“International markets are taking notice of this political vacuum called the Diet,” said political analyst Jeff Kingston, head of the Asian Studies program at Temple University’s Tokyo campus.

Kingston said he doubted the no-confidence measure would pass, adding that “when it comes to pulling the trigger,” some of those who say they will back it will change their minds. He cited Edano and Okada as possible successors to Kan.

Parliament last month approved an initial 4 trillion yen reconstruction package and Kan yesterday said the next stimulus, which needs opposition support, will be on a “big scale.” Kan said he may extend the current parliament session, scheduled to end June 22, to consider drafting the plan.

Vote Punishment

Government officials have said the no-confidence motion will fail and signaled that DPJ lawmakers who support it will be punished.

“Voting for the no-confidence measure would not be the action of a ruling party member,” Edano told reporters yesterday in Tokyo. Okada

Ozawa, who has been suspended from the party for the duration of his trial on charges of violating campaign financing laws, engineered the DPJ’s 2009 landslide lower-house victory. Kan defeated Ozawa in a party leadership election in September and has marginalized him since, provoking a backlash from Ozawa supporters.

“I want Mr. Kan to make a bold decision and step down,” DPJ lawmaker and Ozawa ally Kenko Matsuki said May 31 in an interview, adding that he will support the no-confidence vote.

--With assistance from Takashi Hirokawa and Patrick Harrington in Tokyo. Editors: John Brinsley, Patrick Harrington

To contact the reporters on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net; Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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