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Japan’s Woes Drag On

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Pacific Money

Japan’s Woes Drag On

Tokyo is expected to enter into its third recession since 2008 at the same time voters go to the polls next month.

Japanese Prime Minister Yoshihiko Noda is set to pay the ultimate political price for his fiscal reforms, with his centrist Democratic Party of Japan (DPJ) headed for a crushing electoral defeat.

Under sustained pressure from the opposition demanding that he honor his pledge for an early poll, on Friday Noda dissolved the Diet’s Lower House for a general election on December 16. The official election campaign commences on December 4, with the DPJ facing an uphill battle to retain office amid an economic downturn, division over nuclear energy and diplomatic rows with its neighbors.

“We will work hard so everyone will be able to retain his or her seat, enabling the DPJ to keep governing,” DPJ deputy secretary-general and former finance minister Jun Azumi told local media.

The move came after a Diet showdown on Wednesday between Noda and Shinzo Abe, the leader of the conservative opposition party, the Liberal Democratic Party (LDP), in which Noda pledged to dissolve the house if he gained support on electoral reform and the passage of debt-financing bills.

According to the Mainichi Shimbun, Noda considered it preferable to call a general election before the right-wing parties led by Osaka Mayor Toru Hashimoto (Nippon Ishin no Kai, or Japan Restoration Party) and former Tokyo Gov. Shintaro Ishihara’s Taiyo No To (Sunrise Party) united in a “third political force”.

The DPJ leader had promised in August that he would call elections “sometime soon” in exchange for the LDP and other’s support for passing the consumption tax increase.

Yet while Japan will now avoid its own threatened “fiscal cliff,” Noda faces a battle to convince voters of the merits of his plan to hike the consumption tax, as previously reported by The Diplomat.

The last leader to try the same was the LDP’s Ryutaro Hashimoto in 1997, and he suffered an electoral backlash so severe that it cost him his job.

‘Country first’

Azumi told national broadcaster NHK that Noda had put his country before his party’s interests in calling the poll.

“It’s not a schedule that benefits our party. But the prime minister made his decision, thinking of the national interest first,” he said.

“Unless we stay strong, changes of the government cannot happen in the future,” he added.

The latest polls are predicting Abe’s return for his second stint as prime minister, with the Japan Times predicting the DPJ may win as few as 100 seats compared to the 308 it won in the landmark 2009 election, which swept the LDP from power.

The 2009 poll may have been the worst defeat for a governing party in modern Japanese history, but voter disappointment over the DPJ’s broken promises has seen its support plummet.

In a recent Kyodo News poll, support for the DPJ was at just 10 percent, compared with the 30 percent rating for the LDP. In an even more recent Nikkei poll, however, DPJ support was at 16 percent while the LDP’s had dropped to 25 percent.

Abe’s previous stint in office lasted less than one year, from September 2006 to September 2007, during which time he suffered low approval ratings; however he was elevated back into the LDP leadership in September 2012. A noted nationalist and defense hawk, Abe has vowed to continue visits to the controversial Yasukuni Shrine, inflaming tensions with China and South Korea.

Noda’s term in office has lasted longer than many recent predecessors, having been made prime minister in September 2011. However, should he be replaced next month, Japan would have its seventh leader in the six years since the LDP’s Junichiro Koizumi stepped down in September 2006.

“The present Democratic Party of Japan Cabinet has completely lost the confidence of the general public,” said businessman Hitoshi Suga, who attributed this to its failure on energy and diplomatic policy along with the consumption tax hike.

“The difficulty, however, is that there will be no party which will likely solve all the pressing issues Japan is facing now, and no single party will be able to secure majority power, causing a lot of coalitions among various parties on a case by case basis,” he added.

Temple University Japan’s Professor Jeff Kingston agreed, saying the Japanese public was not enthralled with either Noda or Abe.

“Polls suggest Noda has no chance of keeping his job, as his support rate has slipped below 20 percent. One wonders why he [didn’t] wait for Abe to discredit himself and postpone what looks to be a shellacking for the DPJ,” he said.

Asked about Abe’s prospects, Kingston said he was known by the public as “an ineffective and inept politician who cares more about constitutional reform and nationalist grandstanding than taking care of bread and butter issues people care about”.

“Since April, [former Tokyo Governor] Ishihara shifted politics to the right over the Senkaku [island] issue and now all the contenders are staking out hardline positions. Support for Ishihara or Hashimoto is thin, but they are good copy so their influence in media and political discourse is outsized.”

Kingston said repairing relations with China would be “high on the agenda” for the new leader, although much depended on a recovery in the U.S. and European economies for the revival of Japan’s exports.

The election campaign is expected to center on the consumption tax hike, nuclear energy and plans for Japan to enter negotiations for the Trans-Pacific Partnership. However, a coalition government is predicted with neither of the main parties likely to dominate the chamber.

2013 economic revival?

Japan’s economy is expected to slide into recession this year, its third since 2008, with the government reporting earlier an annualized 3.5 percent fall in gross domestic product for the September quarter.

According to economists, the world’s third-biggest economy will post its second consecutive quarter of negative growth in the December quarter, with an average forecast of a 0.9 percent quarterly decline.

However, a rebound to positive growth is expected in the January-March quarter 2013, aided by the pickup in the U.S., Chinese and other economies.

RBS Chief Economist Japan, Junko Nishioka said the economy had entered into a recession on the back of weak global demand, but it was likely to be mild.

“Given the gradual recovery of the U.S. and Chinese economy and restrained funding costs in global markets due to central banks' efforts, I believe the recession will be shallow and short lived. We basically believe that the economy will turn positive from [quarter one] next year,” she said.

“However, it does not necessarily mean that economic conditions are good enough to enable a consumption tax hike in April 2013. The government is going to decide whether they are going to implement a consumption tax hike based on the economic conditions in mid-2013.

“Therefore, some economic measures to boost final demand are necessary to shore up economic growth, even artificially, to implement a consumption tax hike.”

Should Abe regain power, the Bank of Japan (BOJ) is expected to be under pressure to implement stronger measures against deflation, while idled nuclear reactors could be brought back online faster.

However, the question for Japan is whether it veers to the right hard enough to wreck its trade relationships in Asia, given recent rows with both China and South Korea over disputed islands.

The year-end may be fast approaching, but for Japanese politicians there are likely to be few presents from an electorate tired of being disappointed.