Bloomberg News

Japan Politics Enters ‘Real Chaos’ With Kan Resignation Vow

June 03, 2011

(Adds Kyodo poll results in sixth paragraph.)

June 3 (Bloomberg) -- Naoto Kan’s pledge to step down as prime minister set off a contest to select Japan’s next leader, adding to the risk of delays in reconstruction and revenue bills needed to restore growth and assuage credit concerns.

Kan yesterday survived a no-confidence vote in parliament after appeasing Democratic Party of Japan rebels with an offer to resign once the nation’s worst postwar crisis is contained. DPJ lawmakers then divided over when that may happen, with Kan’s predecessor saying it could be by month-end and the prime minister suggesting it might not be until early next year.

"This is a new stage of real chaos in Japanese politics, and I don’t see any scenario where things will suddenly get better," said Koichi Nakano, a political science professor at Sophia University in Tokyo. "Japan is paying a very high price for the instability at the top."

At stake is the “big” spending package Kan has committed to help rebuild northeastern areas devastated by the March earthquake and tsunami, which the central bank is counting on for a second-half economic rebound. Credit-rating companies are also waiting for a fiscal plan that spells out how Japan will rein in the world’s biggest public debt.

Disappointed Voters

The prospect of a sixth prime minister in less than five years may come as a disappointment to voters who propelled the Kan’s DPJ to power in August 2009 with an historic win over the Liberal Democratic Party that dominated Japan’s postwar politics. Less than two years later, none of the DPJ’s main goals, from reducing the power of the bureaucracy to boosting financial aid to families as a way of halting the decline in population, has been accomplished.

Kan’s approval rating rose to 33.4 percent in Kyodo News poll published today from 28.1 percent in mid-May. About 48 percent said he should resign while 45 percent said he doesn’t need to. Nearly 90 percent of respondents disapproved of the maneuvering by the DPJ dissidents. The telephone survey conducted June 2-3 didn’t provide a margin of error.

“There will be a very serious conflict on when he should step down, so the current stability will be very, very fragile,” Jiro Yamaguchi, a political science professor at Hokkaido University, said in an interview with Bloomberg Television today. The ruling party’s divisions mean “it’s losing the power of policymaking or governing this country,” he said, adding that Kan will likely at most stay at the helm until year-end.

Bonds Drop

Japanese bonds posted the biggest weekly drop in two months on prospects the political turmoil will delay rebuilding from the disaster. The benchmark 10-year yield gained 1.5 basis points on the week to 1.135 percent as of 3:01 p.m. in Tokyo.

Kan, 64, failed to galvanize support for higher taxes to shrink the deficit, abandoned a plan to lower corporate taxes and was criticized for his handling of the Fukushima Dai-Ichi power-plant disaster, which ballooned to become the worst nuclear crisis since 1986. Some DPJ lawmakers suggested he quit.

His offer yesterday to “pass on my responsibility” once the crisis is contained set off a conflict over timing. Former DPJ premier Yukio Hatoyama, who along with indicted former DPJ party chief Ichiro Ozawa had sought to oust Kan, told reporters that the prime minister agreed in a meeting to step down after a second post-quake stimulus bill is drafted. Hatoyama said he thought that would be “by the end of June.”


DPJ Secretary-General Katsuya Okada said there were no conditions or time frame attached to Kan’s comment. Asked about Okada’s remarks, Hatoyama called it “a lie.”

Speaking at a late-night press conference, Kan denied reaching an agreement with Hatoyama on when he might resign. He said “it’s my responsibility” to stay on until the situation at a crippled nuclear power plant is stabilized through a cold shutdown of its reactors. Tokyo Electric Power Co. in April said it aims to stabilize the facility by January.

Hatoyama today told reporters that if Kan "doesn’t keep his promise, he’s a swindler," NHK Television reported.

Okada is a potential successor to Kan, as are Chief Cabinet Secretary Yukio Edano and former foreign minister Seiji Maehara. All were among a group voters cited as preferable candidates in a Nikkei newspaper survey published May 30.

“This is the beginning of the end for the Kan administration,” LDP leader Sadakazu Tanigaki told reporters. “Our no-confidence motion prompted his resignation remarks.”

Fresh Headwinds

Japan’s economy, which shrank in the six months through March and is projected to contract in the current quarter, is facing fresh headwinds from signs of a global slowdown. Stocks fell and bonds rose yesterday after U.S. reports indicated manufacturing was weaker than forecast and companies slowed their pace of hiring.

The yen rose to 80.62 per dollar at 5:47 p.m. in Tokyo from 80.90 yesterday in New York. Japan’s benchmark Nikkei 225 Stock Average fell 0.7 percent today after closing down 1.7 percent yesterday.

“If this disorder continues, Japan is going to lose credibility,” said Kazushige Okuno, a senior fund manager who oversees 23 billion yen ($285 million) at Norinchukin Trust & Banking Co. in Tokyo. “It’s a little sad.”

Kan is already embroiled in a dispute within the DPJ over whether to raise taxes to pay for rebuilding from the catastrophe. He has also failed to win opposition support for legislation authorizing 44.3 trillion yen in government bond sales to finance Japan’s debt.

No LDP Cooperation

While the LDP backed an initial 4 trillion yen stimulus plan, Tanigaki said in submitting the no-confidence measure that the party would refuse to cooperate as long as Kan is in office.

“The second extra budget will take a long time to get ready,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “The rejection of the no-confidence motion doesn’t mean the state of political confusion will change.”

Any delay in reconstruction leaves the onus on the Bank of Japan, which has refrained from adding monetary stimulus since March, to support growth. BOJ board member Seiji Nakamura told reporters yesterday in Nara, western Japan that “the halting or paralysis of government functions is unacceptable given we need to solve issues pertaining to the earthquake and Fukushima nuclear plants soon.”

--With assistance from Yumi Ikeda, Akiko Ikeda and Keiichi Yamamura in Tokyo and Susan Li in Hong Kong. Editors: John Brinsley, Peter Hirschberg

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at; Takashi Hirokawa in Tokyo at

To contact the editor responsible for this story: Peter Hirschberg at -0- Jun/03/2011 08:52 GMT

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