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

By Linda Sieg

TOKYO, July 9 (BestGrowthStock) – 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.
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See graphics:

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

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

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

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

More stories on the Japanese politics [ID:nPOLJP]
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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)

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