Japan Candidates Disagree on Quake Rebuilding

Japan’s ruling party today chooses Naoto Kan’s successor as prime minister following weekend debates that revealed differences over how to cover the costs of rebuilding from the March 11 earthquake and a nuclear meltdown.

The Democratic Party of Japan will elect its third leader since taking power two years ago after Kan announced his resignation last week, undone by public discontent with his handling of the disaster. Ex-Foreign Minister Seiji Maehara, who polls show is the public’s favorite, is vying with Trade Minister Banri Kaieda, Finance Minister Yoshihiko Noda, and two others to become the country’s sixth premier in five years.

The winner will inherit an economy already facing three straight quarters of contraction, and threatened by a surging currency and power supply challenges from the aftermath of the earthquake and tsunami that killed almost 16,000 people. He will also have to restore public faith, with the DPJ having failed to live up to its campaign pledges to address the problems of an aging society and the world’s largest debt.

“The biggest issues are a tax hike for fiscal health and an economic policy that deals with the rising yen,” said Kazuhisa Kawakami, a political science professor at Tokyo’s Meiji Gakuin University. “The real question in the race is whether the DPJ can show the public a better alternative to rebuild Japan.”

Vote Run-Off Possible

DPJ lawmakers will meet today at 11 a.m. to cast their ballots, with 398 legislators eligible to vote. If none of the candidates gets a majority in the first round, then the top two vote-getters move into a second round. The lower house of parliament, where the DPJ holds a majority, will vote on the new prime minister as early as tomorrow.

Kaieda, 62, is backed by DPJ powerbroker Ichiro Ozawa, while Noda, 54, is supported by party Secretary-General Katsuya Okada and policy chief Koichiro Gemba. Agriculture Minister Michihiko Kano, 69, and ex-Transport Minister Sumio Mabuchi, 51, are also running. Ozawa, who tried to oust Kan in June, leads an intraparty group of more than 100 lawmakers.

Maehara is four times more popular with the public than Kaieda, according to a Yomiuri newspaper poll published today, getting 48 percent support compared with the trade minister’s 12 percent. Noda received 9 percent, Mabuchi 5 percent and Kano 2 percent in the survey. The paper polled 1,055 voters on Aug. 27 and 28 and provided no margin of error.

Tax Debate

Noda said at a debate of the candidates yesterday in Tokyo that the DPJ has let the country down, and called for honoring Kan’s proposal to raise taxes to pay for reconstruction and shore up the welfare system. Maehara said the economy can’t support higher taxes right now.

“We should implement reconstruction without raising taxes for a year or two and respond flexibly,” said Maehara.

The DPJ’s support in the Yomiuri poll was at 21 percent. The opposition Liberal Democratic Party, which governed for half a century before being ousted by the Democrats in 2009, got 23 percent, while 46 percent of the public supported no party.

“As to whether the public feels the government change two years ago was good or bad, we’re standing at a cliff,” Noda said. “That’s why we must work for party unity.”

Maehara, who at 49 would be the youngest premier since World War II, called in an Aug. 27 debate for a “large-scale” third extra budget to stimulate the economy, while adding that financing for reconstruction efforts shouldn’t come from tax increases. Kaieda reiterated his preference for the issuance of construction bonds or no-interest bonds rather than tax increases to fund rebuilding.

Credit Rating

The government plans to spend 19 trillion yen ($248 billion) over the next five years to rebuild, including 6 trillion yen from Kan’s two economic stimulus packages. Moody’s Investors Service cut Japan’s credit rating last week, citing political instability and “weak” prospects for economic growth that will make it difficult for the government to contain its debt burden.

“None of the candidates appear to have outlined decisive policies to fix the country’s tattered financing position and improve the economic situation after the nuclear crisis,” Betty Rui Wang, a Standard Chartered Plc economist in Hong Kong, wrote in a note today. “We expect limited progress in terms of fiscal and political policies with a new prime minister.”

Kaieda and Maehara both said Aug. 27 that Japan should reduce its dependence on nuclear energy over time, after the power plant in Fukushima crippled by 15-meter (49 foot) tsunami waves spewed radiation into the water, air and food. Maehara said the country should stop building reactors and improve the safety of existing ones. Kaieda, who heads the trade ministry overseeing nuclear policy, said Japan should increase the use of renewable energy.

Deflation Concerns

Maehara pledged to defeat deflation and stimulate economic growth through fiscal policy and monetary easing. Kaieda said the government should work closely with the central bank, while adding that the Bank of Japan must remain unable to underwrite government bonds.

Noda reiterated that Japan will take “decisive” action if necessary to counter speculative trades that drive the yen higher. As finance minister, he authorized three currency interventions in the past year to weaken the yen.

Japan’s currency has gained 19 percent against the dollar since Kan took office on June 8, 2010. It closed at 76.64 per dollar last week, close to a postwar record of 75.95 reached on Aug. 19.

“What was required was inspiring people and Kan was just awful at that,” said Ellis Krauss, a professor of Japanese politics at the University of California, San Diego. “It’s not impossible but it’s unlikely the DPJ will be able to unite behind someone the public will have some confidence in.”

To contact the reporter on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net

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

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