Japanese party suffers defeat; PM may resign; possible turmoil for world financial markets
By Brian Williams
TOKYO (Reuters) - Japanese voters on Sunday handed Prime Minister Ryutaro Hashimoto a stunning electoral defeat that looked certain to lead to his resignation and throw global financial markets into turmoil.
Exit polls on major television stations forecast his Liberal Democratic Party (LDP) would win only around 50 seats in a regular election for half the seats in the Upper House, about 10 less than the party's minimum target of 61.
The 252-seat House of Councillors is the less-powerful of the two chambers in Japan's parliament.
World financial markets have been on hold for the past week since opinion surveys pointed to a tough electoral fight which could lead to Hashimoto stepping down, throwing into disarray efforts to drag Japan and Asia out of economic crisis.
"I don't think this result is a positive scenario for markets. Uncertainty is a bad thing and right now there is too much uncertainty," said Ron Bevacqua, an economist at Merrill Lynch in Tokyo.
Market watchers said they feared the yen would weaken and Tokyo, and possibly other world stock markets, would lose ground when trading resumed on Monday after the weekend break.
Kyodo news agency said Hashimoto planned to resign over the election result either on Sunday night or on Monday.
"He'll announce he's stepping down tonight or tomorrow. It's just a matter of time," Kyodo quoted an LDP source as saying.
Tokyo Broadcasting System, one of Japan's major television networks, also quoted LDP sources as saying Hashimoto had no choice but to step down.
Hashimoto, who has been prime minister since January 1996, is scheduled to visit Washington on July 21 to brief U.S. President Bill Clinton on his plans are to pull Japan out of its worst recession since World War Two.
World leaders have for months urged Hashimoto to stop dragging his feet and take swift action to spur consumer demand in Japan, which as the economic powerhouse of Asia holds the key to stopping other Asian economies from sliding further into recession.
As the election results came in, Hashimoto went into an emergency meeting with LDP leaders, cancelling planned news conferences.
"We will consider responsibility (for the election setback) once all the results are in," LDP Secretary-General Koichi Kato told reporters.
The results were far worse than the LDP and opinion polls forecast ahead of the election.
LDP leaders had said they would be content to win the 61 seats they held in the 126 seats at stake while polls had forecast 59 to 65 seats for the party.
The election for the Upper House, normally decided on local issues, cannot unseat the LDP itself, but this time became a referendum on Hashimoto's handling of the world's second-largest economy.
The LDP has a comfortable 13 seat majority in the more-powerful Lower House.
The network projections said the big winners at the LDP's expense on Sunday were the fledgling Democratic Party, the biggest opposition group, which was forecast to go from six seats to up to 27, and the Communist Party, which was forecast to more than double its seats to 18.
An official from the Democratic Party, formed just three months ago, said the party "had been feeling the breeze (of victory)."
Voter turnout was put at about 60 percent, nearly 15 percentage points up from the record low in the last Upper House election in 1995.
"To get people to turn out, you have to get people mad. And that's what happened," a former senior U.S. official visiting Japan told Reuters.
"The rug was pulled out from under Hashimoto," the former official said.
Japan's disorganised opposition parties had no chance of gaining control of the Upper House but the LDP setback could delay legislation passing through the chamber, where at present the LDP relies on the support of independents and small parties.
The Upper House can delay bills for up to 60 days before a second vote by the Lower House passes them into law.
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