Asia

Asia

Japan Downgrade Cites Lack of Faith in Kan’s Policies

28 January 2011 03:00 (UTC +04:00)

Baku-APA. The downgrade of Japanese government bonds was as much about politics as economics, APA reports quoting wsj.com website.
In lowering its rating on Japan’s sovereign debt, the Standard and Poor’s rating agency cited a lack of faith in the ruling party’s ability to solve its huge economic challenges, as Prime Minister Naoto Kan struggles to manage a divided parliament and muster unity within his own party.
"In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country’s debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer," S&P said in a statement as it lowered Japan’s rating by one notch to double-A-minus in its first downgrade since 2002.
The reference was to the election defeat last July of the DPJ. Now lacking a majority in one of the two chambers of parliament, it is all but impossible to pass most types of legislation without time-consuming efforts to try win over opposition parties, often with drastic concessions.
A divided parliament has been a near constant state in Japan in recent years, with voters’ preferences shifting from one party to another with each major election, as they searched for new voices to speak for them following a long single-party rule. Disappointment over politicians’ inability to offer solutions to a long economic malaiseâ€”and challenges stemming from an aging and shrinking populationâ€”also has made them impatient with political parties.
Prospects for Mr. Kan gaining support from parliament are dimming, even as he begins to accelerate his push for ambitious initiatives to cut the nation’s huge fiscal deficits and spur economic growth through trade liberalization. With approval ratings for Mr. Kan’s government at precariously low levels, winning cooperation from key opposition parties is a tall order.
When the DPJ scored an overwhelming victory in general elections in the summer of 2009, many thought Japan would regain political stability, with the party holding solid control of parliament. But it soon became clear that would not be the case. Popular support for the DPJ crumbled rapidly as the party began to flip-flop on key policies, such as the relocation of a U.S. military base in Okinawa.
A campaign-funds scandal involving a party power-broker also disappointed voters, and created a division within the party over whether to sideline the tainted leader.
The DPJ tried to regain popularity with the appointment of Mr. Kan last June, but he squandered the chance with an untimely introduction of a discussion for fiscal consolidationâ€”just before the fateful July electionsâ€”that includes a rise in the broad national sales tax known as the consumption tax. A majority of Japanese think fiscal reform is needed, but many were turned off by the sudden mention of the consumption-tax increase, which the DPJ had promised to keep on hold until the next scheduled general elections in 2013.
"The DPJ has shifted its policies pretty drastically from the left-of-center to the very center abruptly," said Koichi Nakano, associate professor of political science at Sophia University in Tokyo. "And they haven’t done a good job of persuading the voters why the shift was needed."
The severity of the political deadlock became painfully clear this week as lawmakers returned to parliament for a new session.
Determined to boot the DPJ out of power and return to its long-held throne, the opposition Liberal Democratic Party has made it clear it will challenge every major issue, from the budget for next fiscal year starting April 1, to fiscal reform, including the sales-tax jump. Accusing the DPJ of breaking its campaign promises from 2009, LDP President Sadakazu Tanigaki demanded repeatedly that the DPJ dissolve parliament and call general electionsâ€”13 times on Wednesday alone.
For now, Mr. Kan has kept his cool, calling for cooperation from the opposition in passing fiscal reform and other key policy initiatives. He stood firm against the demand for general elections. "At this point, we are not thinking at all about dissolving parliament."
The contentious exchange at the onset of the new parliament session prompted a chorus of criticism in the Japanese media across the political spectrum. "We really do not want to see the continuation of fruitless confrontations that takes policy debates hostage," the Nihon Keizai Shimbun said on its editorial page Thursday. "We are facing a moment when parliament’s raison d’etre is tested."
Political analysts say Mr. Kan must overcome several roadblocks over the next several months to stay in power. After persuading the opposition to engage in parliamentary debate, he must get their support to pass the budget in time for the new fiscal. He will also need to jack up popular support for the DPJ to deliver decent results in local elections, to be held countrywide in April. His failure could result in another big shift in the political landscape, which could be the replacement of the cabinet with a new prime minister, or general elections that could result in a major loss by the DPJ and a split of the party.
"I tend to think this is simply a way station in a more basic transition in Japanese politics," says Kent Calder, director of Japan studies at Johns Hopkins’ School of Advanced International Studies, Baltimore.
He added that Japan could go through another round of political realignment this year. "Japan would be far better off with a realignment because you need a party that has the ability to control both houses," he said.