Japan's Democratic Party could fall far short of Prime Minister Naoto Kan's target in this weekend's upper house poll,putting his job at risk and foiling efforts to curb a huge public debt.
The Democratic Party of Japan (DPJ), which swept to power for the first time last year with promises of change, will almost certainly run the government regardless of the outcome on June 4 as it controls the powerful lower house. But the party needs a majority in the upper chamber to enact laws and implement policies smoothly.
Stock market experts said the policy deadlock likely to ensue if the Democrats fared badly and struggled to find new allies would be worrisome, but that investors had grown accustomed to political confusion in Japan and were unlikely to overreact.
Kan, who took over last month as Japan's fifth prime minister in three years, has put fiscal reform at the centre of the campaign, including a possible doubling of the 5 percent sales tax to curb a public debt already nearly twice the size of GDP.
Kan has set a modest target of winning at least 54 seats, the same number that the DPJ has up for grabs in the election but fewer than the 60 it needs for an outright majority in the 242-seat chamber. Half the seats are being contested.
But a July 4-6 survey by Kyodo news agency published today showed that the DPJ might win fewer than 50 seats, and the Tokyo Shimbun newspaper forecast a similar result. "If they get more than 50 seats, the Kan administration can continue, but if below 50, calls for him to take responsibility will emerge," said independent analyst Atsuo Ito.
A result producing fewer than 50 seats for the DPJ would leave Kan vulnerable to a challenge from inside his own party, although the fiery former grassroots activist is unlikely to go down without a fight.
ONLY THE GODS KNOW
Japanese government bond yields have fallen since Kan put fiscal reform on the agenda and a messy election outcome could weaken that trend. Stock market experts, though, seemed rather blase about the prospects of more policy chaos.
"If the Democrats can't get 50 seats, we'll have a state of confusion and such political confusion is negative to the market," said Kenichi Hirano, operating officer at Tachibana Securities. "But foreign investors ... in Japanese stocks have seen and become immune to situations like this in this country."
Kyodo also said the DPJ and its tiny ally, the People's New Party, would have a tough time winning the 56 seats that would allow them to keep joint control of the upper chamber, meaning the Democrats would have to seek new allies.
A weak showing for the Democrats would undercut Kan's ability to get backing from other parties to implement policies, including a sales tax rise that Kan has said could take at least two or three years to enact.
It would also raise the likelihood that DPJ powerbroker Ichiro Ozawa would back a rival to Kan in a party vote that is set for September but could be moved forward. Support for the DPJ rebounded after Kan took over from unpopular Yukio Hatoyama last month, but has receded since he floated the possible sales tax hike.
"We need to rebuild our system so it is sustainable. But we're still struggling a bit to figure out where to start tackling this issue in a way that is supported politically," Chief Cabinet Secretary Yoshito Sengoku said at a news conference.
"Only the gods know what the election outcome will be," he added.
The main opposition Liberal Democratic Party and smaller opposition groups such as the pro-reform Your Party have flatly rejected the notion of a tie-up, although analysts said they could change their tune if the Democrats do well.
"Party executives and those close to Kan are talking not of a rejig of the coalition but of cooperation with opposition parties on a policy-by-policy basis," analyst Ito said. "In that case, they won't be able to make progress on policies ... and they will not be able to take bold measures on fiscal reform."