Japan Government Failing as Disaster Response Hurts DPJ

The Democratic Party of Japan came to power in 2009 pledging to restore vitality to a country burdened by deflation, an aging population and the world’s largest debt. Now, the party itself needs resuscitation.

Prime Minister Naoto Kan’s handling of the March earthquake and nuclear crisis has exacerbated intra-party divisions and caused some DPJ lawmakers to suggest he resign. Voter support is plunging, and the party suffered election setbacks last month.

The Democrats evicted the Liberal Democratic Party from a half-century of rule by promising to end political corruption, reduce the power of the bureaucracy and boost financial aid to families. Less than two years later, none of those goals has been accomplished. The DPJ is mired in the same squabbling, funding scandals and revolving-door cabinets that led voters to oust the LDP, amid Japan’s worst crisis since World War II.

“The public had enormous expectations for the DPJ,” senior party lawmaker Hajime Ishii said in an interview. “But after a year and a half of our government management, they feel those expectations were betrayed.”

Yukio Hatoyama was sworn in as the DPJ’s first prime minister on Sept. 16, 2009, as voters turned their backs on 55 year of one-party rule in what academics at the time called a “bloodless revolution.”

Since then, the Nikkei 225 (NKY) Stock Average has fallen 6.3 percent while the MSCI AC Asia-Pacific Excluding Japan Index has risen 27 percent.

Exports Threatened

The yen has gained 12.5 percent against the dollar in the same period, threatening the competitiveness of such Japanese exporters as Honda Motor Co. and Toyota Motor Corp. (7203) and forcing the government to intervene twice to prevent further increases.

Kan’s approval rating was 26 percent in an Asahi newspaper poll published today, up five percentage points from a month ago, while his disapproval rating was 51 percent.

Almost two-thirds of respondents disapproved of Kan’s response to the March temblor and tsunami that crippled the Fukushima nuclear power plant, left almost 25,000 people dead or missing and caused as much as 25 trillion yen ($310 billion) in damage. The Asahi surveyed 1,996 people on May 14 and 15, and didn’t provide a margin of error.

DPJ legislator Yozaburo Ishihara last month said Kan should resign if the situation at the plant doesn’t improve, and other party members expressed dissatisfaction with their leader.

Falling Apart?

“The DPJ is falling apart,” said Gerald Curtis, professor of Japanese politics at Columbia University in New York. “It’s kind of suicidal. A lot of people in the DPJ will lose in the next election.”

Last month, the DPJ lost seats in head-to-head contests with the LDP in local assembly, mayoral and gubernatorial elections.

The DPJ hasn’t made any inroads in attacking Japan’s most persistent troubles. Public borrowing is set to exceed twice the size of the economy this year and rise to 210 percent next year, according to the Paris-based Organization for Economic Cooperation and Development. The population is the world’s oldest, putting pressure on social security programs.

More than a decade of deflation has suppressed interest rates, with bond yields at the lowest among 32 global debt markets tracked by Bloomberg. Ten-year yields hit 1.11 percent on May 13, the lowest in four months.

In another sign of more continuity with the LDP than catharsis, the DPJ has adopted a similar approach toward the Bank of Japan -- occasionally pressing the central bank to add stimulus, while avoiding any push to hold it accountable for ending deflation.

Bank of Japan

Japan hasn’t seen core consumer prices, which exclude fresh fruit, rise at the sustained 1 percent pace that BOJ board members define as price stability since the early 1990s.

“The BOJ has repeatedly failed to deliver,” said Naoki Iizuka, a senior economist at Mizuho Securities Co in Tokyo. “The government should participate in the defining of price stability, and if the government’s understanding is different from the BOJ’s, the BOJ should be held to the government’s view because only politicians are held accountable to voters.”

Several opposition groups came together to form the DPJ in 1998. In 2007, the party won control of the Diet’s less-powerful upper house in a challenge to the LDP, which had been in power for all but 10 months since 1955. The primary drivers of the party included Kan, Hatoyama and Ichiro Ozawa, a former LDP lawmaker.

Bridges to Nowhere

The DPJ appealed to urban voters disenchanted by the LDP’s reliance on a rural support base it kept loyal by funding projects including seldom-used tunnels, bridges and train stations. The Democrats pledged to introduce subsidies for families with children, cut public works spending and lower corporate taxes. They won a landslide victory in the lower house in August 2009.

While Hatoyama, 64, pushed through a monthly child allowance of 13,000 yen, his election pledge to move a U.S. military base from the island of Okinawa raised the ire of the Obama administration. His subsequent decision to back down outraged local residents, caused a coalition partner to leave the government and prompted him to resign the premiership last June after nine months.

Ozawa, then the party’s top campaign strategist, quit his DPJ role after a political funding scandal that led to his indictment in January. While Ozawa, 68, was suspended from the DPJ for the duration of his trial, he heads the party’s largest faction and has been critical of Kan.

“Hatoyama was a disaster,” said Jeff Kingston, head of the Asian Studies program at Temple University’s Tokyo campus. “And Ozawa has continued to be a thorn, spreading division.”

No Bond Bill

Six weeks after Hatoyama and Ozawa departed, the DPJ lost control of the upper house. As a result, Kan has failed to push through legislation to sell bonds that would fund almost half of this year’s record 92.4 trillion yen budget.

Kan also abandoned a plan to increase the child stipend to help fund his initial 4 trillion yen quake rebuilding package. Plans to lower the corporate tax have been postponed, and the DPJ has squabbled over whether to raise the national sales tax.

The premier didn’t help his cause in January when he told reporters an hour after the announcement that he was “unfamiliar” with the news that Standard and Poor’s had cut Japan’s sovereign credit rating. Opposition politicians said the remarks undermined market confidence.

A Bloomberg poll of investors last week showed Kan tied with French President Nicolas Sarkozy as the world leader with the least promising policies. Among Asian investors, 63 percent were optimistic about Chinese President Hu Jintao, compared with 14 percent saying the same about Kan.

No LDP Love

Displeasure with the DPJ hasn’t translated into support for the LDP. Today’s Asahi newspaper poll showed the voter support rate of both parties at 19 percent, with the DPJ gaining two percentage points from last month and the LDP unchanged. The LDP lost more assembly seats than it gained in April, mostly to local parties and independent candidates.

“The LDP is not a danger to the Democrats,” said Steven R. Reed, a political science professor at Chuo University in Tokyo. “People are still searching for inspiration, and the Democrats currently aren’t serving that role.”

Kan has had a brush with scandal over a political contribution from a non-Japanese resident, the same issue that caused his foreign minister, Seiji Maehara, to resign. The cabinet has had three different finance and foreign ministers during the DPJ’s tenure.

The DPJ’s push to send lawmakers into government ministries to rein in Japan’s powerful bureaucracy has caused friction as well. Kan has come under fire for not using the expertise of public servants in dealing with the nuclear disaster.

Lost Morale?

“It’s impossible for only four or five people to handle a ministry’s entire affairs,” said Jiro Yamaguchi, a political science professor at Hokkaido University who has been advising the DPJ. “There’s no cooperation from bureaucrats, who’ve lost morale.”

The government said this week it would temporarily increase the number of cabinet officials by three to cope with the earthquake and nuclear catastrophe. Kan said he would forgo his prime minister’s salary until the crisis is contained, while continuing to draw pay as a member of parliament.

Kan, 64, in the past week publicly called for the closing of a nuclear power plant and the scrapping of Japan’s energy policy without going through bureaucratic channels, moves that drew criticism from the business community.

The head of Japan’s biggest business lobby, Hiromasa Yonekura, criticized Kan’s “abrupt” request for Chubu Electric Power Co. to halt all its nuclear reactors without consulting business groups, communities and people involved.

‘A Black Box’

“What I don’t understand in the DPJ government era is that a conclusion is suddenly announced, and the thinking process is left in a black box,” Yonekura said at a May 9 press briefing.

As a result, the “historic change” Hatoyama cited in the DPJ’s victory has yet to materialize. Party legislator Ishii said it’s too early to judge the results, saying “reform cannot be completed in a year or two,” and asking voters to be patient.

That patience seems to be running out.

“The party hasn’t shown leadership and the public isn’t listening,” DPJ lawmaker Yoichi Kaneko said in an interview.

To contact the reporters on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net

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