Kan Moves Step Closer to Resignation After Japan Agrees on Budget Funding

Japan’s Democratic Party may hold a leadership vote by the end of the month after opposition parties agreed to back legislation to finance this year’s budget, a condition set by Prime Minister Naoto Kan for resigning.

Parliament is likely to pass the deficit-funding bill and a law on renewable energy -- another of Kan’s conditions for leaving office -- by Aug. 26, the DPJ’s Diet affairs chief in the upper house Yuichiro Hata said today in an interview. The DPJ may hold its leadership election Aug. 28, the Nikkei newspaper reported, citing party officials it didn’t name.

The budget deal means that two of three conditions set by Kan for leaving office have been met, after parliament approved a 2 trillion yen ($26 billion) rebuilding package last month. Kan’s announcement in June that he would step down has sparked speculation over his likely successor, with reports yesterday saying that Finance Minister Yoshihiko Noda is interested in the top job.

“The measure has been a factor in a political game and that’s finally over,” said Chotaro Morita, chief strategist at Tokyo-based Barclays Capital Japan Ltd. “The market’s attention will be on who would be the next prime minister, especially because some candidates look like they are against raising taxes for fiscal health.”

Japan’s Prime Minister Naoto Kan. Junko Kimura/Pool via Bloomberg Close

Japan’s Prime Minister Naoto Kan. Junko Kimura/Pool via Bloomberg

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Japan’s Prime Minister Naoto Kan. Junko Kimura/Pool via Bloomberg

Kan’s Democratic Party of Japan along with the Liberal Democratic Party and New Komeito will pass a bill to sell bonds to finance government spending “without delay,” according to a joint statement given to reporters yesterday in Tokyo. The parties also agreed to scrap reduced highway tolls, and will postpone a review of benefits to high school students and farm subsidies until the next fiscal year, the statement said.

No ‘Personal’ Desire

Kan today reiterated his pledge to leave after parliament passes the bond and energy bills, telling lawmakers he has no “personal” desire to remain in power.

The end-of-month election timing seems appropriate if the legislation is approved because the current session of parliament ends Aug. 31 and lawmakers would have to approve a new prime minister after the DPJ race, Tokyo-based independent political commentator Minoru Morita said today.

“The opposition parties seem to want to pass the bills quickly and let Kan resign,” he said.

Morita said several candidates are expected to enter the race to replace Kan in addition to Noda, including former vice minister for land and infrastructure Sumio Mabuchi, Farm Minister Michihiko Kano and Trade Minister Banri Kaieda. Kano has the best chance to win the party contest, while Noda’s support for raising taxes would prove unpopular in a national vote and so dampen his chances of prevailing in the party leadership race, Morita said.

Cutting Benefits

The deficit-covering bond bill, needed to finance about 40 percent of this year’s 92.4 trillion yen budget, may clear the lower house this week, the LDP’s No. 2 official, Nobuteru Ishihara, told reporters after the statement was released. The upper house, where the DPJ doesn’t have a majority, would then vote.

LDP leaders had been demanding that the DPJ abandon some of its benefit programs to win approval for the deficit-covering bonds. Last week the DPJ agreed with the two opposition parties to reduce child subsidies, another stumbling block. Kan said July 29 the country will spend 19 trillion yen over five years to rebuild from devastation related to the March 11 earthquake, tsunami and nuclear crisis.

Right Timing

Noda wrote that he is ready to lead the nation when the “time is right,” according to a copy of an article titled “My Government Plan” in the Bungeishunju magazine that was published today. Noda wants to focus on fiscal rebuilding and would emphasize Japan’s alliance with the U.S., the copy said.

The Yomiuri newspaper and Kyodo News reported yesterday that Noda would run in internal elections to head the ruling party, which chooses the prime minister because it controls the lower house. Noda, 54, denied the reports, telling reporters in Tokyo he’d like to focus on fulfilling his job responsibility as finance minister.

Noda said yesterday in parliament that it is important for Japan to be considered a country that maintains fiscal discipline. Japan’s government debt is projected to reach 219 percent of gross domestic product in 2012 even without considering spending on quake reconstruction, according to the Organization for Economic Cooperation and Development.

The finance minister led a currency-market intervention on Aug. 4, the third since September to prevent the yen from rising to a post World War II-high and endangering an export-led economic recovery. The yen traded at 76.98 per dollar at 2:27 p.m. in Tokyo.

The currency strengthened to 76.97 on Aug. 4 when authorities stepped in for the first time since March, after earlier that week trading as high as 76.30. A postwar record of 76.25 was set in March.

Dissatisfaction with Kan’s leadership after the record earthquake and tsunami in March has pulled down his public support rating to a new low of 18 percent this month, according to a Yomiuri newspaper poll.

To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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

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