Go-Playing Kan Loses as Resignation Sparks Successor Race

Japanese Prime Minister Naoto Kan sparked a succession race after announcing his resignation, undone by a backlash over his handling of the March earthquake and tsunami that spawned the nation’s deepest postwar crisis.

“I feel I’ve done everything I could under these difficult conditions,” Kan, 64, yesterday told Democratic Party of Japan lawmakers in Tokyo after parliament passed the final two pieces of his legislative agenda.

The ruling party will select his replacement Aug. 29 in a race pitting former Foreign Minister Seiji Maehara against finance chief Yoshihiko Noda, Trade Minister Banri Kaieda, Agriculture Minister Michihiko Kano and former Transport Minister Sumio Mabuchi. The candidates hold the first of two weekend debates today.

Having built a reputation as a maverick by taking on bureaucrats in a 1996 blood-supply scandal, Kan was already under fire over campaign financing when the record 9.0 quake and tsunami struck March 11, killing almost 16,000 people. He failed in attempts to form a coalition with the opposition, and saw his own party press for his resignation over perceptions he was slow to react to the worst atomic disaster since Chernobyl.

“Kan was just totally overwhelmed,” said Koichi Nakano, a political science professor at Sophia University in Tokyo, adding there is a “rocky road ahead” for his successor. “Japanese are so disappointed and disgusted that they don’t look for politicians to solve their problems anymore.”

Third DPJ Premier

Kan’s resignation will usher in the nation’s sixth head of government in five years, and the DPJ’s third since it unseated the Liberal Democratic Party in August 2009. The party’s historic win over the LDP, which dominated Japan for half a century, came with pledges to restore a country burdened by deflation, an aging population and the world’s largest debt.

Japan’s next leader will inherit an economy threatened by a potential exodus of companies beset by power and supply-chain challenges after the quake. The yen, meanwhile, is near a postwar high against the dollar. With tax revenue eroded by three straight quarters of declines in gross domestic product, the next premier will also need to fund rebuilding after the quake leveled whole towns and sent 15-meter (49-foot) waves crashing into the Fukushima Dai-Ichi nuclear power plant.

Stocks had little reaction to Kan’s announcement. The Nikkei 225 (NKY) Stock Average gained 0.3 percent yesterday and the yen rose 0.5 percent to 77.01 per dollar. The Nikkei has declined 8 percent since Kan took office on June 8, 2010.

“Go” Fan

Kan, a devotee of the strategy game “go,” which he plays on the Internet, pledged in June he would resign after the Diet passed three bills that will help craft his legacy. The upper house yesterday approved the final two, including legislation that will subsidize electricity from renewable sources as the country reduces its dependence on atomic energy.

The countdown to Kan’s departure began June 2, at a time when his popularity had plunged below 20 percent, as criticism from the opposition and some in his own party prompted a no- confidence vote that he fended off.

He at first won plaudits for a swifter response to the disaster than the government’s reaction in 1995 to the Kobe temblor. His strategy started coming apart less than 10 days after the catastrophe, when LDP head Sadakazu Tanigaki rejected an overture to join a coalition government.

The administration also struggled to respond to the escalation of the Fukushima crisis. More 60,000 people had to be evacuated as the crippled plant spewed radiation into the water, air and food.

Party Divide

The nation’s new leader will face a party divide over whether to raise taxes to pay down the world’s largest debt.

Maehara, who at 49 would be the youngest premier since World War II, said in a June interview that deflation should be defeated before raising taxes. Noda supports tax increases to pay for reconstruction as well as doubling the sales levy to 10 percent by the middle of the decade to contain the debt burden. Kaieda and Kano have yet to specify their positions.

With the DPJ leadership race likely to be determined by backroom deals, public popularity doesn’t ensure Maehara will win. Party powerbroker Ichiro Ozawa, who attempted to oust Kan in June, retains the loyalty of more than 100 of the 407 DPJ legislators. Ozawa told supporters yesterday he would back Kaieda, two DPJ lawmakers told reporters.

“Ozawa may hold the balance of power,” said Steven R. Reed, a professor of political science at Chuo University in Tokyo. Maehara must try to placate Ozawa’s followers without seeming under his influence or risk losing public support, Reed added.

Faked Safety Reports

While Kan’s commitment to overhaul Japan’s energy policy put him in sync with opinion polls that indicated rising public unease over the country’s reliance on nuclear reactors, he was unable to translate that into backing for his leadership, according to Richard Samuels, a political-science professor at the Massachusetts Institute of Technology who follows Japan.

The disaster at Fukushima capped decades of faked safety reports and fatal accidents in Japan’s atomic industry. The regulator was in a conflict of interest as it was under the control of the Ministry of Economy, Trade and Industry, which had a mandate to promote nuclear power.

“Had Kan been a more a more skilled politician, he might have capitalized on this, and his plans for a fundamental shift in energy policy could have paved a path back to popularity,” Samuels said in remarks to the Seattle-based National Bureau of Asian Research this month.

Donation Scandal

Kan’s leadership had already been at risk hours before the quake, when he had begun attempting to defuse a scandal over a political donation he received. His tenure was also blighted by the DPJ’s loss of an upper-house election in July 2010 after he signaled he aimed to raise the national sales tax.

Yesterday marked the third time Kan has stepped down as head of the party that he helped found in 1998. In May 2004, he quit as DPJ chief after disclosing he didn’t make 10 months of compulsory pension payments while head of the health ministry, which supervises pensions.

During his tenure there, Kan forced bureaucrats to surrender documents that shed light on their role in causing thousands of Japanese to contract HIV through contaminated blood products.

As prime minister, Kan oversaw an economy that lost its mantle as the world’s second-largest to China. Japan’s GDP, unadjusted for price changes, is about 17 percent smaller today than at its peak in 1997.

Yen Intervention

The yen’s 18 percent appreciation against the dollar since Kan took office has threatened manufacturing companies that are also coping with challenges to long-term power needs after the quake. Japan abandoned a six-year policy of refraining from currency-market intervention as Kan’s government implemented three rounds of yen sales in an effort to arrest the advance.

Toyota Motor Corp. (7203), the nation’s biggest carmaker, says every one-yen gain against the dollar cuts operating profit by 34 billion yen ($440 million), according to its current full- year outlook, which is based on 80 yen to the dollar. Nissan Motor Co. and Honda Motor Co. expect the same exchange rate.

Kan also oversaw downgrades to Japan’s sovereign credit rating. Moody’s Investors Service cut it one step to Aa3 this week and Standard & Poor’s lowered it to AA- in January.

“Kan lacked vision in a time of crisis,” said Jeff Kingston, head of the Asian Studies program at Temple University’s Tokyo campus. “It looks like the political elite of Japan is always inclined to squander their opportunities.”

To contact the reporters on this story: 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 at phirschberg@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.