Noda, Kaieda Contest Run-Off Vote in Japan

Japan’s ruling party rejected the candidate for prime minister who garnered the most public support, with the current trade and finance ministers winning the first round of voting to succeed Naoto Kan.

Banri Kaieda, the trade chief endorsed by former Democratic Party of Japan leader and indicted campaign-finance power broker Ichiro Ozawa, will run off against Finance Minister Yoshihiko Noda in the second ballot of DPJ lawmakers today. Left by the wayside is ex-Foreign Minister Seiji Maehara, who would have been Japan’s youngest postwar premier and had 48 percent backing from the public in a Yomiuri newspaper poll released today.

The vote underscores parallels with the Liberal Democratic Party, which dominated Japan for half a century until it was unseated by the DPJ in 2009 and regularly eschewed voter opinion, according to Jesper Koll at JPMorgan Chase & Co. (JPM) DPJ support has dipped below the LDP in polls after it failed under Kan to rally the public behind efforts to overhaul nuclear policy and rebuild from Japan’s record earthquake and tsunami.

“This is backroom dealing within the Democratic party -- unfortunately it’s very, very close to what we used to have with the LDP leadership,” said Koll, head of equity research at JPMorgan in Tokyo. “That was always in smoky back rooms where decisions were made, rather than out front by the people.”

Kaieda garnered 143 votes to Noda’s 102, while Maehara got 74 votes. The DPJ is electing its third leader since taking power two years ago after Kan announced his resignation last week. The lower house of parliament, where the DPJ holds a majority, will vote on the new prime minister as early as tomorrow.

Tax Increases

Maehara was four times more popular than Kaieda, according to the Yomiuri poll which gave the trade minister 12 percent support and Noda 9 percent. The paper polled 1,055 voters on Aug. 27 and 28, and didn’t provide a margin of error.

The DPJ’s support in the Yomiuri poll was at 21 percent. The opposition LDP got 23 percent, while 46 percent of the public supported no party.

Noda and Kaieda clashed in two leadership-candidate weekend debates over how to fund rebuilding from the earthquake and tsunami, with Noda advocating higher taxes and Kaieda calling for issuing bonds rather than raising taxes to pay for reconstruction. 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.

Credit Rating Cut

The selection comes less than a week after Moody’s Investors Service cut Japan’s credit rating one step to Aa3, citing political instability and “weak” prospects for economic growth that will make it difficult for the government to contain the world’s largest public debt burden.

Noda said there should be no retreat from a pledge to double the sales tax to 10 percent by the middle of the decade.

Kaieda, who as trade minister helped oversee the response to the Fukushima atomic power plant meltdown, said Japan should reduce its dependence on nuclear energy over time and increase the use of renewable energy.

Maehara had favored holding off on any tax increases to pay for reconstruction. Signaling that he aimed to be the pro-growth candidate, Maehara in an Aug. 27 debate urged a “large-scale” extra budget to stimulate the economy.

“Right now I don’t think that within the party they are ready for that sort of ambition,” Koll said. “He’s the next generation.”

Noda, a lawmaker serving his fifth term in the Diet’s more powerful lower house, is a native of Chiba prefecture east of Tokyo and a graduate in political economy from Tokyo’s Waseda University.

A five-term lawmaker and Kendo enthusiast, Kaieda is a graduate of Tokyo’s Keio University who helped form the DPJ with Kan and former Prime Minister Yukio Hatoyama.

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

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