Market Features: How to Read Japan's Upper-House Elections
By Justin Lahart
Senior Writer
7/10/98 10:46 AM ET
As far as Japanese voters are concerned, this Sunday's upper-house elections are no big deal. The sound trucks blasting election slogans will roll on by. The candidates will make their speeches. Not many people will vote.
The upper-house elections usually don't attract all that much attention, and rightly so. The real politicking goes on in the much more powerful lower house, which gets to cast the deciding vote on things like the budget and who's prime minister, after all.
But for the market, the election has become very important indeed. Recent polls suggest that the ruling Liberal Democratic Party may have trouble hanging onto the 61 seats that it is defending -- an outcome that would put Prime Minister Ryutaro Hashimoto's tenure in doubt. That, in turn, could put the various economic reform plans coming out of Japan lately -- the bridge-bank scheme, the possible tax cuts -- on hold. A painful prospect.
"If the LDP doesn't hold onto its seats, the market would be rattled," said Marie Anchordoguy, an associate professor at the University of Washington's Jackson School of International Studies. "Because the people who would win would be much less competent even than the LDP in terms of pulling together the consensus."
But despite the polls, Anchordoguy, like most other Japan watchers, thinks the LDP should be able to scrape by, adding a little to its upper-house strength. The political apathy of the times -- the excitement generated by this election makes the Bush-Dukakis contest look enthralling -- should help the LDP.
"The turnout is going to be very low," said Hiro Ito, research associate at the Economic Strategy Institute. "The LDP supporters are strong in their support for the LDP. A lot of people that don't support the LDP -- they don't vote. Those who do vote are going to vote for the LDP or the communists. These will be the parties that increase their seats in the upper house."
Furthermore, polls show a large number of undecided voters -- who, when it comes down to voting (if they bother), may opt for the status quo. "They all understand that the bureaucrats are in control," said Barry Keehn, president of the Japan America Society, of the Japanese electorate. "The rational thing to do in an election is to vote for the party that is going to give that patina of stability so that the bureaucrats can continue to run the country."
While the LDP will probably add some upper-house seats, it still appears unlikely that it will end up with the 69 seats it needs for a simple majority. Without a major victory like that, Hashimoto's future remains in doubt. His two-year term as president of the LDP -- the position the prime ministry is given to -- is up in September, and with the economy on the ropes, he's going to have a hard time hanging onto it. By the same lights, the notion that a loss of seats by the LDP will put immediately Hashimoto out on his ear is wrong. Unless they see a big shortfall, party members will let Hashimoto run out his LDP presidency, smoothing out the process of political transition.
After the Elections
Running through the various if-then clauses for how the election results will affect Japan's reform plans is a tricky business. The market's gut reaction will probably be, big LDP win, good; LDP loss, bad. If the LDP adds only a couple of seats -- the most likely scenario -- the market will likely sit on its hands to see what kind of noise comes out of Hashimoto and other leaders ahead of his visit to Washington on July 22.
The key LDP figures to watch will be former Prime Minister Kiichi Miyazawa; party Secretary-General Koichi Kato, who is said to be the heir to outgoing Finance Minister Hikaru Matsunaga; and the head of the party's policy affairs research council, Taku Yamasaki. By watching what they say, investors can read what types of reform the LDP is likely to announce. Equally important, but definitely not reliable as a predictor of eventual policy, is Seiroku Kajiyama, a contender for Hashimoto's throne. "His voice acts as pressure on policy," said Ito. As such, the measures he proposes are on the more daring side. Miyazawa, Kato and Yamasaki then build consensus around a more conservative position.
Those four are members of what can be called leadership factions -- reform-minded, pragmatic -- says Ito. On the other end are the antileadership politicians, the most vocal of whom is Shizuka Kamei. These are the more pork-minded members of the LDP, interested in seeing a continuation of the status quo. A true flushing out of Japan's bad debt, which would entail the failure of some banks, would hurt these politicians' main supporters -- construction firms and the like -- the most. "If voices like Kamei's get strong, that would be a signal that the LDP may avoid drastic reform," said Ito. "If not, that's a good sign that Japan might concentrate more on restructuring the financial system."
Once the election is done with, those antileadership voices may be muted, though -- with the votes already in, the LDP's leaders will not have to heed the outcry from people like Kamei as much. "One could argue that Hashimoto will be in a position where he can allow a little more pain," said Anchordoguy.
It is important to remember, however, that LDP leaders must deal not just with people like Kamei, but also with the bureaucrats. So far, the Ministry of Finance has dictated Japan's economic policy -- to disastrous effect. The recent tax increases that have angered so many did not come, as many suppose, from Hashimoto, but from the MOF, which is fixated on the idea that taxation is the best way to prepare for the problems of an aging population. "The fundamental problem they have is the deep conservatism of the Ministry of Finance," said Keehn. "The Ministry of Finance is punishing everybody."
The bridge-bank plan, at least some permanent tax cuts -- it looks like these things will happen. Behind the scenes, the LDP is trying to take over the reform issue from a recalcitrant MOF. Further reform in Japan depends on its success in doing that. |
