Japan Sales Tax Bill at Risk as LDP Pushes Noda on Election

Japanese Prime Minister Yoshihiko Noda’s attempt to rein in his country’s ballooning debt by raising the five percent sales tax is in doubt as the main opposition party attempts to force a general election.

Noda today rebuffed the Liberal Democratic Party’s demand to set a time table for early elections in exchange for passage of the tax bill in the Diet’s upper house. The LDP rejected a proposal to call elections “in the near future,” and has threatened to submit a no-confidence motion in parliament, risking a deal to double the levy by 2015.

“Under no circumstance can I specify when I will dissolve parliament,” Noda told a meeting of lawmakers from his Democratic Party of Japan in Tokyo. “Nor would it be appropriate for me to sign a document about this.”

The LDP, which helped push the bill through the lower house in June, is seeking to capitalize on public discontent over Noda and the DPJ. The prime minister has staked his political career on the legislation, saying it must be enacted to control debt that has swollen to more than twice the size of the economy.

Concern that the bill will fail sent yields on Japan’s 10- year benchmark bond to a one-month high of 0.81 percent today. Yields on 30-year bonds climbed to a four-week high of 1.85 percent.

“If this does get bogged down, it would have credit negative implications,” Thomas Byrne, a senior vice president at Moody’s Investors Service said in an interview yesterday. The law is “a necessary step to support the rating.”

Moody’s lowered Japan’s credit rating to Aa3, its fourth highest grade, with a stable outlook in August 2011.

‘Unsatisfactory’ Proposal

Chief Cabinet Secretary Osamu Fujimura today said the ruling party offered to agree to call elections “in the near future.” LDP parliamentary affairs chief Fumio Kishida called the proposal “unsatisfactory.”

The LDP will submit a no-confidence motion to the lower house and a censure motion to the upper house if Noda doesn’t agree to its demands, the Nikkei newspaper said, without citing anyone.

“If we don’t hear that he plans to listen to the will of the people when necessary, then it will be difficult to support him,” LDP Secretary-General Nobuteru Ishihara said last night. “We hear he is thinking, so we are going to wait and see.”

The bill passed through the lower house in June after the LDP and New Komeito parties agreed to support it, sparking a ruling party rift.

A no-confidence motion can’t pass in the lower house unless at least 15 DPJ members vote for it. An upper house censure motion could pass, but doesn’t oblige the prime minister to step down or call an election.

Opposition Motions

Smaller opposition parties against the sales tax increase also submitted no-confidence and censure motions to the house yesterday. Among them are former members of Noda’s party who left after he pushed the bill through the lower house.

Noda is floundering in opinion polls due partly to the unpopularity of the tax bill and opposition to the re-starting of nuclear plants following last year’s Fukushima disaster. He doesn’t have to call an election until August 2013.

In a survey published in the Asahi newspaper on Aug. 6, Noda’s support rate fell to 22 percent from 25 percent the previous month and the worst since he took power in September last year. The DPJ and LDP were neck and neck with 13 percent support.

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@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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