Japan Prepares for Election With Noda’s DPJ Poised for Loss

Japanese Prime Minister Yoshihiko Noda will dissolve parliament tomorrow, triggering an election that polls show his party will lose three years after ending the Liberal Democratic Party’s half-century grip on power.

The ruling Democratic Party of Japan decided the national vote for the lower house will be held Dec. 16, acting party secretary-general Jun Azumi said. The deal to bring forward elections due in August came after LDP leader Shinzo Abe agreed to end an impasse over financing the budget and to support a plan to reduce the number of Diet seats.

Noda’s DPJ has seen its public approval slump below 20 percent after three prime ministers in as many years failed to revive growth, end deflation or enact campaign promises on social spending. An LDP win would reinstate Abe, who advocates a tougher policy toward China and greater central bank monetary stimulus, to the premiership he quit in 2007 after 12 months.

“The likely result is a bloodbath for the DPJ,” said Jeff Kingston, professor of Japanese politics at Temple University’s Tokyo campus. “The economy is definitely the major issue facing Japan and because a lot of those economic and fiscal problems are intractable, that creates a temptation for leaders to dabble in other issues that aren’t so difficult.”

An election means three of Asia’s four largest economies will have new governments in 2013. South Korea’s vote for president is Dec. 19, with the winner taking office in February. Xi Jinping today replaced Hu Jintao as head of China’s Communist Party and is set to become president in March.

Cutting Seats

Speaking in parliament a day after the DPJ reached a deal with two opposition parties on legislation to authorize deficit- financing bonds, Noda said he would dissolve the lower house if a deal was reached to cut the number of lawmakers in the chamber. Abe agreed to the proposal, which would go into effect after the next election.

“Let’s do this,” Noda said yesterday. “Based on that, I will dissolve parliament on Nov. 16.” Elections must be held within 40 days of the dissolution of parliament.

The lower house today approved the bill to issue 38.3 trillion yen ($477 billion) in debt to cover about 40 percent of government spending for the year ending in March, and the opposition-controlled upper chamber will vote tomorrow.

The yen today sank to a six-month low against the dollar after Abe called on the Bank of Japan (8301) to provide unlimited monetary stimulus until deflation is overcome. The yen traded as low as 80.95 per dollar in Tokyo as markets priced in the possibility of more easing by the central bank if the LDP wins.

‘Increase Pressure’

The next government will get a chance to reshape the central bank’s leadership, with Governor Masaaki Shirakawa’s term scheduled to end in April and his two deputies’ tenures set to end in March.

Should the LDP win, Abe “will then aim for higher inflation and increase pressure for the BOJ to ease further,” said Masafumi Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Plc. “That speculation has triggered a sell- off in the yen.”

Japan’s currency has risen more than 12 percent since the DPJ took power in September 2009, while the benchmark Nikkei Stock Average (NKY) has fallen 14 percent. A stronger yen erodes the repatriated value of overseas sales, reducing profits for consumer electronic companies such as Sony Corp. (6758) and Sharp Corp. and automobile makers like Nissan Motor Co.

Abe also advocates a harder line on China in a territorial dispute that has hurt Asia’s two biggest economies. He said today that China is challenging Japan’s administration of islands known as Senkaku in Japanese and Diaoyu in Chinese, and pledged to increase defense and Coast Guard spending.

Previous Tenure

His call this week for democracy in Tibet at a meeting with the Dalai Lama sparked a fresh protest from China.

The LDP leader’s China stance contrasts with his actions when he became prime minister in September 2006. He made Beijing his first overseas trip to strengthen ties, apologizing for Japanese aggression in Asia in the first half of the 20th century.

Abe quit after a year, complaining of health problems, creating a revolving door of prime ministers.

“Abe was a disaster as a leader in 2007,” Kingston said. “The only thing we can hope is that last time as a candidate he made all sorts of provocative comments, but as leader his first action in office was to go to China for fence mending.”

The DPJ in 2009 ousted the LDP from more than 50 years of almost uninterrupted rule by pledging to cut public spending, reduce the power of the bureaucracy and not raise taxes.

Sales Tax

Noda, his party’s third leader since then, pushed through a Ministry of Finance-backed bill in August doubling the five percent sales tax, sparking a party revolt that led to more than 50 DPJ legislators leaving.

His disapproval rating rose 5 percentage points to 64 percent, the highest since he took office in September 2011, an Asahi newspaper poll published Nov. 13 showed. His approval rating was unchanged from three weeks ago at 18 percent.

At least three lawmakers today announced they would leave the DPJ, endangering Noda’s majority in the lower house.

Asked which party they would vote for in the proportional representation section if the election were held now, 29 percent of respondents to the Asahi poll picked the LDP, compared with 12 percent who opted for the DPJ. The paper surveyed 1,611 people and provided no margin of error.

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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