Japan opposition sweeps to power

Japan Prime Minister - Taro Aso
Japan Prime Minister - Taro Aso

The Democratic Party of Japan swept to power for the first time, ending a half-century of almost unbroken single-party rule in the world’s second-largest economy.

The DPJ won at least 268 of 480 seats to secure a majority in Japan’s lower house, public broadcaster NHK projected. The party may almost triple its seats to more than 300, NHK and Fuji Television reported earlier. Prime Minister Taro Aso’s Liberal Democratic Party lost about two-thirds of its 303 legislators in the chamber that chooses the premier.

“This election has been all about changing the government,” said DPJ leader Yukio Hatoyama, 62, who is set to become prime minister 16 years after leaving the Liberal Democrats. His party becomes the first to single-handedly defeat the LDP since its establishment in 1955.

“Japan has at last truly become a democracy,” said Jiro Yamaguchi, a political science professor at Hokkaido University in Sapporo, northern Japan. “The voters clearly said ‘No’ to the LDP, which can no longer deliver innovative policies.”

Aso, 68, said he will step down as head of the LDP.

“I must accept responsibility” for the election and the party should select a new leader to “start afresh,” he said.

Japan is struggling to emerge from the deepest recession since World War II. The next government must address record unemployment, soaring welfare costs and an aging, declining population. The DPJ has pledged to increase child care, lower corporate taxes and curtail the power of Japan’s bureaucrats to end almost 20 years of economic stagnation.

Stocks, Bonds, Yen

Japan’s stocks and bond yields may rise on prospects the DPJ will increase spending to boost growth. Ten-year government bond yields will probably rise to 1.7 percent from 1.31 percent by year-end, while the Nikkei 225 Stock Average will advance about 14 percent to as high as 12,000, said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo.

“It’s a landslide victory for the DPJ and the equity market will remain excited for a couple of days or even a couple of weeks,” said Sakurai, who helps to manage about 800 billion yen ($8.5 billion) in assets.

The yen is also likely to benefit from the DPJ’s pledge to give the Bank of Japan more autonomy, increasing the scope for the central bank to raise interest rates earlier. JPMorgan Chase & Co. overnight interest-rate swaps signal a 19 percent chance borrowing costs will be lifted by the end of July.

LDP Heavyweights Lose

The Democrats had 112 seats before Aso last month dissolved the lower house and called the election. The LDP and its coalition partner New Komeito has 334.

Former Prime Minister Toshiki Kaifu, 78, will lose his seat, as will former Finance Minister Koji Omi, NHK said. Kaifu, who was first elected in 1960, would be the first former premier to lose his seat since 1963.

“It’s about time for change,” said Yuichi Tauchi, 25, a project manager at a truck manufacturer in Tokyo after voting today for the DPJ. “People have been losing faith in the LDP, and a change in politics will hopefully bring about optimism.”

NHK estimated voter turnout at 69 percent of Japan’s 104 million voters, which would exceed the 67.5 percent in the last lower house election in 2005.

The Liberal Democrats have dominated Japan’s postwar political landscape, governing for all but 10 months since 1955. The party’s first premier was Ichiro Hatoyama, grandfather to the man now aiming to break the LDP’s stranglehold. Ichiro was a rival of Shigeru Yoshida, prime minister from 1948-1954 and Aso’s grandfather.

Japan’s Economy

Japan’s economy grew an annualized 3.7 percent in the three months ended June 30, the first growth in five quarters, after an 11.7 percent decline in the first quarter of the year. The unemployment rate rose to a record 5.7 percent in July and the national debt is approaching 200 percent of gross domestic product last year, the highest in the world.

Priorities for the next government include coping with a population of 127 million that is rapidly aging: Japan has the world’s highest proportion of people over 65 years old and the lowest ratio of those under 15. Welfare outlays already make up a quarter of this year’s 88.5 trillion-yen budget.

‘Transcend Party Lines’

“We would like the DPJ to carry out discussions that transcend party lines and produce concrete results,” Fujio Mitarai, chairman of the Keidanren, the country’s biggest business lobby, said in an e-mailed statement. “It’s vital that a way out of the economic turmoil is found.”

To finance an economic aid package that would total 16.8 trillion yen by 2013, the DPJ says will eliminate 9.1 trillion yen in unnecessary spending, tap special accounts managed by the nation’s bureaucrats and abolish some tax deductions.

Hatoyama is a scion of Japan’s most prominent political family. His great-grandfather was speaker of the lower house and his father was foreign minister. His younger brother, Kunio, is a senior member of the LDP.

Source: Bloomberg

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