Japan to Pass Sales Tax Bill After Noda Avoids Election Push

Japan is set to pass legislation tomorrow to raise the sales tax after the main opposition party failed in a bid to force Prime Minister Yoshihiko Noda to set an election date in exchange for support on the bill.

Speaking after meeting yesterday with Liberal Democratic Party head Sadakazu Tanigaki and New Komeito leader Natsuo Yamaguchi, Noda said the three agreed to pass the bill, which will double the tax to 10 percent by 2015, and to hold an election “soon” afterward. The LDP had demanded a more specific election commitment, which Noda rejected.

“For the sake of Japan, we had to resolve this problem, so we held an earnest exchange of opinions,” Noda told reporters. Tanigaki confirmed the agreement, and Yamaguchi said “it’s my understanding” that the LDP, the biggest opposition group, won’t follow through on a threat to submit a no-confidence motion against the government.

Tanigaki’s party, which helped push the bill through the lower house in June, has been seeking to capitalize on public discontent over Noda and his Democratic Party of Japan by pushing for a snap election. The prime minister has staked his political future on the legislation, saying it must be enacted to address public debt that has swollen to more than twice the size of the economy.

The bill is set to be voted on tomorrow afternoon.

Bonds rose for the first day in four as the deal eased concern failure to raise the tax would hurt Japan’s credit rating. The yield on the 10-year benchmark Japanese government bond fell 1 1/2 basis points to 0.78 percent at 2 p.m. in Tokyo after rising to a one-month high of 0.81 percent yesterday.

Disruptions Retreating

“We think risk of a sharp yield upswing in the JGB market due to political disruptions has retreated following yesterday’s agreement,” Akito Fukunaga, chief rates strategist at RBS Securities Japan Ltd. said in a report today.

Noda and his party are 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.

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

Noda faces a leadership election on Sept. 21 which he may not win, independent political analyst Minoru Morita said. At the same time, the political infighting over passage of the bill will probably also damage support for Tanigaki and the LDP ahead of a general election that Morita forecast will be in December.

‘Biggest Crisis’

“The DPJ faces the biggest crisis in the election,” he said. “The LDP, DPJ and the Komeito will all have to bear the burden of responsibility for the tax increase, but there is the added factor of having broken their election promises, which has angered the electorate.”

The tax bill passed through the lower house in June after the LDP and New Komeito parties agreed to support it, sparking a ruling party rift. The lower house today rejected a no- confidence motion submitted by smaller opposition parties trying to block the sales tax increase, public broadcaster NHK reported.

A no-confidence motion can’t pass in the DPJ-controlled lower house unless at least 15 DPJ members vote for it. An upper house censure motion, also submitted by small opposition parties, could pass since the ruling party doesn’t hold a majority, but it doesn’t oblige the prime minister to step down or call an election.

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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