Q+A-Japan DPJ has options to break deadlock, none easy

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By Linda Sieg

TOKYO, July 13 (BestGrowthStock) – Japan’s ruling Democratic Party,
fresh from a thrashing in an upper house election, faces
political deadlock unless it can find new partners to help
enact bills in the chamber, but potential allies are sounding
cool.

Prime Minister Naoto Kan is also in danger of a challenge
from inside his party ahead of a leadership vote in September.

Below are some questions and answers about Kan’s fate,
options for the Democratic Party of Japan (DPJ) and the
implications for efforts to move ahead with steps to curb
massive public debt, reform creaking pension and healthcare
systems and engineer growth in a fast-ageing society.

CAN KAN STAY AS PM, AND THEN WHAT?

* Kan, already Japan’s fifth premier in three years, is
likely to face a challenge from Democratic Party powerbroker
Ichiro Ozawa, a wily political veteran who was sidelined when
Kan took over from unpopular predecessor Yukio Hatoyama last
month.

* Ozawa criticised Kan’s focus on steps to curb Japan’s
vast public debt, including a possible sales tax hike, during
the campaign, so any candidate he backs would probably be cool
to that debate. But Ozawa himself floated a sales tax rise
years ago, so it’s hard to say what line he would eventually
take.

* Kan is unlikely to give up without a struggle, since the
former grassroots activist is widely seen as made of sterner
stuff than recent predecessors who abruptly threw in the towel.
Many analysts think Kan can survive, but with his clout
weakened.

* If Kan wins the party vote, Ozawa might bolt from the
DPJ, splitting the party in a replay of the turmoil triggered
by his defection from the then-ruling Liberal Democratic Party
in 1993. But how many lawmakers would follow is hard to say,
since some might judge Ozawa’s own influence to be waning. The
possibility Ozawa will be charged over a funding scandal is
also a wild card.

CAN THE DPJ COURT OPPOSITION PARTIES?

* DPJ leaders say they will seek policy-based cooperation
with opposition parties, including the Buddhist-backed New
Komeito, which stresses social welfare policies, and the Your
Party, a proponent of market-friendly steps such as
deregulation and more aggressive central bank steps to fight
deflation. Cooperation with the LDP on tax reform is also
theoretically possible, since it agrees on the need for a sales
tax hike.

* But negotiating bill-by-bill deals would be
time-consuming, the DPJ could find it hard to swallow
opposition proposals whole, and doing a deal with one party on
a certain issue could upset another potential ally whose
support is needed on other bills. Policy consistency could
prove elusive.

* Finding a new ally to formally join the coalition would
provide more stability, a solution the then-ruling LDP opted
for in the decades after losing control of the upper house in
1989.

* An alliance with the New Komeito, which has 19 seats in
the upper house, would give the current ruling bloc a majority,
with 129 seats in the 242-member chamber. The party also does
not differ all that much from the DPJ on many issues, such as
the need to strengthen the social safety net and eventually
raise the sales tax. But having partnered the LDP until both
were ousted last year, New Komeito could find it hard to switch
sides quickly.

* Financial market players have focused on a possible
tie-up with Your Party as this could tilt the government toward
deregulation as well as put pressure on the Bank of Japan for
aggressive monetary policy action to fight deflation. But
adding the Your Party’s 11 upper house seats to the DPJ-led
coalition would still fall one seat short of a majority. The
party’s policies are diametrically opposed to those of the
DPJ’s current partner, the pro-big government People’s New
Party.

* A “grand coalition” with the LDP is another option that
would give the ruling bloc control of 80 percent of the seats
in the upper house and allow it to push ahead with fiscal
reform. But the DPJ once rejected the idea when Ozawa floated
it while in opposition, lawmakers in both parties are likely to
resist and managing such a huge and diverse bloc would be
difficult. LDP leader Sadakazu Tanigaki has said the
possibility was “zero”.

WOULD A SNAP LOWER HOUSE ELECTION HELP?

* Some analysts speculate Kan could call a snap lower house
election to fend off a challenge by Ozawa, since many Ozawa
followers are rookies who could lose their seats.

No lower house poll need be held until 2013, and the move
would be risky for the DPJ, which could lose a hefty chunk of
its 307 seats in the 480-member chamber — although the diverse
party could end up more cohesive.

* Others suggest the premier will be forced to call a snap
election next April, if bills needed to implement the 2011/12
budget get stuck in the upper house.

* Neither an election win for the Democrats nor the LDP
would resolve the parliamentary deadlock in and of itself,
since neither would have an upper house majority. But in theory
it would give the ruling party a mandate that would make it
easier to persuade opposition parties to do deals or join a
coalition.
(Editing by Alex Richardson)

Q+A-Japan DPJ has options to break deadlock, none easy