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No.1 ,Politics  Jun 06, 2010

DIVIDED GOVERNMENT AGAIN

On July 11, the Japanese people went to the polls to elect their representatives to the House of Councillors. The result was a severe setback for Japan’s new ruling party, the Democratic Party of Japan. After breaking the Liberal Democratic Party’s decades-long lock on power in a historic House of Representatives election less than a year earlier, the DPJ won only 44 of the 121 seats up for grabs in the House of Councillors, while the LDP secured 51, more than any other party. As a result, although the DPJ continues to control the powerful House of Representatives and therefore the cabinet, it now lacks an upper house majority even with the help of its coalition partner, the People’s New Party. The people have voiced their dissatisfaction with the government by opting for a “hung” Diet.

The upper house election was a critical test for the DPJ. Although the House of Representatives has greater powers than the House of Councillors under Japan’s Constitution, the lower house’s preeminence is by no means absolute. True, the decision of the House of Representatives takes precedence in the designation of the prime minister, the conclusion of treaties, and approval of the budget. But as a practical matter, the two houses are on more or less an equal footing when it comes to legislation. If the House of Councillors rejects a bill passed by the House of Representatives, the lower house needs a two-thirds majority to override the upper house’s decision and enact the legislation. It is generally difficult for ruling parties to secure a two-thirds majority in the lower house.

In this sense, the upper house election was important to the DPJ-led ruling coalition because an upper house majority would have cleared the way for Prime Minister Kan Naoto’s legislative agenda. But as the first full-scale national election since the historic change of government in September 2009, it is also significant as the nation’s verdict on the DPJ’s first ten months in power.

In the following we will examine the recent election from three angles. First we will interpret the results. Next we will discuss some of the challenges facing Prime Minister Kan in the election’s wake. And finally we will touch on the larger political consequences of the election in the months ahead.

A Harsh Verdict

The recent House of Councillors election can be seen as a referendum on two basic issues: the DPJ’s overall performance managing the government since September 2009 and the basic policies put forth by the recently inaugurated Kan cabinet, including the prime minister’s statements on tax reform.

In regard to the DPJ’s overall performance as ruling party since last September, the results of the election can be taken as a harsh verdict. The DPJ cabinet of Hatoyama Yukio did accomplish something in undertaking a review of government programs in an effort to root out waste. But relations with the United States deteriorated, and the economy continued to stagnate. In addition, the DPJ betrayed the voters’ trust through political fundraising irregularities, including large contributions to Hatoyama recorded under a false name. Hatoyama’s resignation and replacement by Kan a few weeks before the election could not persuade the voters to overlook this disappointing performance.

With regard to the policies mapped out by the new Kan cabinet, much attention has been focused on Kan’s public pledge on the eve of the election to draw up a plan for tax reform during the current fiscal year and, in the process, to consider raising the consumption tax from 5% to 10%. Indeed, many observers in the media and some in the DPJ have attributed the ruling party’s election defeat to Kan’s mention of a possible tax increase. But it seems unlikely that voters rejected the DPJ purely out of opposition to a consumption tax hike, inasmuch as the LDP won the most seats of any party after incorporating a 10% consumption tax in its official election platform.

The consumption tax issue hurt the DPJ for other reasons. First, Prime Minister Kan stated vaguely that he would “use the LDP’s proposed 10-percent rate as one point of reference” without indicating his criteria for accepting or rejecting that or any other figure. Then, faced with a negative public reaction to his statement, he waffled on the whole issue. When formulating a policy on something as fundamental and crucial to the management of government as taxes, an administration needs to draw up meticulous plans based on firm economic realities and then use political leadership to realize those plans. Kan’s noncommittal approach led voters to question his leadership. And when some members of the DPJ publicly disavowed the prime minister’s position on taxes in the midst of the election, they cast doubt on the party’s unity and discipline. These missteps exacerbated concerns that had been mounting since last September regarding the DPJ’s capacity to lead the government and contributed to its defeat.

Policy Challenges

What are the challenges facing Prime Minister Kan in the wake of the upper house election? In the area of foreign policy, the biggest issue is relocation of Marine Corps Air Station Futenma in Okinawa Prefecture. In a joint statement of the Japan-US Security Consultative Committee issued on May 28, the two nations’ defense and foreign ministers agreed that “a study by experts regarding the replacement facility’s location, configuration and construction method would be completed promptly (in any event no later than the end of August, 2010).” The problem here is that the site designated for relocation, Henoko, is also in Okinawa, whose governor has come out firmly against relocation inside the prefecture. Since construction plans will require the cooperation of prefectural authorities, the government may find it difficult to keep this promise.

In terms of domestic policy, the most urgent issues facing the nation are the massive budget deficit and the stagnating economy. The first task for the administration will be to draw up the budget for the fiscal year ending March 2011, while at the same time addressing the perilous state of public finances. Of the ¥92.2 trillion budgeted for fiscal 2010, only ¥37.3 trillion is financed by tax revenues, while a full ¥44.3 trillion is covered by new issues of government bonds. Before coming to power, the DPJ claimed that the budget could be balanced without raising taxes merely by eliminating wasteful spending. The limits of that approach are attested by the results of last year’s review of government programs, which achieved savings of only ¥1 trillion. Now the Kan cabinet faces the necessity of once again raising vast sums through bond issues to cover the coming year’s budget, and Prime Minister Kan will bear responsibility for allowing this situation to continue.

Next on the domestic policy agenda is the need to revitalize the economy and lift it out of the stagnation that has persisted for so long. To be sure, in the first quarter of 2010 the economy grew at an annualized rate of 5%, but this figure reflects a one-time rebound from the dramatic slump that followed the financial crisis of October 2008. The need to revitalize the economy over the medium and long term is as urgent as ever. To do this, the government must first overcome deflation, which not only stunts economic growth capacity by contributing to unemployment and other problems but also causes tax revenues to shrink. Unlike the central banks of most industrialized countries, which adopted policies to ease credit in the wake of the financial crisis of 2008, the Bank of Japan has failed to act decisively and in the final analysis has shirked its responsibility to fight deflation. In the House of Councillors election the LDP ran on a policy to end deflation, and Your Party, which won 10 seats in the recent election, promised to amend the Bank of Japan Law for this purpose. The Kan cabinet will doubtless need to take these opposition parties’ ideas seriously as it tackles the deflation challenge.

Second, the government must spur economic growth. In this regard, the main task is to begin implementing the policies outlined in the New Growth Strategy adopted in June.

Political Obstacles

Unfortunately, Prime Minister Kan will have to overcome two major political hurdles before he can address the policy challenges outlined above. The first is the DPJ presidential election scheduled for September this year. A substantial group of DPJ members have called on Kan to take responsibility for the party’s defeat in the House of Councillors election, and it seems all but certain that the group centered on former Secretary General Ozawa Ichirō will mount a challenge to Kan’s continued leadership.

If history alone is an indication, Kan’s chances of remaining in power are poor: Setbacks for the ruling party in the upper house elections of 1989, 1995, 1998, and 2007 all led to a change in party leadership, and consequently a change in prime minister. The difference in this case is that the public does not want another change in prime minister. To be sure, support for the Kan cabinet has plummeted, with public approval falling to 38% and disapproval hitting 52% in the latest Yomiuri Shimbun poll. Yet only 28% of the electorate seeks a change in prime minister, and a full 62% want Kan to remain at the helm.

The most difficult political obstacle the prime minister must overcome is the hung Diet that has resulted from the DPJ’s setback in the upper house election. Without a majority in the House of Councillors, the ruling party will have its work cut out pursuing its legislative agenda. A comparable situation under the LDP brought legislative business to a virtual halt from 2007 to 2008. To avert such a scenario, the DPJ could try to enlist some of the opposition forces in a government coalition. The key player in this scenario would be the New Kōmeitō, which has 19 seats in the House of Councillors–enough to create a coalition with an absolute majority in the upper house. But it is difficult to picture the New Kōmeitō, the LDP’s former coalition partner, switching camps immediately after an election in which it roundly criticized the DPJ’s record and policies.

For the duration, the Kan cabinet may have no choice but to seek the opposition’s cooperation on a policy-by-policy basis. In this case, the key player will doubtless be the LDP. In addition to their similarities on tax reform, the LDP and DPJ have more than enough in common in their approach to deflation and other issues to establish a basis for compromise.

Translated from an original article in Japanese written for Japan Echo Web. [July 2010]

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