Democracy trying to break out in Japan? - Mercedes-Benz Forum

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post #1 of 4 (permalink) Old 07-30-2007, 10:00 AM Thread Starter
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Democracy trying to break out in Japan?

Japan's Election Results Serve to Check Ruling Party Program

Japan is entering a volatile political phase, one likely to slow the pace of reforms now that Japanese voters, in a seismic shift, have opted to deprive the ruling Liberal Democratic Party of its majority hold on the upper house for the first time in its nearly unbroken post-World War II rule, extending back to the party’s founding in 1955.

It was a stunning victory for the opposition Democratic Party of Japan and a devastating defeat for LDP, as the ruling party is known, almost in equal magnitude to the historic loss it faced in 1989, when it won only 36 seats in the upper house, which eventually forced the resignation of then Prime Minster Sosuke Uno. This time, under Prime Minister Shinzo Abe, it fared nearly as badly, taking only 37 seats of the 121 (half the chamber) that were contested.

Sunday’s election results leave LDP’s coalition with the New Komeito Party in a minority position of 103 seats in the 242-seat upper house. By contrast, the opposition DPJ advanced to take 112 seats, up from 81 seats previously, giving its opposition alliance a majority of 140.

Thanks to Abe’s popular predeccessor, Junichiro Koizumi, the LDP can still take solace in its absolute majority in the influential lower house, which has the final say on budgets and ordinary legislation. The LDP has 305 seats, giving its ruling coalition a total of 351 seats in a lower house of 480 members.

But the ruling party may be too weak to push its bills through the parliament, whose two houses are known as the Diet, even with the backing of such a powerful majority in the lower house. Overriding an opposition-controlled upper house is difficult; in fact, the last time an overriding vote was passed more than half a century ago in 1953.

Analysts are expecting a prolonged impasse marked by political gridlock in parliament and persisting doubts about the capacity of the LDP leadership to act, as the opposition threatens continually to force a snap election for the lower house, a threat whose chance of realization is slim but that could eventually force the ouster of Abe, the youngest prime minister in Japan’s postwar history. Abe’s inexperience in politics and unconvincing leadership style were being blamed for a seemingly unending string of missteps and improper public statements made by top cabinet members he had chosen.

The new power balance is expected to lead to a general adjustment of the LDP’s pro-business attitude and policies to accommodate the opposition’s concern with helping rural dwellers who are being left behind in Japan’s current economic recovery, thus helping narrow the widening income gaps. Enthusiasm, or the political will, to push for further deregulation and tax reform measures is widely expected to be suppressed. The immediate causality would be a proposal to pass a controversial consumption tax rate hike.

In the aftermath, Japan will see its stock market languish, bond yields reflective of increased risk and continued capital outflows, according to Robert Alan Feldman, head of economic research for Japan at Morgan Stanley. Another analyst, Nikko Citigroup’s strategist Tsutomu Fujita went as far as to project a cap on potential upside in the long term, given the political instability. He expected that some big business-friendly policies implemented by both Koizumi and Abe administrations--such as tax breaks for earnings from securities, capital investment and similar items--could come undone. He also expected a shift toward the aggressive spending program favored by the opposition, leading to increased issuance of government bonds and in turn driving up long-term interest rates.

“With the prospects for political stability bleak, it would be unreasonable, in our view, to expect serious economic growth strategies, measures to counter the country’s low birth rate, reform of the tax system, etc., at least over the near term,” he wrote.

But Goldman Sachs analyst Tetsufumi Yamakawa challenged that view. Yamakawa suggested the impact on financial market would be fleeting, as foreign investors are already underweight on Japan’s equities relative to the benchmark and that the market could benefit from the current favorable macroeconomic picture--a recovering economy, receding inflation and growing corporate earnings. “Thus the initial equity market weakness would be short-lived, and would provide good opportunity to buy the market in weakness,” he wrote in a note on Monday. Yamakawa suggested the ruling party’s majority in the lower house should be adequate for it to stay the course in pursuing its major economic policies such as fiscal tightening, thus limiting upward pressure on long-term interest rates.

"If spending money you don't have is the height of stupidity, borrowing money to give it away is the height of insanity." -- anon
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post #2 of 4 (permalink) Old 07-30-2007, 05:41 PM
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Criffs Notes, prease.*

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post #3 of 4 (permalink) Old 07-30-2007, 05:48 PM
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post #4 of 4 (permalink) Old 07-30-2007, 06:05 PM Thread Starter
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Originally Posted by Digmenow
Criffs Notes, prease.*

*With apologies to Naomilla
Since the end of WWII, the U.S. has discouraged democracy in Japan toward the side of one-party rule (rather rike the "success" of the communist party in the USSR). That party has now been voted out of power (to an extent). It may be a fleeting development (as it was in 1989) or it may represent a path toward independent rule. Time will tell.

Big-time repercussion potential for the U.S.

"If spending money you don't have is the height of stupidity, borrowing money to give it away is the height of insanity." -- anon
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