SCENARIOS-Japan ruling party heads for election with tailwind

(For more stories on Japanese politics, click on [ID:nPOLJP])

By Linda Sieg

TOKYO, June 16 (BestGrowthStock) – Japan’s parliament was to end
its current session on Wednesday, clearing the way for a likely
July 11 upper house election the ruling party needs to win to
ease policy making as the government tries to rein in its huge
debt.

Support for the Democratic Party of Japan (DPJ) has
rebounded since Prime Minister Naoto Kan replaced his unpopular
predecessor Yukio Hatoyama last week, improving the party’s
poll chances.

The DPJ will stay in power regardless of the outcome of the
vote by virtue of its huge majority in the powerful lower
house, but it needs an upper house majority to pass bills
easily.

Below are scenarios for the election outcome and policy
implications. Predictions are complicated by the fact that many
members are elected from multi-seat districts and by the
formation of new small parties.

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Graphic on voter intentions http://link.reuters.com/jev83j

Graphic on voter support http://r.reuters.com/myv63g

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DEMOCRATS WIN OUTRIGHT MAJORITY (Unlikely, for now)

The resignations of Hatoyama and powerbroker Ichiro Ozawa
as party secretary-general have lifted support for the DPJ,
with polls showing the party well ahead of its nearest rival.
[ID:nTOE65D02F]

Although an outright majority for the DPJ remains unlikely,
it cannot be ruled out, especially since few voters find the
main opposition Liberal Democratic Party (LDP) appealing.

To win an outright majority in the 242-member chamber, the
Democrats need to win 60 of the 121 seats up for grabs.

If the Democrats win a majority, they would no longer have
to rely on the tiny People’s New Party (PNP), their coalition
ally, to pass bills in the upper house.

The clout of the PNP, which favours big spending to
stimulate the economy, has already weakened with the
resignation of its chief, Shizuka Kamei, as banking minister.

While the PNP would probably stay in the coalition, its
ability to block efforts at fiscal reform would be lessened.

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.

DEMOCRATS MISS MAJORITY BY SMALL MARGIN (Likely)

Analysts say the Democrats have a shot at winning 50-54
seats, which would leave them from two to 10 seats short of an
outright majority. Kan has set his target around that level, a
relatively low hurdle that would let him claim success even
without taking a majority.

The Democrats would probably stick with the PNP as a
coalition partner and seek additional allies, perhaps on a
policy-by-policy basis rather than by giving other parties
cabinet posts in a formal coalition.

Possible partners include the small pro-reform Your Party,
set up by defectors from the then-ruling LDP before last year’s
general election for the lower house, and the New Komeito, a
Buddhist-backed party which partnered with the LDP until last
year’s election defeat. The New Komeito stresses social welfare
policies but also acknowledges the need for fiscal reform.

This outcome could also improve the prospects for steps to
curb debt, since several of the small parties are pro-fiscal
reform. But the need to juggle divergent policy priorities
among allies could also complicate decisions. This 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 last month in a feud over a
U.S. airbase in southern Japan.

DEMOCRATS LOSE BADLY (Unlikely)

Unless the 63-year-old Kan, a pragmatist who got his start
as a grass-roots activist, stumbles badly in the run-up, an
embarrassing defeat for his ruling party appears unlikely.

If the Democrats lose heavily, Kan’s grip on the
premiership would most likely be challenged from within the
DPJ, and powerbroker Ozawa has already hinted he would back a
rival to Kan in a party leadership vote to be held in
September.

While the Democrats would stay in power, the ensuing
parliamentary deadlock would give new small parties added clout
in subsequent manoeuvring. It could even spark moves for a
realignment of party allegiances, possibly but not necessarily
along policy lines. This could also prompt calls for a “grand
coalition” between the DPJ and the LDP.

The resulting political jockeying would make policy
decisions difficult, if not impossible.

Stock Market Today

(Editing by Paul Tait)

SCENARIOS-Japan ruling party heads for election with tailwind