FACTBOX-Policies at stake after Japan govt loses election

July 12 (BestGrowthStock) – Japanese Prime Minister Naoto Kan’s
government suffered a major blow in Sunday’s upper house
election, threatening a policy deadlock that could thwart efforts
to curb massive public debt and engineer growth.

Voters dealt Kan’s Democratic Party of Japan a stinging
rebuke in the election, depriving the DPJ and its tiny ally of a
majority less than a year after the Democrats swept to power with
promises of change. [ID:nTOE66A02V]

The Democrats still have a dominant grip on the more powerful
lower house. But they will need to seek new partners to control
the upper chamber, which can block bills.

Below are key policies that could be affected by the outcome
of the election:


Debt woes in the euro zone have turned the spotlight on
Japan’s own massive debt, which the International Monetary Fund
put at 217.7 percent of gross domestic product last year, far
worse than Greece’s debt-to-GDP ratio of 115.1 percent.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Japan's debt woes: http://r.reuters.com/sez92m Graphic on Japan poll results: http://r.reuters.com/sax86m More stories on the Japanese politics [ID:nPOLJP] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Most of Japan’s debt is held by domestic investors, who are
less sensitive to credit ratings agency downgrades than foreign
investors, but that is slowly changing as the population ages and
household savings fall.

Kan, a former finance minister, had made fiscal reform a top
priority, floating a possible doubling of the 5 percent
consumption tax. The main opposition Liberal Democratic Party also
favours a rise in the sales tax to 10 percent, but the poor
election results could make it harder for Kan to push forward
debate on the politically touchy topic.

The government last month unveiled a mid- and long-term
fiscal reform strategy. But the plan lacked specific ideas on how
to meet ambitious targets such as balancing the budget and
reducing its debt-to-GDP ratio. [ID:nTOE65L01H]

A majority of voters agree fiscal reform is needed. But his
apparent flip-flopping on a possible additional tax burden has
put off many voters.


The Bank of Japan, which has stressed the need for a credible
plan to cut back public debt, sees little need to ease monetary
policy and feels it has done enough for now by outlining a loan
programme aimed at supporting industries with growth potential.

Political instability after Sunday’s election means it would
be difficult for the government to carry out steps to support a
fragile recovery in the world’s No.2 economy. That could renew
government pressure for a more aggressive monetary policy. While
the BOJ is independent from the government by law, direct
pressure from the premier might be hard to resist.

The opposition Your Party, seen by some as a potential DPJ
ally after it won 10 seats in Sunday’s poll, wants to revise the
law governing the central bank to seek stronger government-BOJ
cooperation to end deflation by making maximum employment one of
the BOJ’s objectives, similar to a law governing the U.S. Federal


Investors remain reluctant to test the government’s tolerance
for a strong currency, although Tokyo has not intervened in the
market since early 2004.

Kan caused a stir in January when he said he would work with
the BOJ to weaken the yen, and that “it would be nice” if the
Japanese currency slipped further.

He has subsequently toed the government line that stable
exchange rates are desirable but levels should be set by the
markets — but noted after becoming prime minister that there was
a general view that a weaker yen would be better for Japan’s
export-driven economy.


Kan has stuck to a 2020 goal to cut Japan’s greenhouse gas
emissions by 25 percent from 1990 levels, premised on an
international framework in which major emitting countries would
agree on ambitious targets.

The more powerful lower house passed a climate bill including
that goal and a shortlist of domestic measures to achieve it, but
the upper house ran out of time to enact the legislation. But the
fate of the legislation is murky after the ruling coalition
suffered a major setback in the poll.


The parliament session ended in mid-June without passage of a
bill to scale back postal privatisation. Kan has said he will
resubmit the legislation, sought by his tiny coalition partner
the People’s New Party, in an extra session in the autumn.

But without a coalition upper house majority, it looks almost
impossible for the legislation to be enacted any time soon.

Not all Democratic Party lawmakers are keen on the
legislation and banks complain it would give Japan Post an unfair
advantage because of an implicit government guarantee.

Japan Post, which has retail banking and insurance services,
is the world’s largest financial conglomerate with assets of
about 300 trillion yen ($3,387 billion) and its fate could sway
financial markets and industry.

The United States and Europe have said the draft legislation
had not addressed their concerns about what they see as the
preferential treatment that Japan Post receives compared with
private-sector companies.


The election defeat of the ruling coalition is unlikely to
shift Japan’s foreign and security policies drastically.

The Democrats took power promising to steer a diplomatic
course more independent of close ally the United States, but
efforts by Kan’s predecessor Hatoyama to do so hit a roadblock
when he failed to find an alternative to keeping a U.S. Marine
airbase on the southern Japanese island of Okinawa.

Tokyo and Washington have basically agreed to implement a
2006 agreement to shift the Marines’ Futenma airbase to a less
crowded part of Okinawa, host to about half the U.S. troops in
the country.

But local opposition clouds the outlook for implementation,
and experts worry that Hatoyama opened a Pandora’s box by fanning
anti-base sentiment that could undermine the 50-year-old

The government will also likely keep stressing the need to
deepen ties with other Asian countries including China, given
Japan’s increasing reliance on the region for economic growth.
($1=88.56 Yen)
(Compiled by Leika Kihara, Hideyuki Sano, Charlotte Cooper, Yoko
Nishikawa, Risa Maeda and Linda Sieg; Editing by Michael Watson)

FACTBOX-Policies at stake after Japan govt loses election