INSTANT VIEW: Japan PM Fukuda resigns over deadlock
TOKYO (Reuters) - Japanese Prime Minister Yasuo Fukuda said on Monday he had decided to resign in an effort to break a political deadlock.
Fukuda has been struggling to cope with a divided parliament where the opposition parties control the upper house and can delay legislation.
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KEY POINTS:
-- Fukuda's resignation does not automatically mean an election. His Liberal Democratic Party must pick a new leader and win the backing of parliament's lower house if it wants to carry on leading Japan's coalition government.
COMMENTARY:
TSUYOSHI SEGAWA, EQUITY STRATEGIST, SHINKO SECURITIES
"Foreign observers may be amazed to see Prime Minister Yasuo Fukuda resign in September, just after Prime Minister Shinzo Abe resigned last September, but it doesn't seem so strange. Support for Fukuda's cabinet was sinking and it was clear that it wouldn't be able to do battle in an election, so something was bound to happen sometime.
"The LDP will have to elect a new leader and Secretary-General Taro Aso is the most likely candidate to succeed. The stock market tomorrow will move on the premise of an Aso government. But the Democrats will be on the attack, accusing the LDP of irresponsibility, and a general election will be difficult to avoid. Even if Aso comes to power, it is quite likely that it will only be an interim government, so this will be difficult for stock market to digest."
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DEREK HALPENNY, SENIOR CURRENCY ECONOMIST, BANK OF TOKYO MITSUBISHI-UFJ, LONDON:
"Obviously it's a bit of a surprise, but not a complete surprise if you look at the most recent approval ratings. It's another sign that potentially Fukuda was simply going to have too much difficulty re-emerging from the hole that he's gradually been putting the party into. There was some criticism over the weekend about the effectiveness of the fiscal stimulus, so maybe that was the last straw. Looking ahead, the party needs to take a stand ahead of the next general election and needs to get a leader in before going to the people again.
"For financial markets, the key is the process of selecting a new leader: is it going to be a prolonged process with many people, or one person and the impression of a unified party? If it goes smoothly, then the fall-out is unlikely to be significant. I still wouldn't say it's going to be huge.
"The other point, since Fukuda stepped into the premiership, the perception of reform that was strongly in place under Koizumi had ebbed away gradually, and investors had become skeptical of the process of reform. If you could put someone in who could create a sense of unity with in the party, that creates potential for more meaningful reform. Obviously the markets at the moment are taking it quite negatively, with the yen weaker, and that's the common sense, knee-jerk reaction. We need to see what the process will be. Will it be Aso, will it be someone unknown? Given that Fukuda was viewed so negatively, it has to be construed as a positive.
"Is there going to be another more meaningful stimulus package? I would imagine the JGB market may view this as the chance of something more significant. If the likelihood of more JGB issuance becomes a much more likely scenario, longer-term yields in Japan could move higher. If Aso is more pro fiscal stimulus and issues more JGBs to get the economy going, you could argue that's negative for all markets. Those are just impressions."
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JONATHAN ALLUM, JAPAN STRATEGIST AT KBC FINANCIAL PRODUCTS
"Its all come as a bit of a shock. No one expected Mr. Fukuda to last that long but not to resign today.
"He has probably been dismayed by the evidence that his Cabinet shuffle and the economic package (did) nothing to raise the Cabinet's popularity or make it easier for them to get anything done. Perhaps the last straw was that the Nikkei poll over the weekend showed that after the economic package was unveiled the Cabinet's popularity fell nine points.
"So far neither Nikkei futures nor forex market are showing any reaction. The question is whether this will mark the dismantling of the coalition and possibly the end of the LDP - in a sense the completion of a process started in 1993 when the LDP were voted out but clawed their way back in."
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TAKAHIDE KIUCHI, CHIEF ECONOMIST, NOMURA SECURITIES
"I think he had to resign as public support didn't rise after the cabinet reshuffle and the economic package.
"He may have felt that he can't push his own agenda after he was forced to accept the New Komeito's call for tax cuts despite his zeal for fiscal reform.
"(LDP Secretary General Taro) Aso has been advocating larger fiscal spending lately, so fiscal discipline may suffer a set-back after Fukuda's resignation. That could lead to a triple fall (in Japanese stocks, Japanese bonds and the yen.)"
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