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Japan: New Cabinet and Policy Outlook
• Prime Minster Kan has reshuffled his
cabinet to avert an opposition boycott of
parliament. But with all parties gearing up for
the local elections in April, the going promises
to be tough for the 2011 budget and budgetrelated
bills.
• That said, Kan’s tenure could prove long,
given that no national elections are due until
2013. Because it is politically damaging for the
opposition to keep on blocking bills and be seen
as the cause of political paralysis, policy
cooperation on specific issues seems likely
once the April local elections are over.
• The policies most likely to garner supraparty
support are (1) comprehensive social
security/tax reform and (2) “opening Japan”
(Trans-Pacific Partnership participation).
• The appointment of Kaoru Yosano as the
point man on social security/tax reform should
help reconcile the ideas of the opposition and
ruling camps.
• Opening up Japan and TPP participation,
however, face strong opposition from factions
in both the DPJ and LDP. Headway on this issue
may be blocked or could trigger political
realignment.
More “crises” down the road?
Prime Minster Kan reshuffled his cabinet and the
DPJ leadership on 14 January. With the opposition
threatening to boycott the regular session of
parliament set to convene on 24 January unless
Chief Cabinet Secretary Sengoku and Land Minister
Mabuchi were replaced (they had been censured by
the opposition-controlled Upper House), the sacking
of both allowed Kan to avert a “January crisis”
(opposition boycott of parliament).
But now the new government faces even bigger
challenges as it lacks the two-thirds majority in the
Lower House needed to override bills rejected by the
Upper House (it is seven seats short). With the
opposition gearing up to fight the ruling coalition in
the unified nationwide local elections slated for April,
the going promises to be rough for the 2011 budget
and budget-related bills. These are being dubbed by
pundits the “March crisis” and “April crisis”,
respectively.
We expect there will be a good deal of negotiating
with the opposition before the budget and budgetrelated
bills are submitted to the Diet. Negotiating on
the specifics of any legislation is certainly
constructive. However, political manoeuvring and
grandstanding over how the Diet’s daily agenda is
set could provoke public disgust at the procedural
games parliamentarians play. Incidentally, the
government has let it be known that it is open to
amending the budget in parliament, something that
would be epoch-making in its own right.
Bigger test will be budget-related bills
The government, by virtue of its majority in the Lower
House, can secure passage of the budget without
Upper House approval. Under the constitution, the
budget is automatically enacted 30 days after
approval by the Lower House, regardless of what the
Upper House does.
But the same rules do not apply to budget-related
bills. If rejected by the Upper House, these will
require some degree of cooperation from opposition
lawmakers in the Lower House to achieve the twothirds
majority needed for an override vote. While this
process can be time-consuming, this time around
there are no budget-related bills on tap that could
cause the kind of confusion witnessed at the gas
pumps in 2008.
At that time, the provisional surcharge tax on
gasoline could not be renewed on time due to the
divided Diet. This led to the tax momentarily expiring,
lowering gasoline prices, only to be reinstated one
month later. In any event, even if the public is
inconvenienced by the failure to promptly enact
budget-related bills, most such bills are applied
retroactively when they are eventually passed.
A prime concern for market participants is a special
law enacted each year that controls deficit-financing
bonds. While failure to re-enact this legislation by 1
April would not trigger chaos, government cash flow
could be seriously impaired if the legislation is put on
hold indefinitely.
Increasing cooperation, once April’s election are
over
Ultimately, we expect the opposition New Komeito
party to be won over to support budget-related bills,
just as it was convinced to support the
supplementary budget last year. Of course, in the
run-up to the April elections, it is very likely that New
Ryutaro Kono/ Azusa Kato 20 January 2011
Market Mover
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