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Battle for Kan’s Successor Begins as Kaieda Gets Ozawa’s Backing

Candidates for the leadership of the DPJ
Candidates for the leadership of the Democratic Party of Japan (DPJ) shake hands during a joint news conference at the Japan National Press Club in Tokyo. From left to right are: Seiji Maehara, former foreign minister, Sumio Mabuchi, former land, infrastructure, and transport minister, Banri Kaieda, economy, trade and industry minister, Yoshihiko Noda, finance minister, and Michihiko Kano, agriculture, forestry and fisheries minister. Photographer: Kiyoshi Ota/Bloomberg

Aug. 28 (Bloomberg) -- Five candidates to succeed Japanese Prime Minister Naoto Kan began campaigning as Trade Minister Banri Kaieda won key backing from a ruling party powerbroker.

Kaieda and former Foreign Minister Seiji Maehara, who polls show is the public’s preferred choice, agreed at a forum in Tokyo yesterday that raising taxes to fund rebuilding from the March earthquake and tsunami isn’t feasible now. The party faces a divide over how to finance reconstruction, days after Japan’s credit rating was cut on concerns over the world’s largest debt.

The candidates are scheduled to hold a debate today, and the Democratic Party of Japan will select its new leader tomorrow, with the winner almost certain to become the nation’s sixth prime minister in five years. Finance Minister Yoshihiko Noda, Agriculture Minister Michihiko Kano and Transport Minister Sumio Mabuchi are also vying for stewardship of a country beset by deflation, three quarters of economic contraction and the world’s worst nuclear accident in 25 years.

Kan announced his resignation two days ago, undone by a backlash over his handling of the quake and crisis at the Fukushima Dai-Ichi nuclear power plant. His successor will inherit an economy threatened by a potential exodus of companies facing a currency trading near a postwar high against the dollar as well as power and supply-chain challenges following the quake.

“Japan’s economy is in a critical situation faced with the sharp appreciation of the yen and hollowing out of industries,” Kaieda said in a policy statement after declaring his candidacy. “Japan must regain vitality to support the disaster-hit areas and help reconstruction efforts.”

Ozawa’s Support

Kaieda, 62, earned support from Ichiro Ozawa, a party heavyweight who attempted to oust Kan in June and who retains the loyalty of more than 100 of the 407 DPJ legislators.

“Ozawa may hold the balance of power,” said Steven R. Reed, a professor of political science at Chuo University in Tokyo. Maehara must try to placate Ozawa’s followers without seeming under his influence or risk losing public support, Reed added.

Maehara was the most popular choice to become the next prime minister according to a Yomiuri poll published Aug. 8, with 21 percent support, while Noda had 5 percent. One voter in five had no preference.

No New Taxes

Maehara, who at 49 would be the youngest premier since World War II, called 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, 62, said he favors the issuance of construction bonds or no-interest bonds to fund rebuilding rather than higher taxes.

Moody’s Investors Service cut Japan’s credit rating last week for the first time in nine years, citing “weak” prospects for economic growth that will make it difficult for the government to contain its record debt burden.

Kaieda and Maehara both said Japan should reduce its dependence on nuclear energy over time, after the crippled power plant in Fukushima 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 is head of the Trade Ministry that oversees nuclear policy, said Japan should increase the use of renewable energy.

Coalition

One point of difference between the two centered on whether the DPJ should form a grand coalition with the opposition Liberal Democratic Party. Maehara said an alignment would help the government respond to the disaster, while Kaieda said the question requires more debate within the DPJ.

“The people in the disaster-hit areas are having a hard time,” Maehara said at yesterday’s forum. “Politicians should be united to deal with the situation.”

Kan, 64, had made overtures to the opposition to form a coalition in the days after the quake, only to have them rejected by LDP head Sadakazu Tanigaki.

The DPJ won power for the first time in August 2009, ending the LDP’s half-century of almost continuous rule. Its victory came with pledges to restore a country burdened by falling prices, an aging population and a swelling fiscal deficit.

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, 54, 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.

To contact the reporters on this story: Chisaki Watanabe in Tokyo at cwatanabe5@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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