Is Kan’s DPJ Losing Its Touch?

In the regional elections last weekend, the Japanese public refused to show some love for the DPJ’s (Democratic Party of Japan) bets. You see the party’s candidates who ran for governor and mayor of Nagoya walked away with a big “L” on their foreheads. To think that the elections took place in central Japan’s Aichi prefecture, a known DPJ territory!

To add insult to injury, the disappointing results of the election was accompanied by the release of public opinion polls, which revealed that DPJ leader Prime Minister Naoto Kan’s popularity was down to a measly 30%. Now that’s a far stretch from all the positive vibes surrounding Kan’s landslide victory last year!

At that time, the Japanese had faith in Kan’s policies on creating jobs, minimizing debt, and warding off deflation. Sadly, Kan’s plans have yet to show any positive results and now critics are jumping all over him and the DPJ.

In fact, just recently, credit ratings agency Standard and Poor’s hit Japan with a credit downgrade, pointing to the government’s lack of strategy on how it was going to go about fixing its debt woes. This doesn’t sit well for other Japanese politicians, as it makes financing more expensive by virtue of having to offer higher yields on government bonds.

Looking ahead, Kan could face stiff opposition in his plans to implement a free-trade pact and raise consumption tax. For one, it is hard to see Japanese rice farmers consenting to any such trade pacts, as they basically depend on tariffs shields for their livelihood.

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Meanwhile, Kan may also hear catcalls from Nintendo-playing, ramen-eating, sumo-wrestling Japanese consumers if he pushes through with his plans to raise consumption tax. Kan already met initial resistance when he brought up the idea when he entered office, as the DPJ lost some votes in last year’s mid-year elections. In addition, the last couple of Prime Ministers who implemented the consumption tax (1989) and raised it (1997) soon found themselves at the back of the unemployment line soon after. Is Kan willing to take this chance?

In the meantime, we’ll just have to wait and see what the Japanese public thinks. The next episode of this political tug-of-war that has been running longer than the Simpsons series is the passing of the spring budget and other related bills through parliament.

Though the DPJ has enough votes in the lower house to get the budget, market bees are buzzing that it lacks support from the upper house to pass laws that would implement those bills. If this happens, the government might have trouble issuing bonds to pay for its public services. Uh-oh, does this mean that my tomodachi in Japan would have to pay more for their health services?

Another major bump coming the DPJ’s way is the next round of prefectural and municipal elections in April. If the DPJ performs as badly as they did last week, then Mr. Kan’s opponents might muster enough support for a “Kan, leave, leave” party, and call for a snap election. Yikes!

Since market’s confidence in the Japanese economy is already on shaky ground, a snap election might plunge the yen down the charts. Recall that the S&P had already downgraded Japan’s sovereign bonds last January 27 because of the government’s “lack of coherent strategy”. A snap election would mean new leadership, which might further delay the government’s problem-solving process.

On the other hand, a new Japanese Prime Minister would also have more support from the parliament and its people, which could boost economic confidence and even speed up the making of much-needed bills to help the Japanese economy.

I wonder whether Kan and the DPJ still have some tricks up their sleeves enough to bring their party back to its glory days. I’m sure there will be plenty of developments later on so make sure you stay tuned for my blog updates. I’ll keep y’all posted!