Japan’s economy may be steadying, as we reported this week, but the political leadership of the country is now verging on the near comical.
Chaos reigned in Japan’s ruling Liberal Democratic Party ahead of the expected August 30 election, as backbenchers and others in the government jockeyed to try and remove Prime Minister Taro Aso to prevent what they see is electoral oblivion.
The political shifting came as not only the Bank of Japan issued a slightly more optimism assessment of the economy (as we reported Thursday), but the International Monetary Fund issued its latest country report on Japan: the verdict: growth edging up, deflation the big threat and that means real pain in a country that has already felt the brunt of falling prices twice in the past two decades.
The mixed outlook for the economy is almost guaranteed to be submerged by the political infighting which is made more bitter by the fact that many in the opposition Democratic Party of Japan (LDP) are former LDP members and colleagues, now foes and opponents.
Opinion polls show the DJP ahead of Aso’s LDP, which would mean the end of 53 years of one party rule in Japan.
Tokyo reports say Finance Minister Kaoru Yosano has been critical of Mr Aso and the way he decided to call the national poll so soon the LDP’s hurtful losses in the Tokyo assembly elections.
We are now facing the possibility that the election Mr Aso called could be blocked. The Prime Minister needs agreement from all cabinet members to call an election, but can sack anyone who refuse and go ahead with his plan.
So will Mr Yosano object to the poll and face sacking, or will he and other senior ministers offer the Prime Minister approval for the poll (which has to be held by mid October at the latest) in exchange for Mr Aso’s retirement now?
Mr Aso said on Monday he would dissolve the lower house next Tuesday for an August 30 election, a move critics claim was an attempt to stop efforts to oust him before the vote.
Anti-Aso LDP backbenchers are agitating for a meeting to try and sack the Prime Minister.
But that would require the co-operation of the opposition, who would prefer the deeply unpopular Mr Aso lead the LDP into the election.
Reading the report, the Bank of Japan has done everything it could to stabilise the economy and the government, when not fighting itself and changing leaders, has managed to chip in with timely stimulus packages.
And it will be up to the Bank of Japan to control the economy while the political uncertainty lasts, especially if there is a change of Government in the expected national poll.
But with an aging population, too many companies and factories making things too few people want to buy externally and domestically, ruined public finances (and yet $US1 trillion in foreign reserves), the last thing Japan needs is a protracted political impasse, or an inexperienced and untested government.
And that is what is going to happen, judging by this week’s arguing and the gloomy polls for the LDP.
A survey released Wednesday showed the DJP widening their lead slightly over the LDP, while a majority of Japanese voters want an election sooner rather than later.
According to the Yomiuri newspaper, 36% of respondents in the survey said they plan to vote for the Democrats, up 1% from the last survey, while 21% will vote for the LDP, down 4 points: 56% wanted an early election.
Around 45% of respondents saw DJP leader Yukio Hatoyama as more suited for PM; 25% preferred Mr Aso.
But while this argybargy is going on the economy drifts: the Government’s stimulus plan is pouring money into parts of the economy, but at best that will help the steadying, not growth.
The IMF’s warning about deflation and its dangers will fall on deaf ears because of the power struggle.
Like the Bank of Japan, the IMF says falling prices gripping Japan until 2011.
"Inflation is projected to remain negative until 2011," the IMF said in a report that saw prices falling 1.1% this year, 0.8% in 2010 and 0.4% in 2011.
A week ago the Fund raised its growth forecast for Japan to 1.7% in 2010, after a 0.6% contraction this year.
The IMF said the outlook for the export-dependent economy was "exceptionally uncertain."
"A sustained recovery will likely emerge during the course of 2010 but will hinge critically on improvement in overseas lending conditions and trade," said the report.
But, "notwithstanding recent signs of stabilization, risks are tilted to the downside due to a deteriorating labor market, still-tight financial conditions, and lingering uncertainties about global growth."
"At the same time, promoting restructuring of viable but distressed firms could help the economy adjust to the downturn," it said.
"Going forward, most directors supported additional credit easing measures should downside risks materialize or financial stresses resurface, while minimizing risks to the Bank of Japan’s balance sheet," the IMF said.
The Bank of Japan revised downward growth forecasts, to a 3.4% contraction in the financial year to March 2010, and growth of 1.0% in the 2010-11 financial year.
