Bloomberg News

Japan Fiscal Cliff Averted as Deal Paves Way for Election

November 13, 2012

Japan's Prime Minister Noda

Yoshihiko Noda, Japan's prime minister. Photographer: Kiyoshi Ota/Bloomberg

Japan’s ruling party reached an agreement to end a budget standoff, paving the way for elections as soon as next month as a poll showed voter discontent with Prime Minister Yoshihiko Noda at a new high.

The deal was reached today after last night’s preliminary accord, Akira Amari, policy chief for the main opposition Liberal Democratic Party, told reporters in Tokyo. Noda has decided to dissolve parliament before the end of the year and call new elections either in the second half of December or in January, the Nikkei newspaper said today without citing anyone.

Today’s compromise between the Democratic Party of Japan and the two main opposition groups achieves one of Noda’s three conditions for fulfilling an August pledge to call an election “soon.” Public dissatisfaction over his handling of an economy that contracted in the third quarter increases the possibility of Japan getting its seventh leader in as many years.

“I welcome the fact that the three parties have reached an agreement,” Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo. “It is my strong hope that the bill itself will be enacted quickly.”

The three-party agreement calls for the authorization of deficit-financing bonds for the fiscal year ending in March, as well as for the subsequent three years. The measure was blocked by the opposition-controlled upper house of parliament, leading Finance Minister Koriki Jojima to warn that the government would run out of money by the end of November.

Election Promise

“One down, two more to go,” said Takuji Okubo, chief economist at Japan Macro Advisors who has worked as an economist at Goldman Sachs Group Inc. and Societe Generale SA. “Noda must have promised an election before the end of the year in return for passage of the deficit-financing bill.”

The stalemate hampered efforts to boost an economy hit by falling exports amid a territorial dispute with China, Japan’s biggest trading partner. Gross domestic product fell an annualized 3.5 percent in the third quarter of the year, a government report yesterday showed.

“It’s extremely difficult to oversee fiscal policy without the deficit-funding bonds,” Jojima said today in parliament. “I would like parliament to authorize them as soon as possible.”

Noda’s disapproval rating rose five percentage points to 64 percent, the highest since he took office in September 2011, an Asahi newspaper poll published today showed. His approval rating was unchanged from three weeks ago at 18 percent.

The prime minister is also calling on the opposition to back measures on electoral reform and agree on a framework for revising social security policy before the election.

Asked which party they would vote for in the proportional representation section if the election were held now, 29 percent of respondents to the Asahi poll picked the LDP, compared with 12 percent who opted for the DPJ.

The newspaper surveyed 1,611 people in its Nov. 10-11 telephone poll and provided no margin of error.

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


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