Bloomberg News

LDP Seen Winning Japan Vote That Risks Policy Gridlock

November 30, 2012

LDP Seen Winning Japan Vote That Risks Policy Gridlock

Party leaders pose for a group photograph before their debate ahead of the Dec. 16 general elections at the Japan National Press Club in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Three years after its half-century rule of Japan ended, the Liberal Democratic Party is poised to regain power. Even so, a splintered political landscape risks the same gridlock that has led to six leaders in as many years.

Polls show that while the LDP will get the most seats in the Dec. 16 election in the Diet’s lower house, other parties may limit its victory. A party run by Osaka Mayor Toru Hashimoto is favored over Prime Minister Yoshihiko Noda’s Democratic Party of Japan, and groups calling for the abolition of nuclear power and opposed to a U.S.-led trade deal are also drawing support.

While the LDP and its partner New Komeito may win a majority, legislation can be blocked in the upper house, where they hold fewer than half the seats. That may hamper LDP leader Shinzo Abe’s pledges to revive the world’s third-largest economy through more expansive monetary easing and to increase control of islands disputed with China.

“It’s a chaotic situation,” said Steven Reed, professor of political science at Chuo University in Tokyo. “It could turn out that a coalition can put together enough seats to take a majority, but are not able to govern.”

At least 12 parties are campaigning for the 480-member lower house that is made up of 300 single constituencies and 180 proportionally apportioned seats. The DPJ had 233 seats and the LDP 118 when Noda dissolved the chamber on Nov. 16.

‘Tough Fight’

The LDP is backed by 23 percent of voters, while 15 percent support the Japan Restoration Party of Hashimoto and ex-Tokyo Governor Shintaro Ishihara, a Nikkei newspaper poll yesterday showed. The DPJ had 13 percent and New Komeito 4 percent, while support for three parties that formed an anti-nuclear coalition got 5 percent. The survey of 865 people gave no margin of error.

“It’s going to be a really tough fight,” said Hiroshige Seko, an upper house LDP lawmaker who served as a press aide to Abe during his previous term as premier in 2006-2007. “We can’t let our guard down. We are used to fighting campaigns against the DPJ, but this time we also have to differentiate ourselves clearly from the JRP.”

Ishihara, whose April proposal to buy an island chain also claimed by China forced Noda’s government to purchase the property in September, agreed this month to join Hashimoto.

Support for the Democrats plummeted over its handling of last year’s record earthquake and tsunami that spawned the Fukushima nuclear crisis. Noda, the party’s third premier in three years, sparked an internal split by pushing through an unpopular bill that will double the 5 percent sales tax to cope with record debt and rising welfare costs in an economy that contracted last quarter.

Public Confidence

“If we have lost public confidence it is because of poor party governance,” DPJ lawmaker Kouhei Ohtsuka said. “We need to get people to understand that our policies have worked.”

The sales tax is set to rise to 8 percent in April 2014 and 10 percent in October 2015. Noda today in a televised debate defended the increase as necessary to sustain the social security system in the world’s most rapidly aging society.

“We did it for future generations,” he said in the debate with 10 other party heads. “At the moment, we are funding social security not only from the working population, but are reaching into the pockets of the next generation.”

Japan’s currency has risen almost 11 percent against the dollar since the DPJ took power in September 2009, while the benchmark Nikkei Stock Average has fallen 10 percent. The yen’s strength has hurt exporters like Sony Corp. (6758) and Panasonic Corp. (6752), both of which had their credit ratings cut to junk last week for the first time by Fitch Ratings.

‘New Level’

Abe, who was elected head of the LDP in September after resigning the premiership in 2007 after one year in office, helped send the yen to a seven-month low last week by saying the Bank of Japan (8301) should conduct “unlimited” easing and set an inflation target of at least 2 percent to end more than a decade of deflation.

“We are not the LDP of three years ago, particularly in terms of economic policy,” he said in a debate last night. “We want to push ahead with anti-deflationary policies on a new level.”

The Nikkei index rose 1 percent yesterday after Goldman Sachs Group Inc. said shares would benefit from an LDP victory.

“We would expect policies aimed at combating deflation, including public works investment, possible corporate tax cuts and a re-think of the nuclear phase-out plan,” Goldman strategist Kathy Matsui wrote in a report.

Defense Spending

The LDP leader has also called for strengthening control over islands known as Senkaku in Japan and Diaoyu in China and pledged to boost defense spending. Japan’s purchase of the island chain sparked violent demonstrations in China and damaged the $340 billion trade relationship between the world’s second and third largest economies.

Abe’s policy platform has sparked resistance within the Komeito party, whose coalition with the LDP has lasted more than a decade in and out of government.

“Ties between Japan and China are in a bad way, and we must avoid any worsening of international disputes,” said Makoto Nishida, head of Komeito’s upper house parliamentary affairs committee. “Telling the BOJ to deal with deflation and the strong yen on its own by increasing monetary easing is placing all the responsibility on the central bank and I don’t think that’s appropriate.”

As a result, the LDP may have to compromise to maintain the partnership, he said.

“Realistically, what you say as an opposition leader and what you say in a coalition government are different,” Nishida said.

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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