Japan PM survives with offer to quit once crisis overcome

TOKYO Thu Jun 2, 2011 4:03pm EDT

1 of 2. Japanese Prime Minister Naoto Kan leaves a gathering with members of his ruling Democratic Party of Japan (DPJ) in Tokyo June 2, 2011.

Credit: Reuters/Kim Kyung-Hoon

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TOKYO (Reuters) - Japanese Prime Minister Naoto Kan on Thursday survived a no-confidence vote by offering to resign once he has overcome the worst of the country's nuclear crisis, a last-minute deal with ruling party rebels who had threatened to oust him from office.

Kan's offer to step down buys him time to prepare an extra budget to fund the rebuilding cost of the March 11 earthquake and tsunami, but does little to resolve the country's long-running political and policy paralysis.

Thanks to Kan's maneuvering, the parliamentary no-confidence motion -- brought by the opposition over his handling of the country's deepest crisis since World War Two -- was comfortably defeated by 293 to 152 votes.

Yet, weakened by rifts within his own party, Kan may be seen as a lame duck by the opposition and have little luck with tax and social security reforms, which Japan badly needs to contain its bulging debt and which require opposition backing in a divided parliament.

A No. 2 in the biggest opposition party, the Liberal Democratic Party, made plain it had no intention to make things any easier for the ruling Democrats despite Kan's offer.

"We plan to carry forward while holding a strong belief that the continuation of the Kan government is not good for the country or for the people," Secretary General Nobuteru Ishihara told reporters.

He restated his party's position that it would block a bill needed to finance 44 percent of this fiscal year's $1 trillion budget unless the Democrats ditched their spending promises.

Kan, who took office almost exactly a year ago as Japan's fifth minister in as many years, is battling to control a radiation crisis at the Fukushima plant which was knocked out by the tsunami.

NO BREAKTHROUGH

He also needs to come up with a plan to pay for rebuilding the tsunami-hit region north of Tokyo without allowing debt, already twice the size of the $5 trillion economy to spin out of control.

Major rating agencies have warned Japan in the past several weeks it risked credit downgrades if a policy deadlock made it impossible to tackle the nation's ills: economic stagnation, ballooning debt and rising social security costs in a fast aging and shrinking population.

A government panel on Thursday recommended doubling the sales tax to 10 percent over the next four years and raising the retirement age to avert a financial meltdown, but it is far from clear if and when the plan can be implemented.

Financial markets were relieved that a political vacuum could be avoided at a time when Japan still battles to contain the worst nuclear crisis since Chernobyl and is struggling to pull out of its second recession in less than three years.

But there was little hope for a policy breakthrough.

"There is no change in the sense that political uncertainty still exists," said Seiji Adachi, senior economist at Deutsche Securities in Tokyo.

Speaking shortly before the vote, Kan told ruling Democratic Party of Japan lawmakers he would step down later.

"I would like for the younger generation to take over various responsibilities once I fulfill certain roles that I need to, as I work on handling the disaster," a solemn Kan told the gathering. He gave no date, and there were already signs of bickering in his party over when he should go.

Pressed to clarify at a news conference later, Kan refused to be specific. But his comments suggested he might try to stay until damaged reactors at the Fukushima plant were put into a stable "cold shutdown" -- a process expected to take at least until January.

Some ruling party rebels, fearing Kan's dismal ratings were hurting their chances of re-election, had said they wanted him out sooner and threatened to side with the opposition.

The prime minister's offer helped him win back the support of several potential rebels, including his predecessor, Yukio Hatoyama, and members of a group led by party powerbroker and Kan rival Ichiro Ozawa.

But the breathing space for Kan probably dampens short-term prospects for a "grand coalition" between the Democrats and their biggest rival, the Liberal Democratic Party (LDP), disappointing those who had hoped a new grouping could break a policy logjam in the country's fractured parliament.

(Additional reporting by Tokyo bureau, Writing by Linda Sieg and Tomasz Janowski; Editing by John Chalmers and Miral Fahmy)

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