July 13 (Reuters) – Japan’s ruling Democratic Party, fresh from a thrashing in an upper house election, faces political deadlock unless it can find new partners to help enact bills in the chamber, but potential allies are sounding cool.
Prime Minister Naoto Kan is also in danger of a challenge from inside his party ahead of a leadership vote in September.
Below are some questions and answers about Kan’s fate, options for the Democratic Party of Japan (DPJ) and the implications for efforts to move ahead with steps to curb massive public debt, reform creaking pension and healthcare systems and engineer growth in a fast-ageing society.
CAN KAN STAY AS PM, AND THEN WHAT?
* Kan, already Japan’s fifth premier in three years, is likely to face a challenge from Democratic Party powerbroker Ichiro Ozawa, a wily political veteran who was sidelined when Kan took over from unpopular predecessor Yukio Hatoyama last month.
* Ozawa criticised Kan’s focus on steps to curb Japan’s vast public debt, including a possible sales tax hike, during the campaign, so any candidate he backs would probably be cool to that debate. But Ozawa himself floated a sales tax rise years ago, so it’s hard to say what line he would eventually take.
* Kan is unlikely to give up without a struggle, since the former grassroots activist is widely seen as made of sterner stuff than recent predecessors who abruptly threw in the towel. Many analysts think Kan can survive, but with his clout weakened.
* If Kan wins the party vote, Ozawa might bolt from the DPJ, splitting the party in a replay of the turmoil triggered by his defection from the then-ruling Liberal Democratic Party in 1993. But how many lawmakers would follow is hard to say, since some might judge Ozawa’s own influence to be waning. The possibility Ozawa will be charged over a funding scandal is also a wild card.
CAN THE DPJ COURT OPPOSITION PARTIES?
* DPJ leaders say they will seek policy-based cooperation with opposition parties, including the Buddhist-backed New Komeito, which stresses social welfare policies, and the Your Party, a proponent of market-friendly steps such as deregulation and more aggressive central bank steps to fight deflation. Cooperation with the LDP on tax reform is also theoretically possible, since it agrees on the need for a sales tax hike.
* But negotiating bill-by-bill deals would be time-consuming, the DPJ could find it hard to swallow opposition proposals whole, and doing a deal with one party on a certain issue could upset another potential ally whose support is needed on other bills. Policy consistency could prove elusive.
* Finding a new ally to formally join the coalition would provide more stability, a solution the then-ruling LDP opted for in the decades after losing control of the upper house in 1989.
* An alliance with the New Komeito, which has 19 seats in the upper house, would give the current ruling bloc a majority, with 129 seats in the 242-member chamber. The party also does not differ all that much from the DPJ on many issues, such as the need to strengthen the social safety net and eventually raise the sales tax. But having partnered the LDP until both were ousted last year, New Komeito could find it hard to switch sides quickly.
* Financial market players have focused on a possible tie-up with Your Party as this could tilt the government toward deregulation as well as put pressure on the Bank of Japan for aggressive monetary policy action to fight deflation. But adding the Your Party’s 11 upper house seats to the DPJ-led coalition would still fall one seat short of a majority. The party’s policies are diametrically opposed to those of the DPJ’s current partner, the pro-big government People’s New Party.
* A “grand coalition” with the LDP is another option that would give the ruling bloc control of 80 percent of the seats in the upper house and allow it to push ahead with fiscal reform. But the DPJ once rejected the idea when Ozawa floated it while in opposition, lawmakers in both parties are likely to resist and managing such a huge and diverse bloc would be difficult. LDP leader Sadakazu Tanigaki has said the possibility was “zero”.
WOULD A SNAP LOWER HOUSE ELECTION HELP?
* Some analysts speculate Kan could call a snap lower house election to fend off a challenge by Ozawa, since many Ozawa followers are rookies who could lose their seats.
No lower house poll need be held until 2013, and the move would be risky for the DPJ, which could lose a hefty chunk of its 307 seats in the 480-member chamber — although the diverse party could end up more cohesive.
* Others suggest the premier will be forced to call a snap election next April, if bills needed to implement the 2011/12 budget get stuck in the upper house.
* Neither an election win for the Democrats nor the LDP would resolve the parliamentary deadlock in and of itself, since neither would have an upper house majority. But in theory it would give the ruling party a mandate that would make it easier to persuade opposition parties to do deals or join a coalition. (Editing by Alex Richardson)