July 9, 2010 / 4:53 AM / 9 years ago

SCENARIOS-Japan DPJ may stumble in vote, fiscal reform at risk

TOKYO, July 9 (Reuters) - Japan’s ruling Democratic Party could fall far short of Prime Minister Naoto Kan’s target in Sunday’s upper house election, a result that could put his job at risk and hamper efforts to curb huge public debt.

The Democratic Party of Japan (DPJ) will almost certainly stay in power whatever the outcome of the vote because of its huge majority in parliament’s lower house, but it needs an upper house majority to pass bills and avoid policy deadlock.

Below are scenarios for the election outcome and policy implications. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

See graphics:

PM support falls over sales tax: r.reuters.com/myv63g

DPJ lead narrows over rival: link.reuters.com/jev83j

Japan's massive public debt: r.reuters.com/sez92m

Upper house seats before poll: link.reuters.com/tuv85m

More stories on the Japanese politics [ID:nPOLJP] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

DEMOCRATS WIN OUTRIGHT MAJORITY (HIGHLY UNLIKELY)

The resignations of Kan’s unpopular predecessor Yukio Hatoyama and powerbroker Ichiro Ozawa as party No. 2 last month lifted support for the government, but voter ratings have slid to under 50 percent since Kan proposed a sales tax rise.

To win an outright majority in the 242-member chamber, the Democrats need to win 60 of the 121 seats up for grabs, but no media surveys showed the DPJ winning that many seats.

If the Democrats win a majority, they would no longer have to rely on the tiny, pro-spending People’s New Party (PNP), their coalition ally, to pass bills in the upper house.

The Democrats themselves, however, remain a party of diverse policies, from pro-market reformers to proponents of big government, so effective decision-making needs strong leadership.

DPJ HITS PM’S TARGET (UNLIKELY)

If the Democrats hit Kan’s own target of 54, he can claim success and probably fend off any challenge from party rivals in a leadership vote set for September, and avoid becoming the latest of revolving-door premiers. This is partly because finding extra lawmakers to make up a majority might not be that hard.

The DPJ and the PNP need to win 56 seats to keep a bare majority. But if, as now seems likely, they fall short of that, the DPJ would need to find new allies. This would most likely be done on a policy-by-policy basis rather than by giving away cabinet posts in a formal coalition.

Several potential partners have said they have no plans to help out. While some analysts predict they will change their tune after the vote, political manoeuvring would absorb energy after the election, delaying key policy decisions.

Possible allies include the small pro-reform Your Party, set up by defectors from the then-ruling Liberal Democratic Party (LDP) before last year’s lower house poll, and the New Komeito, a Buddhist-backed party that partnered with the LDP until last year’s election defeat.

The New Komeito stresses tax reform to bolster social welfare policies, while the Your Party insists more waste must be cut before raising taxes. Some lawmakers might bolt from the main opposition, the LDP, which has also proposed a sales tax rise.

A tie-up with the Your Party would push the government towards more market-friendly policies.

But juggling divergent policy priorities among allies would complicate decisions, as was the case during the Democrats’ first eight months in power, when they had to deal with the PNP and a small leftist party, the Social Democrats, who left the coalition in a feud over a U.S. base in southern Japan.

DEMOCRATS WIN 50-53 SEATS (POSSIBLE)

Kan might still be able to fend off a challenge, but his ability to forge ahead with policies would be seriously weakened.

Party powerbroker Ichiro Ozawa, who has criticised the prime minister’s shift towards fiscal reform, would be more likely to back a rival in the September party leadership vote.

The worse the Democrats’ performance, the harder the bargains that small opposition parties such as the Your Party would drive to cooperate, making policy stalemate more likely.

Your Party leader Yoshimi Watanabe would probably be more inclined to stay in opposition in hopes of sparking a political realignment, possibly but not necessarily along policy lines.

Ozawa might bolt the Democratic Party if his challenge to Kan fails, splitting the party — although it is unclear how many lawmakers would follow.

DEMOCRATS WIN FEWER THAN 50 SEATS (POSSIBLE)

Ozawa and his allies would pressure Kan to resign and seek to move forward the party leadership vote.

Few analysts see the fiery former civic activist bowing out of his own accord, and some say Kan might even threaten to call a general election, gambling that Ozawa’s supporters in the lower house — many of whom are rookie lawmakers — would be the ones to lose seats while a slimmed-down DPJ kept a majority.

With smaller parties wary of tie-ups, Kan might invite the rival LDP, which agrees on the need for a future sales tax rise, into a “grand coalition”.

But if that proves fruitless, he might call a lower house election to seek a new mandate, some analysts said.

Political manoeuvering would absorb the government’s energy and difficult policy decisions would be in abeyance. (Editing by Ron Popeski)

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