Bloomberg News

Noda’s Job in Jeopardy After Sales Tax to Reduce Debt

August 30, 2012

Japan's Prime Minister Yoshihiko Noda

Japan's Prime Minister Yoshihiko Noda. Photographer: Katsumi Kasahara/Pool via Bloomberg

Yoshihiko Noda has accomplished more than Japan’s five previous prime ministers in his first year in office. He may still lose his job, after dividing his party, outraging anti-nuclear activists and raising taxes.

Noda split the ruling Democratic Party of Japan with legislation doubling the sales tax to address record debt, a measure policy makers had struggled to pass for a decade. Responding to power shortages that threatened economic recovery, he reactivated two atomic reactors, risking a backlash from a public still traumatized from last year’s Fukushima disaster.

Now, Noda must convince a weakened DPJ to keep him as its head in a party leadership contest next month. He also faces an emboldened opposition seeking elections as soon as October amid public sentiment toward both major parties that has soured and left voters looking for alternatives to change a system that has produced six premiers since 2006.

“No prime minister seems to satisfy the Japanese public for long -- but the others lost popularity with bad or incompetent policies,” said Ellis Krauss, a professor of Japanese politics at the University of California, San Diego. “Noda deserves a lot of credit,” he said. “However, his party is fractured, and if it loses power it may fracture further.”

Noda, 55, shelved measures in his party’s campaign platform to forge a deal with the Liberal Democratic Party to approve the tax bill, raising the risk of a challenge to his leadership at the DPJ convention Sept. 21. The LDP, which governed for half a century until losing in 2009, gave its support in exchange for Noda’s pledge to call elections “soon.”

‘Rapidly Abandoned’

The first increase in the sales levy since 1997, the legislation doubles the tax to 10 percent by October 2015. One price of the deal was setting aside DPJ promises for minimum guaranteed pensions and revamped health-care funding for people 75 years and older.

“We have to prevent his re-election,” DPJ legislator Yukio Ubukata said. “It’s unfortunate, but Mr. Noda has rapidly abandoned the DPJ to make it more like the LDP.”

That sentiment already drove more than 50 DPJ lawmakers to join power broker Ichiro Ozawa in leaving the party, and Ubukata leads one of two groups seeking to replace Noda that met today to discuss policy and selection of leadership candidates. His 59-member faction vowed to take the party back to its roots, and “repair damage caused by neo-liberal policies,” according to a statement given to reporters.

Public Sentiment

While no candidates have announced, five men vied last year to replace Naoto Kan after he resigned under fire for his leadership in coping with the March 2011 earthquake, tsunami and nuclear crisis. Environment Minister Goshi Hosono, former Foreign Minister Seiji Maehara, and ex-Transport Minister Sumio Mabuchi are possible candidates, Kyodo News reported Aug. 25, without citing anyone. Maehara and Mabuchi both ran last time.

Almost 65 percent of party supporters back Noda in the leadership race, according to a Nikkei newspaper poll published Aug. 27. The DPJ’s approval rating was at 21 percent, up three percentage points from last month, while the LDP’s rating fell two points to 25 percent, the paper said. The Nikkei surveyed 902 people and provided no margin of error.

Noda’s allies say he also deserves credit for the decision to resume nuclear power generation after the Fukushima disaster left the country without atomic energy for the first time in more than four decades.

‘Tremendous Constraints’

Businesses including NEC Corp. (6701) and Komatsu Ltd. (6301) backed the decision to re-start two reactors to avoid electricity shortages and blackouts in western Japan. The move sparked the country’s biggest protests in years, including weekly demonstrations outside of the prime minister’s official residence. Noda last week met with 11 protest organizers.

“He faced a tremendous amount of constraints from the start,” said DPJ lawmaker Akihisa Nagashima. “So he decided to start with fiscal and social security reform, while at the same time tackling the nuclear issue. It’s a pity that the number of DPJ lawmakers has fallen.”

Moody’s Investors Service Inc. on Aug. 13 called the legislation an “important step” to avoid a surge in bond yields that are now within eight basis points of a nine-year low. The benchmark 10-year bond yield traded at 0.80 percent late yesterday after reaching 0.72 percent on July 23, the lowest since June 2003.

Japan’s bond market is signaling concern that Noda may lose power, ending his debt-reduction efforts. Yields on 30-year securities exceeded two-year debt by 1.81 percentage points yesterday, the widest since April 12. Longer bonds tend to move on the fiscal outlook while shorter notes are more sensitive to monetary policy expectations.

‘Down-to-Earth’

Noda last Sept. 2 became the DPJ’s third premier in two years, likening himself to a loach fish, a freshwater bottom feeder. A second-degree black belt in judo and former finance minister, he has the fewest assets of any premier since cabinet ministers began disclosing their wealth in the mid-1980s.

“My approval ratings may not rise as prime minister,” he said five days before taking office. “But I will work and sweat to push down-to-earth politics.”

Should Noda retain his position as party head, he faces increased pressure from the LDP to call elections ahead of an August 2013 deadline. LDP chief Sadakazu Tanigaki, whose party holds its own leadership contest next month, is threatening to block bills authorizing the sale of 38.3 trillion yen ($488 billion) in bonds to finance this fiscal year’s budget unless Noda complies. The opposition-controlled upper house yesterday passed a non-binding censure against the prime minister.

‘Without Delay’

“The agreement was that if the tax bill passes, parliament would be dissolved without delay,” Tanigaki said in a July 23 interview. Noda “has gone against the DPJ’s manifesto and is now losing his footing. His ability to push things forward has disappeared.”

Tanigaki is favored by 36 percent of LDP supporters, according to the Nikkei poll. Former Prime Minister Shinzo Abe, whose resignation in 2007 after 12 months in office set off a revolving door of yearly successors, will run against Tanigaki, the Yomiuri newspaper said yesterday, without citing anyone.

Both parties are threatened by the rise of Osaka Mayor Toru Hashimoto, who has become the country’s most popular politician with his attacks on bureaucracy and political feuding. His party advocates scrapping the upper house and holding direct elections for prime minister, both of which would require amending the 65- year-old postwar constitution for the first time.

Hashimoto is seeking to win as many as 200 of the 480 seats in the lower house of parliament, and smaller opposition groups including Ozawa’s have reached out to him.

Hashimoto ‘Attractive’

“It is hardly surprising that in this context voters are finding Hashimoto attractive,” said Ian Neary, a professor of Japanese politics at Oxford University. “His group seems to offer an alternative to the largely indistinguishable LDP-DPJ, both now apparently short of new ideas.”

Re-energizing voters to support a DPJ that has jettisoned its original pledges to reduce bureaucracy, boost subsidies to families with children and cut wasteful spending may hurt Noda as he runs on a record of higher taxes and the resumption of nuclear power, said Jun Okumura, a senior adviser for the Eurasia Group consulting firm in Tokyo.

“He had very good intentions,” said Okumura. “He has been able to show a consistency and sense of purpose that was missing. Given the circumstances I’d give him pretty high marks compared with his predecessors.”

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus