By-election offers glimpse into Thai political mood

BANGKOK, July 25 (Reuters) – A jailed Thai anti-government protest leader accused of terrorism faces the ruling party on Sunday in a Bangkok by-election that could signal whether a bloody army crackdown has changed the political landscape.

The vote for just three seats in parliament won’t affect Prime Minister Abhisit Vejjajiva’s ruling Democrats’ hold on power but it could signal whether the unrest that killed at least 89 people will hurt his party in national elections next year.

“The race is very important for both parties because the result, as well as the margin won, will be seen as a symbolic statement in a tense and divided political landscape,” said Karn Yuenyong, director of the independent Siam Intelligence Unit.

The seat, covering only part of the capital, is expected to be won by the ruling Democrats whose fractious six-party coalition has a 75-seat majority in the 480-seat parliament.

But the margin could offer a critical measure of support for the anti-government “red shirt” protest movement in Bangkok after their festive, flag-waving rallies in March descended into gun fights and violent clashes in April and May that frightened off tourists and hurt Southeast Asia’s second-biggest economy.

Unofficial results of the vote in Bangkok’s Constituency 6 are expected before 8 p.m. (1300 GMT).

The opposition candidate, 45-year-old businessman Korkaew Pikulthong of the Puea Thai Party, was arrested in May for allegedly encouraging violence, a charge he denies. He has put his chances of winning at 50-50 while campaigning from prison, saying he has public sympathy for being held without bail.

He faces formidable odds but a victory would be a powerful blow to Abhisit and “symbolically show there is real opposition, even in Bangkok, to the government’s recent action”, said Karn.

A loss would reinforce the view that Bangkok generally backs Abhisit’s tough measures, but extrapolating the result as a clear prediction of the general election is hard because the district has voted differently from other regions in the past.

EMERGENCY DECREE

Korkaew says the government has helped his rival by maintaining a state of emergency in Bangkok since April 7, allowing authorities to detain opposition members without charge, censor the press, ban public gatherings and freeze bank accounts.

Korkaew’s party, closely allied with self-exiled and graft-convicted former Prime Minister Thaksin Shinawatra, is facing Democrat Panich Wikisreth, a former deputy Bangkok mayor allied with royalist “yellow shirts” who led a successful 2006 campaign to oust Thaksin by military coup.

A win for the opposition, while unlikely, cannot be ruled out. Historically, the seat has gone both ways.

A candidate for a Thaksin-allied party lost the district in 2007 to the Democrats by just a few thousand votes. The seat became vacant when the incumbent, a Democrat, died.

No single party has historically dominated the district of about 536,000 people. Thaksin’s now-defunct Thai Rak Thai Party has won the seat in the past.

The vote is the first in Bangkok since troops forcibly dispersed thousands of protesters in a May 19 operation that sparked deadly rioting. Nearly 40 buildings were set ablaze, including the stock exchange and Thailand’s top shopping mall.

Thailand’s economy and its financial markets have recovered, helped by an air of stability since the army operation. An opposition win could raise new questions over whether Abhisit can sustain that stability, especially if the decree is lifted.

The red shirts, supporters of twice-elected Thaksin, say Abhisit has no popular mandate and came to power illegitimately, heading a coalition the military cobbled together after courts dissolved a pro-Thaksin party that led the previous government.

Abhisit says he was voted into office by the same parliament that picked his Thaksin-allied predecessors. (Additional reporting by Ambika Ahuja and Ploy Ten Kate; Editing by Sugita Katyal)

WRAPUP 2-BOJ sees fastest economic growth in decade in 2010/11

* BOJ sees 2.6 pct growth in FY2010/11 vs prev 1.8 pct

* Keeps cautious outlook on EU, cuts 2011/12 GDP f’cast

* Policy rate steady at 0.1 pct, no new initiatives

* Pressure for more BOJ action may escalate – analysts

* Shirakawa to meet press; remarks due after 0715 GMT
(Adds detail)

By Leika Kihara

TOKYO, July 15 (Reuters) – The Bank of Japan forecast
emerging markets would help the economy grow 2.6 percent this
fiscal year, its fastest pace in a decade, but it warned that
Europe’s debt woes could pose a risk to the outlook.

It kept rates on hold at 0.1 percent and reiterated it
would maintain a very loose monetary policy to beat the
country’s stubborn deflation and support a still-fragile
economic recovery.

Analysts doubted the central bank would loosen policy
further unless risks to the recovery emerge, such as from
another sharp rise in the value of the yen, and prompt renewed
pressure from a government whose fiscal hands are tied to do
more to support the economy.

The nine-member board may have debated how the ruling
party’s defeat in upper house elections on Sunday could affect
the outlook for the economy, but for now it held off on new
policy initiatives in a unanimous vote.

“The BOJ’s previous growth forecasts were too conservative,
so the upward revision (for 2010/11) was well deserved. It
means the BOJ’s forecast of a moderate economic recovery is
unchanged,” said Yuichi Kodama, economist at Meiji Yasuda Life
Insurance.

“The latest growth forecasts suggest that the BOJ will
stand pat on policy in the near future, but this outlook could
easily change as the government may exert pressure on the bank
for further easing due to the tight fiscal conditions.”

Reflecting solid exports to Asia, the BOJ stuck to its
projection of a moderate recovery in Japan, but maintained its
warning that a close watch is needed on how Europe’s debt woes
may affect global economic and market developments.

The BOJ’s new growth forecast for the fiscal year ending
next March was increased from its April projection of 1.8
percent. It cut its growth forecast for next fiscal year to 1.9
percent from 2.0 percent.

By comparison, economists in a Reuters poll published on
Wednesday forecast the U.S. economy to grow 3 percent in 2010.
[ECILT/US]
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Graphic on global interest rates r.reuters.com/dux57m
Graphic on GDP growth r.reuters.com/jux57m
Graphic of deflation forecast r.reuters.com/zex57m
More stories on the Japanese economy [ID:nECONJP]
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PLAGUED BY DEFLATION

The BOJ did not make substantial changes to its forecast
that Japan will remain in deflation this fiscal year, and see
only slightly positive consumer price growth in the following
year ending in March 2012. [ID:nTOE66C05D]

Deflation has been at the heart of the Japanese economy’s
sluggish performance for years, prompting firms and households
to hold off spending on expectations of further falls in
prices.

While the central bank’s June tankan business sentiment
survey showed a recovery was slowly taking hold in Japan, sharp
gains in the yen earlier this month and signs of a global
slowdown added to uncertainty for an economy already facing
slowing factory output and rising inventories.

China’s economy slowed in the second quarter as the
government steered monetary and fiscal policy back to normal
after a record credit surge last year. [ID:nTOE66D06L]

Signs of softening U.S. growth also led Federal Reserve
officials to debate last month whether they should be ready to
consider easing credit further. [ID:nN14148574]

The BOJ is therefore hardly optimistic about the outlook.

The Democratic Party-led government may also pressure the
BOJ for action should renewed rises in the yen or slowing
global growth hurt the export-driven recovery. [ID:nTOE66A02T]

That means the BOJ’s policy bias remains towards monetary
easing, unlike several Asian economies that have begun
tightening such as South Korea and Thailand. [ID:nSGE668021]

The BOJ already loosely defines 1 percent core consumer
inflation as a desirable level of price growth. But calls for a
more binding price target may intensify, analysts say.

The Democrats have said beating deflation is among their
most important policy goals. Many other parties have urged the
BOJ to set a price target including Your Party, a small
opposition party that won 10 seats in the weekend election.
[ID:nTOE66D05R]

The International Monetary Fund said the BOJ could more
strongly commit to keeping monetary policy easy until core
inflation forecast is 1 percent or above. [ID:nN14149547]

Japan’s dire fiscal state leaves it with little room for
fiscal stimulus. Its public debt rose to 218 percent of GDP in
2009 from 188 percent in 2007, and without a fiscal adjustment
would approach 250 percent of GDP by 2030, the IMF said.

The BOJ has kept rates at 0.1 percent since late 2008, and
eased monetary policy last December and again in March by
setting up and later expanding a facility offering cheap funds
to banks.

Japan’s economic growth is expected to moderate from an
annualised 5 percent expansion in the first quarter, the
second-fastest among G7 countries, as the boost from government
stimulus measures tapers off.

The BOJ issues long-term economic and price forecasts each
April and October and reviews them three months later.
(Additional reporting by Tetsushi Kajimoto, Rie Ishiguro and
Kaori Kaneko; Editing by Kazunori Takada)

JGBs fall as Nikkei surge curbs appetite for debt

TOKYO, July 14 (Reuters) – Japanese government bonds fell on Wednesday with futures touching a two-week low as investors’ appetite for debt was curbed after Tokyo stocks surged in response to a bull run on Wall Street and a pull back by the yen.

The rise in JGB yields was limited by a hunt for bargains in longer-dated debt by investors ranging from regional banks, pension funds and publicly affiliated financial institutions, underscoring persistent demand for bonds.

September 10-year futures 2JGBv1 fell 0.18 point to 141.22 after hitting a two-week low of 141.12.

“The rises in JGB yields are limited considering how bullish U.S. stocks have been for the last few days,” said Makoto Noji, a senior market analyst at Mizuho Securities.

“In addition to the large gap between bank lending and deposits at home, another key factor supporting JGB yields is the view among investors that overseas yields will stay anchored.”

Noji said the level of U.S. one-year overnight index swaps USD1YOIS= showed that investors saw little chance of the Federal Reserve hiking rates for the next year despite the recent surge in stocks.

The Bank of Japan began a two-day policy board meeting on Wednesday. The central bank is widely expected to keep monetary policy unchanged and the focus is on its monetary policy stance following the ruling party’s heavy defeat in an upper house election on Sunday.

Some analysts say the election drubbing may result in the government putting pressure on the Bank of Japan to ease more, while others reckon the recent pullback by the yen from its peaks and the significant equity market rebound from a seven-month trough could lift the pressure on the central bank.

Japan’s government is looking to make broad cuts in spending to meet a self-imposed cap in next fiscal year’s budget, the Nikkei said, even as the ruling party’s election loss puts efforts to fix the country’s tattered finances at risk. [ID:nTOE66D011]

The yield curve was little changed in shape, with the previous day’s flattening having stalled.

“The rise in yields of longer-dated maturities was kept in check relative to those of shorter-dated debt. The curve could resume flattening again,” said a trader at a domestic bank.

The five-year/20-year yield was unchanged on the day at 146.5 basis points, staying within reach of a nine-month low of 143.5 basis points touched early this month.

The five-year yield JP5YTN=JBTC rose 1 basis point to 0.375 percent, following a 2.4 trillion yen ($27 billion) auction of the maturity on Tuesday.

The benchmark 10-year yield rose 1.5 basis points to 1.140 percent JP10YTN=JBTC and the 20-year yield climbed 1.5 basis points to 1.840 percent JP20YTN=JBTC.

The 30-year yield JP30YTN=JBTC gained 1.5 basis points to 1.915 percent.

Japan’s Nikkei average surged 2.7 percent on Wednesday as tech firms gained after Intel (INTC.O) results beat expectations, buoying overall sentiment. [.T] ($1=88.66 Yen) (Editing by Michael Watson)

UPDATE 1-Fitch says Japan fiscal consolidation harder now

HONG KONG, July 13 (Reuters) – Japan’s ruling party’s poor showing at Sunday’s elections will make it more difficult for the country to push through fiscal consolidation and a delay in a credible plan beyond the year-end would increase the risk of a rating downgrade, Fitch Ratings said on Tuesday.

Prime Minister Naoto Kan’s ruling coalition suffered a major blow in Sunday’s upper house election, putting his policies to deal with the country’s massive debt at risk. [ID:nTOE66B066]

“If we don’t see a credible plan come through by the end of the year, it will send a negative signal for its rating, adding pressure to the credit rating,” Andrew Colquhoun, Fitch’s sovereign analyst for Japan, told Reuters.

Fitch has rated Japan’s foreign currency debt AA and its local currency debt at AA-minus, both with a stable outlook.

However, Colquhoun said he was not pessimistic about the government’s ability to draw up such a plan and said the public had not turned its back on fiscal consolidation as a policy objective.

“The election will make it more difficult for the government to draw up and implement such a plan, but I am not too pessimistic as I do not read the election results as a rejection of fiscal consolidation,” he said.

This was reflected in the better showing by the main opposition Liberal Democratic Party (LDP), which has said that Japan should raise the 5 percent consumption tax to 10 percent, he said.

In Sunday’s upper house poll, Prime Minister Naoto Kan’s ruling Democratic Party of Japan (DPJ) won 44 seats and its tiny coalition partner none, losing their majority in parliament’s upper house. That was fewer than the 51 seats won by the LDP.

Rival rating agency Standard & Poor’s has warned it might cut Japan’s sovereign grade as the ruling party’s mauling in a weekend election posed new hurdles for Kan’s plans to cut public debt.

Colquhoun said Japan’s rating was under pressure in the medium term from a declining domestic savings rate and this was reflected in the recent pension fund selling of Japanese government bonds (JGB).

Japanese public pensions turned net sellers of JGBs for the first time in nine years in the fiscal year that ended in March, the Nikkei business daily said on Tuesday.

Japan’s outstanding public debt is the largest among industrial nations, approaching twice the size of its gross domestic product, so any indication that there will be less investment flows into JGBs could be a worry.

But Colquhoun said there was no financing pressure in the near term as the domestic savings rate was still positive and resources were being generated for JGB purchases.

“The banking system, pension funds and insurance companies all have a strong appetite for JGBs, but there is a risk in the medium term,” he said. (Reporting by Umesh Desai; Editing by Jacqueline Wong and Jonathan Hopfner)

Fitch says Japan fiscal consolidation harder now

July 13 (Reuters) – Japan’s ruling party’s poor showing at Sunday’s elections will make it more difficult for the country to push through fiscal consolidation and a delay in a credible plan beyond the year-end would increase the risk of a rating downgrade, Fitch ratings said on Tuesday.

Prime Minister Naoto Kan’s ruling coalition suffered a major blow in Sunday’s upper house election, putting his policies to deal with the country’s massive debt at risk. [ID:nTOE66B066]

“If we don’t see a credible plan come through by the end of the year, it will send a negative signal for its rating, adding pressure to the credit rating,” Andrew Colquhoun, Fitch’s sovereign analyst for Japan, told Reuters.

However, Colquhoun said he was not pessimistic about the government’s ability to draw up such a plan.

“The election will make it more difficult for the government to draw up and implement such a plan, but I am not too pessimistic as I do not read the election results as a rejection of fiscal consolidation,” he said.

Fitch has rated Japan’s foreign currency debt AA and its local currency debt at AA-minus, both with a stable outlook. (Reporting by Umesh Desai; Editing by Jacqueline Wong)

E.ON could invest in EDF nuclear reactors – press

July 9 (Reuters) – German utility E.ON (EONGn.DE) could take a partial stake in some of EDF’s (EDF.PA) nuclear reactors as part of a plan to extend the life of the plants, E.ON told a newspaper on Friday.

French parliamentarians last month passed a bill that will force former power monopoly EDF to sell a quarter of its nuclear output to rivals to foster greater competition in the electricity market.

The bill will now have to be examined by the upper house in an extraordinary parliamentary session in July or September, but a senator of the UMP ruling party has proposed instead that EDF invite shareholders into the country’s 58 nuclear reactors.

“E.ON would be very interested. But this objective must be clearly written in the law. Otherwise, the historical operator would have excessive leverage in negotiations,” said Luc Poyer, the head of E.ON France in an interview with daily Le Figaro.

“If 500 million euros are needed to extend the life of a reactor, a part of that investment could come from a player that has the technical and economic expertise. In exchange, it would get a share in the output,” he added.

Poyer also said France should further open its electricity market, which was liberalised in July 2007 in line with European Union demands, but EDF’s competitors are struggling to attract customers because of scarce access to baseload output. (Reporting by Michel Rose and Benjamin Mallet; Editing by Hans Peters)

JGB yield curve steepens before Japan election

TOKYO, July 9 (Reuters) – Japanese government bonds fell on Friday as investors hesitated to buy before a weekend election that might impact the government’s fiscal reform strategy and as Tokyo stocks extended gains from the previous day’s rally.

Media surveys show that Prime Minister Naoto Kan’s ruling Democratic Party of Japan might fail to win its targeted number of seats in Sunday’s upper house election, an outcome that could stymie plans to curb the country’s huge public debt. [ID:nTOE668029]

“If the ruling party fails to win a majority, then I would have to say yields will likely rise, especially those of longer-dated maturities which led the recent rally,” said Shinji Nomura, chief fixed-income strategist at Nikko Cordial Securities.

“But it would not be that simple. The yield curve appeared ripe for a pull back from its recent bull flattening in any case and this has to be considered as well.”

The yield curve has steepened this week, with the five-year/20-year yield spread widening to 151.5 basis points from a nine-month low of 143.5 basis points hit a week ago.

Market players said some investors who trade the yield curve unwound their flattening positions, which involve buying long-end debt and selling shorter-dated maturities.

The market had rallied the previous week on expectations of a global economic slowdown, fiscal reform hopes and sharp declines in Tokyo share prices.

But the rally fizzled this week on growing speculation that Kan’s Democrats could fall well short of their election goal, a prospect that could dent the premier’s push for a sales tax hike as part of his fiscal reform ambitions.

Still, analysts suggest the momentum is there for a future sales tax hike even if the Democrats’ influence does wane after the election, with the main opposition Liberal Democratic Party having also proposed doubling the tax rate to 10 percent.

Bonds may also draw support in the long run from persisting concerns over the global economy and Europe’s sovereign debt crisis.

The JGB short-end held firm amid expectations of the Bank of Japan maintaining an easy policy or even coming under pressure to ease further depending on economic conditions.

“Some investors appear to have sold JGBs in the belly (middle of the yield curve) and shifted funds to the short end,” said a trader at a domestic bank.

The two-year yield JP2YTN=JBTC was flat at 0.140 percent.

The five-year yield JP5YTN=JBTC rose 1.5 basis points to to 0.370 percent.

The benchmark 10-year yield rose 1.5 basis point to 1.155 percent JP10YTN=JBTC after hitting a seven-year low of 1.055 percent the previous week.

The 20-year yield rose 2.5 basis points JP20YTN=JBTC to 1.885 percent.

The 30-year yield climbed 2.5 basis points to 1.960 percent JP30YTN=JBTC as dealers sold to tweak their inventories after bond investors chose not to bid aggressively at a 600 billion yen ($6.8 billion) auction of the maturity the previous day.

September 10-year futures 2JGBv1 fell 0.27 point to 141.21, pulling away from a seven-year peak of 141.95 struck the previous week.

Japan’s five-year sovereign credit default (CDS) swap spread has dipped about 3 basis points on the week to around 94 basis points JPGV5YUSAC=MP, in line with tightening in other sovereign CDS spreads following a slight thaw in pessimism over global economic growth and relief over Europe’s banking stress tests.

U.S. Treasuries fell after data on jobless claims and retail sales eased some of the fear that the economy would turn lower again. [US/] (Editing by Chris Gallagher)

FOREX-Dollar dips; Aussie inches up on new PM

TOKYO, June 24 (Reuters) – The dollar stayed on the defensive on Thursday after the Federal Reserve reiterated its pledge to keep rates low, while the Australian dollar edged up after the country’s ruling party chose a new Prime Minister, reducing political uncertainty there.

The dollar’s broad weakness helped the euro to trade firmly and sterling to extend gains to a six-week high, yet traders remained reluctant to chase those advances with more signs of fragile economic recovery tempering appetite for risky positions.

“The dollar is clearly under pressure after the FOMC indicated that interest rates will not rise anytime soon. But there is no other currency good enough to buy against the dollar either,” said Nobuhiko Akai, senior manager of the forex trading group at Bank of Tokyo-Mitsubishi UFJ.

“The euro’s limited gains against the dollar reflect deep-seated market concerns about more bad news from the region’s debt or banking sector.”

The Aussie AUD=D4 rose as high as $0.8771 after Australia’s ruling Labor Party elected a new Prime Minister in Julia Gillard, in a bid to avoid election defeat later this year. [ID:nSGE65M0LY]

“Clearly this is a positive for the Australian dollar and stocks in the short and medium term,” said Su-Lin Ong, a senior economist at RBC Capital Markets.

“It removes the political uncertainty that had been growing and would have only got worse. We assume Gillard will negotiate on the mining tax and produce a watered-down version.”

Gillard immediately offered to end a bitter dispute over a controversial “super profits” mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax. [ID:nSGE65M0LY]

The Aussie later trimmed gains to stand at $0.8742, steady from late U.S. trading on Wednesday.

The U.S. dollar was on the backfoot after the Fed softened its view on the U.S. economy in its statement, noting pockets of weakness in certain sectors and warning against volatile financial markets given the euro zone debt crisis.

For the Fed statement, double-click on [ID:nTRU002480]

The interest rate futures market is pricing in the Fed’s next rate increase by the middle of next year.

The dollar index .DXY dipped 0.1 percent to 85.694 after posting an outside day reversal the previous day, suggesting more losses might be in store.

Sterling rose to $1.5001 GBP=D4, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England’s minutes. After trimming some gains, sterling stood at $1.4979 for a gain of 0.1 percent on the day.

Its rise on Wednesday pushed sterling up above the cloud on daily Ichimoku charts, a bullish signal for the currency.

Sterling is now likely to find support at the top of the cloud at $1.4876, while facing resistance near $1.5000 and $1.5050, said Hiroyuki Tanaka, chief technical analyst at Mizuho Corporate Bank.

Against the yen JPY=, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.

The dollar was undermined as U.S. Treasury yields fell with data showing sales of new U.S. single-family homes tumbling more than expected in May.

The euro rose 0.2 percent to $1.2331 EUR=.

China’s central bank set the yuan’s daily mid-point at 6.8100 per dollar on Thursday, little changed from Wednesday’s close, and shrugged off renewed calls by U.S. lawmakers for legislation to press China to allow the yuan to appreciate. [ID:nECB000555]

Major currencies showed muted reaction to the yuan as the yuan-linked trading fad faded after choppy price actions earlier this week following China’s initial announcement on yuan flexibility. (Additional reporting by Anirban Nag in Sydney and Masayuki Kitano in Tokyo; Editing by Joseph Radford)

Japan to review spending to rein in debt

(Reuters) – Japan’s government will review some of the spending plans pledged by the ruling party as part of an effort to rein in the country’s huge public debt, new Finance Minister Yoshihiko Noda said on Sunday.

Japan

Prime Minister Naoto Kan, a fiscal conservative who took over the nation’s top job last week after the abrupt resignation of his predecessor, has made tackling Japan’s huge public debt a top priority amid market concerns about sovereign debt risk.

“It’s a very severe situation,” Noda said in a television program on Sunday, referring to the country’s public debt that is near twice the size of its GDP.

Noda said the government would consider which of the spending plans pledged earlier by the Democratic Party to prioritize.

“We can’t change everything (pledged by the party) all of a sudden. But we’ll do it steadily,” he said.

The Democratic Party won power in a lower house election last year with a manifesto pledging generous spending plans, such as payouts to households with children and aid for farmers.

But analysts have said the Democrat-led government needed to scale back the spending plans, as rating agencies threatened to downgrade Japan’s sovereign debt rating unless it came up with a credible plan to fix the country’s finances.

Kan seemed to have got the message.

He told reporters on Saturday he may consider reducing the amount of child allowances paid to households in cash due to fiscal constraints, Japanese media reported on Sunday.

The government is also set to unveil this month medium- and long-term targets to fix Japan’s finances, as well as a strategy to boost the country’s economic growth.

Noda said the government hoped to announce the fiscal targets and the growth strategy on Friday.

Japan’s new prime minister has been more willing to debate tax hikes and review spending plans than his predecessor, although he needs to convince some ruling party lawmakers who are opposed to them for fear of scaring voters away ahead of an upper house election next month.

(Reporting by Leika Kihara; Editing by Alex Richardson)

CORRECTED – Japan ruling party support leaps on new leader

In June 5 story, corrects first name of expected finance minister to Yoshihiko from Katsuhiko in 5th paragraph)

Support for Japan’s ruling Democratic Party leaped to 36.1 percent in a poll published by Kyodo news agency on Saturday after the appointment of a new leader in the run-up to an upper house election.

The figure was up 15.6 percentage points on a poll carried out at the end of May before unpopular prime minister Yukio Hatoyama stepped down and was replaced as party head, and thus premier, by Naoto Kan.

Kan, 63, will become Japan’s fifth prime minister in three years, taking over as the country struggles to rein in a huge public debt, engineer growth in an ageing society, and manage ties with security ally Washington and a rising China.

Kan’s rise and his cabinet line-up, set to be announced on Tuesday, could spell bolder steps to contain a public debt twice the size of the economy. But he faces opposition from many in his party before the election, expected in July.

He has picked Yoshihiko Noda as finance minister, Kyodo said, a choice that will be welcomed by the bond market because he favours fiscal discipline and has supported the idea of capping new debt issuance for next year.

Satoshi Arai, a former aide to the outgoing Hatoyama, is to become national strategy minister, Kyodo said. Kan will keep Foreign Minister Katsuya Okada and Defence Minister Toshimi Kitazawa, but plans to replace eight cabinet members, the agency said.

In the Kyodo telephone poll carried out on Friday and Saturday, 57.6 percent of respondents said they had high expectations of Kan, a fiscal conservative with a reformist image.

That compares with just 19.1 percent of respondents to a similar question posed in the May poll on expectations of Hatoyama, Kyodo said.

Nearly 33 percent of respondents said they planned to vote for the Democrats in the upper house election, compared with 23.4 percent for the main opposition Liberal Democratic Party, which had been in the lead in the previous poll, Kyodo said.

OZAWA PROBLEM

Unlike many recent premiers, Kan has no connection with a political dynasty. That could appeal to voters weary of leaders from well-to-do backgrounds who prove inept at governing.

He got his start in politics as a student activist, later joining small political parties before helping to found the then-opposition Democratic Party in 1996.

But among Kan’s biggest immediate headaches may be Ichiro Ozawa, the former party secretary general widely seen to have held sway over Hatoyama’s government from behind the scenes.

Kan has made clear he wants to sideline the 68-year-old Ozawa. Funding scandals linked to him, over which three of his current and former aides were indicted, were one of the main reasons for the Democrats’ loss of voter support.

Many of Ozawa’s supporters backed Kan’s rival for the top party job and on Friday he hinted he would not fade away.

“I’m sorry I did not come to the forefront this time,” the Yomiuri newspaper quoted him as telling supporters, some of whom had urged him to stand against Kan.

“But the real contest comes in September,” he added, referring to the next party leadership election.

Ozawa is known as a master campaign strategist, but is reluctant to promise bold fiscal reform steps such as raising the sales tax ahead of the upper house poll.

The Democrats have a large lower house majority and will run the government whatever the outcome of the July upper house poll. But the ruling bloc needs to win a majority in that chamber to ensure that legislation is enacted smoothly.

(Editing by Ron Popeski)

Japan’s Kan says to run for ruling party head

June 2 (Reuters) – Japanese Finance Minister Naoto Kan said on Wednesday he will run in a ruling Democratic Party election to become its leader after Prime Minister Yukio Hatoyama resigned.

Currencies | Bonds | Global Markets

The next Democratic Party leader will be the new prime minister by virtue of the party’s majority in parliament’s powerful lower house. (Reporting by Yoko Kubota)

Japan PM to meet party kingpin again over fate

June 1 (Reuters) – Prime Minister Yukio Hatoyama will meet again from Wednesday with a ruling party kingpin, a ruling party official said, amid speculation that the Japanese leader may bow to pressure from within his party to resign as his support ratings sink ahead of an election.

Currencies | Bonds | Global Markets

Hatoyama met Democratic Party Secretary-general Ichiro Ozawa for about 30 minutes on Tuesday to discuss the “current situation in parliament”, the official told reporters. Hatoyama, returning to his official residence after the meeting, declined to comment to reporters but was smiling.

Calls have emerged in Hatoyama’s party for the premier to step down after just eight months in the job to revive the party’s chances in an upper house election expected on July 11 that it must win to smooth policymaking. (Reporting by Rie Ishiguro)

Slain Lebanese singer’s family drops civil lawsuit

The family of a murdered Lebanese singer has dropped a civil lawsuit against an Egyptian tycoon accused of planning her killing, a source close to the family said on Saturday, but a criminal trial in Cairo will continue.

Hesham Talaat Moustafa, a member of parliament in Egypt’s ruling party, was sentenced last year to hang along with Muhsen el-Sukkari, the security man whom the tycoon is charged with paying to stab Suzanne Tamim to death in Dubai.

Moustafa, former chairman of Talaat Moustafa Group, was granted a retrial in March on grounds of legal errors and the new trial began on April 26.

Tamim’s family had been pursuing a separate civil lawsuit seeking monetary compensation, the Lebanese source said.

“They dropped the civil case because they are convinced that it wasn’t Hesham (behind the murder). Evidence has appeared that shows another person is involved,” the source said, adding the family had not received any money.

In Cairo, Moustafa’s top lawyer Farid el-Dib said: “The waiver of the civil case does not affect the criminal case and the judicial process is still running.”

The legal notices, signed by Tamim’s father, mother and brother and printed in ad-Diyar newspaper on Friday, stated that the family’s accusation against Moustafa “has no truth or basis of fact to it”.

“We have completely amended our false assumption … we each confirm that we waive our civil suit in this case.”

The media have described the murder as an act of revenge after Tamim ended an extramarital affair with Moustafa.

If found guilty in the Cairo trial, Moustafa and Sukkari will be allowed to appeal the new ruling and could face a third and final trial if that appeal is accepted. They were arrested just months after Tamim’s murder in July 2008.

(Additional reporting by Marwa Awad in Cairo; Writing by Yara Bayoumy; Editing by Charles Dick)

ANALYSIS – South Africa’s troubled Zuma faces new battles

The not-so-private life of President Jacob Zuma, a war in South Africa’s ruling party and policy vagueness are raising questions over his leadership a year into office and stirring a barely hidden succession battle.

While the World Cup may prove a welcome distraction next month, politicking could undermine economic policy stability and make it even harder to address the growing grievances of restive black townships 16 years after the end of apartheid.

There is no suggestion yet that Zuma will not serve out his full term until 2013, but his chances of a second have certainly diminished just over two years away from the leadership contest in the ruling African National Congress (ANC).

The battle within the ruling alliance involves the Communist Party and labour federation COSATU, which supported Zuma for the presidency but are disappointed at his failure to change economic policies to give greater benefit to the poor.

Although Zuma has appointed left-wingers to cabinet, overall policy is little different from under his pro-business predecessor, Thabo Mbeki — a fact not lost on markets.

The rand weakened after Zuma became ANC leader in 2007, with investors fearing a radical policy shift, but the currency strengthened after he took office until the eurozone crisis drove money from riskier assets globally.

Although there was no big policy change, investors are still unsure how Zuma can meet promises of better lives for the poor given very modest growth since South Africa emerged from its first recession in 17 years in the third quarter of last year.

“Investors would rather see a much deeper reform of the expenditure and reprioritising, combined with greater competitiveness reform, but a path of tax hikes and greater spending may well be the least worst option,” said Peter Attard Montalto, emerging market economist at Nomura International.

PRIVATE LIFE

It is the affable Zuma’s private life, however, that has most shaken those nearest the president.

In January, he defended his fifth marriage as normal for a practicing Zulu polygamist but then had to deal with revelations he had a 20th child out of wedlock with a friend’s daughter.

Zuma’s camp was caught unawares as South Africans of all races criticised his actions. It also undermined the government’s safe sex campaign to tackle one of the world’s highest HIV/AIDS rates.

“He is not good for the ANC’s image. Many in the party realise that they have backed the wrong horse,” said one senior ANC official, a former ardent supporter who said he was now becoming frustrated with the president’s lack of direction.

The party that liberated South Africa from decades of white minority rule elects a new leader in 2012, and Communist Party chief Blade Nzimande — now higher education minister — and COSATU head Zwelinzima Vavi appear to be lining up for a bid.

Other candidates for the ANC leadership — and by implication the next South African president — could include Tokyo Sexwale, a billionaire businessman who is now housing minister in Zuma’s cabinet.

With the most money, Sexwale is in the best position to put up a formidable campaign but he lacks the crucial support from the ANC’s left leaning allies.

CONCESSIONS POSSIBLE

“Zuma is likely to try and fight for another term and may well be forced to give up more in terms of policy to the left in order to do so,” Attard Montalto said.

Zuma can no longer count on the unconditional support of ANC Youth League leader Julius Malema, recently critical of Zuma and fined by the party this month after inflammatory and racially tinged comments. He leads a bloc of 600,000 card carrying members who are often seen as kingmakers in party elections.

But despite having a bad year, political analysts said Zuma’s support base among the millions of poor and the ANC’s top brass should not be underestimated.

“He will go through for a second term,” said Mohau Pheko of consulting company Four Rivers. “The party is so divided now that he has become the only uniting force. Backing another candidate could only further destabilise the ANC.”

Whatever the outcome of the tussle for control, it can only divert attention from the economic policy challenges.

A quarter of South Africans are unemployed, the gap between rich and poor is one of the world’s widest. Last year, over one million jobs were lost in mining and manufacturing. More job cuts are forecast for 2010.

The month-long World Cup, which starts on June 11, will provide only a limited boost. Visitor estimates have been cut from 450,000 to 300,000, due to the global financial crisis.

Projections are for an immediate 13 billion rand ($1.65 billion) cash injection into the local economy, and much larger long-terms gains from improved infrastructure, but many South Africans wonder whether the 40 billion rand cost was worth it.

Almost daily demonstrations in shanty towns to demand better homes, schools and clinics highlight the disaffection.

“When I look at the new stadiums, it makes me angry,” said Buhle Ndima, 28, an unemployed mother-of-two from Soweto, a Johannesburg township. “Why couldn’t the government build houses for us instead of fancy stadiums for foreigners?”

(Editing by Marius Bosch, Matthew Tostevin and Philippa Fletcher)

Japan prosecutors question ruling party No.2 – TV

Prosecutors are again questioning Japanese ruling party kingpin Ichiro Ozawa over a funding scandal that threatens to further erode government support before an election, Japan’s NHK television said on Saturday.

The scandal embroiling Democratic Party secretary general Ozawa, and public perceptions that Prime Minister Yukio Hatoyama has mishandled a row over a U.S. Marine base in southern Japan, have steadily eaten into voter support for Hatoyama’s government.

A poll by Jiji news agency on Friday showed support for the government had fallen below 20 percent for the first time.

Hatoyama needs a decisive win in an upper house vote expected in July to enact laws smoothly as Japan struggles to keep its economic recovery on track while reining in a massive public debt.

The further questioning of Ozawa — the third round so far — had been expected after a judicial review panel ruled last month he should be indicted.

That ruling came after prosecutors had dropped the case against Ozawa, seen as the real power behind Hatoyama’s government, saying there was insufficient evidence.

Kyodo news agency, citing unidentified sources, said on Saturday prosecutors expected to decide whether to indict Ozawa by the end of this month.

(Reporting by Kiyoshi Takenaka)

POK PM says he is as patriotic as any other Pakistani citizen

Islamabad, May 12 (ANI): Pakistan Occupied Kashmir (POK) Prime Minister Raja Farooq Haider has denied allegations levelled against him in a TV programme, and said that he is “as patriotic as any other Pakistani citizen, while fulfilling the role of a key person in the valley’s administrative matters.”

Addressing a press conference, he said he would inform Prime Minister Yousaf Raza Gilani about the details of the TV programme, and “ask him to take action against the person responsible for deliberately defaming and demoralising him at the forum of state-run media.”

He also ruled out differences in the All Jammu and Kashmir Muslim Conference (AKJMC), saying the “ruling party is successfully running POK’s affairs”.

Paying respect and homage to Quaid-e-Azam Muhammad Ali Jinnah, the POK premier said he was “shocked beyond belief” over accusations that he had spoken disrespectfully of Jinnah.

“How I can utter such words,” the Daily Times quoted him, as saying.

Haider added that he and his forefathers had never accepted the slavery of English rulers, and played a cohesive role in the freedom movement, and succeeded in gaining a separate homeland. (ANI)

Dhaka moves against errant ruling party cadres

Dhaka, May 8 (IANS) Authorities in Bangladesh have launched a crackdown against errant cadres of the ruling Awami League who use political patronage and muscle power to get things done.

The home ministry has asked police to act strictly to curb crimes by activists or face disciplinary measures. On the radar in particular is the Bangladesh Chhatra League (BCL), the ruling party’s student wing.

The instruction follows directions from the Prime Minister’s Office to contain unruly BCL activists, The Daily Star reported Saturday.

A judicial magistrate’s court in Barisal town Thursday rejected the bail prayers of 18 BCL leaders and activists arrested in connection with factional clashes in a polytechnic in which 11 people were injured, New Age reported.

There have been numerous media reports of ruling party cadres snatching tender forms for business deals, threatening officials, molesting girl students and engaging in pitched battles in university campuses.

The home ministry has asked police officials to act professionally and warned them of disciplinary actions if they fail.

BJP stages demo before parliament over misuse of CBI by Centre

New Delhi, May 6 (ANI): The Bharatiya Janata Party (BJP) on Thursday staged a protest before Parliament charging Union Government with misuse of the Central Bureau of Investigation (CBI).

It said the UPA Government was using the CBI in cases of disproportionate assets against several politicians.

The demonstration was staged in front of the Mahatma Gandhi statue inside the Parliament complexes.

Leader of Opposition in the Lok Sabha Sushma Swaraj alleged that the CBI is being used to target opposition parties.

“We were observing for many days that the CBI was working as an agent for the ruling party instead of being a just and independent body. It worked to defend the people of the ruling party and attack the people of the opposition parties,” Swaraj said.

“It was deliberately harassing some parties to please the ruling party. The biggest example of this was seen when cut motion was brought up in Parliament. So to protest against the conspiracy of the CBI against the opposition parties, we have staged the demonstration today, “ she added.

Leaders of the National Democratic Alliance and its members of both Houses of Parliament took part in the protest.

Earlier in the week, the BJP had accused the CBI of acting at the behest of the Central Government in the Gujarat’s Sohrabuddin Sheikh fake encounter case.

The party also accused that the UPA Government was using the CBI to give a bad name to the democratically elected Narendra Modi Government of Gujarat.

The BJP had earlier alleged that government had misused the CBI to speed up or slow down disproportionate assets cases against Samajwadi Party (SP) chief Mulayam Singh Yadav, Rashtriya Janata Dal (RJD) chief Lalu Prasad and Bahujan Samaj Party (BSP) chief and Uttar Pradesh Chief Minister Mayawati. The three parties voted with the government in the recent cut motions moved by the BJP and Left parties. (ANI)

Pakistan braces for judicial war

Islamabad , April 27 — Pakistan President Asif Ali Zardari and his government are now getting ready for one last battle – possibly the toughest one yet – in which they will take on the judiciary which has questioned parts of the 18th Amendment Act. The bill was passed into law last week amidst much fanfare and with the endorsement of all the major political parties of the country. The Supreme Court has formed a larger bench to hear petitions against the 18 Amendment Act, particularly objections raised against Clause 175-A which deals with the appointment of judges to the superior courts. Petitioners, which include the son of former military strongman General Zia ul Haq, have asked that the supreme court strike down the 18th amendment “as it is against the constitution.” The line being taken by the petitioners is that the 18th Amendment Act changes some very basic concepts of the constitution which it is not empowered to do. Ijazul Haq argues that “it is not the mandate of the present parliament to alter the constitution as this is the job of a constituent assembly.” Another petitioner – Akram Shaikh pleaded that the procedure proposed in the 18th Amendment for appointment of judges to the superior judiciary “is the fourth attack on the judiciary and must be checked.” He prayed to the court to “define the the paremeters according to which the parliament can make laws.” Amongst the legal community, there is heated debate over whether the Supreme Court can strike down an act of parliament. On one side is the president of the Supreme Court Bar Association, Qazi Anwar, who says that no changes can be made against the spirit of the constitution. On the other side is Aitezaz Ahsan, former lawyer for Chief Justice Chaudhry Iftikhar who says that the Supreme Court lacks the jurisdiction to strike down constitutional amendments. Ruling party politicians insist that the government will fight a legal battle with the judiciary and if all else fails, “will take the case to the people.” A possible political referendum is being hinted. In all this, there are fears that the government will enter into another protracted political crisis – which it can ill afford at this point.

So far, the statements being issued by PML-N leader Nawaz Sharif indicate that while the party is not in favour of a confrontation, if required it will stand for the supremacy of parliament. This has given the Zardari government comfort for the long term.

Thai ruling party seeks to win over coalition through constitutional amendments

Bangkok, Apr.21 (ANI): Thailand’s ruling Democrat Party is looking at the drafting of a new “people”s constitution” to break the present political deadlock.

While some party senior executives, including chief adviser and former prime minister Chuan Leekpai, are opposed to proposals forwarded by junior coalition members to amend two sections of the 2007 constitution and dissolve the lower house in six months, the Democrats” executive has instead agreed that Prime Minister Abhisit Vejjajiva and Deputy Prime Minister Suthep Thaugsuban should approach the party”s coalition partners with a proposal to draw up a new charter.

Democrat adviser and former party leader Banyat Bantadtan proposed the idea of drafting a new constitution at a meeting yesterday of party members and the party”s cabinet ministers to discuss the political situation and the proposed charter amendments, a party source said.

Banyat suggested the new “people”s constitution” should be modelled on the 2007 and the1997 charters.

All sectors of society, including the anti-government red shirts, should be involved in the drafting of the new constitution, the source said.

Banyat believed the initiative of a new charter would gain greater public support than the amendment of just two sections of the present constitution. (ANI)