Nov. 8 (Bloomberg) -- Japan’s Prime Minister Yoshihiko Noda risks sparking the deepest split in his party since taking office two months ago as he determines whether to join trade talks with the U.S., his country’s No. 2 export destination.
Noda, who last week responded to exporters’ concern over the yen’s strength with what might have been the biggest currency intervention on record, set a deadline of this week for proceeding with the Trans-Pacific Partnership. The TPP would slash tariffs like Japan’s 778 percent duty on rice and open competition in industries including pharmaceuticals, stirring the opposition of about half of ruling-party lawmakers.
With South Korea having reached a deal with the U.S., failure to proceed ahead of a Nov. 12-13 Asia-Pacific summit risks further diminishing the stature of a nation surpassed by China as the world’s second-largest economy. Noda, Japan’s sixth prime minister in five years, will have to draw on his political skills to head off an intraparty rebellion.
“If the prime minister pushes this through in spite of strong opposition within the party, it could derail his administration,” ruling Democratic Party of Japan legislator Kazuhiro Haraguchi said in an interview.
Exporting farmers such as Hirokazu Kiuchi, who runs a 6 billion yen ($88 million) business that gets 10 percent of its sales by selling vegetables to Hong Kong, Thailand and China, are hoping Noda proceeds.
“Of course we should,” Kiuchi, president of Wagoen, a farming cooperative in Chiba prefecture east of Tokyo. “Japan is a trading country, this situation is inevitable.”
His is a minority view in the industry. Japan’s largest agricultural lobby, known as JA, submitted a petition with almost 11.7 million signatures saying the accord would mean the “collapse of agriculture and fisheries.”
Noda has said the country must open its markets to boost an economy buffeted by weak growth and struggling to recover from the March earthquake and nuclear crisis. Participation in the TPP would mean an annual boost of 2.7 trillion yen ($34.6 billion) once participants lower their tariffs, according to Japan’s Cabinet Office.
A group of more than 200 mostly DPJ lawmakers is demanding the government not make a decision on the TPP before the Asia-Pacific Economic Cooperation summit in Honolulu, where Noda will meet with President Barack Obama. Legislator Yoichi Kaneko said opponents “are aggressively collecting signatures” to pressure the prime minister.
The area struck by the record earthquake and tsunami that killed almost 20,000 people accounts for more than a quarter of the country’s rice production. Farming subsidies totaled $46.5 billion in 2009, according to the Organization of Economic Cooperation and Development. The comparable figure for the U.S., with a population more than twice Japan’s, was $30.6 billion.
Noda, 54, last month unveiled steps to revitalize the farming industry, where workers’ average age is 66 years. The plan aims to increase the average cultivating area tenfold to between 20 hectares (49.5 acres) and 30 hectares per household over the coming five years.
Embedded in the debate are notions of national identity. Rice is the staple of the traditional Japanese diet, and until the late 19th century was the basic measure of wealth. The word for “meal” translates as “cooked rice.”
“If we join TPP, Japanese rice farming will be destroyed,” said Nobuhiro Suzuki, professor of agriculture economics at the University of Tokyo.
Business groups say failure to participate risks lagging behind regional competitors. Japan’s trade agreements with 12 countries and the Association of South-East Asian Nations cover 17.6 percent of trade, while South Korea’s deals account for 36.2 percent, according to government statistics.
The March disasters exacerbated Japan’s economic contraction, and the yen’s strength has hurt exporters’ profits. The government on Oct. 31 intervened to push the currency down after it rose to a postwar high of 75.35 per dollar, spending what analysts estimated was about 8 trillion yen. The currency traded at 78.10 late yesterday in Tokyo.
“Without the TPP, Japan has no future,” Fast Retailing Co. Chief Executive Officer Tadashi Yanai said in a Nov. 4 interview. “It would be hard for foreign firms to invest here if our country showed signs of being closed to the rest of the world.”
Nine countries -- Singapore, New Zealand, Chile, Brunei, the U.S., Australia, Peru, Vietnam and Malaysia -- are pursuing the basic framework of a trade deal at the APEC summit.
Polls show the country divided over the accord. Thirty-four percent of respondents said Japan should join the TPP, 25 percent said it shouldn’t, and 39 percent didn’t know, according to a Mainichi newspaper poll published yesterday. The paper surveyed 981 voters and didn’t provide a margin of error.
“The question is whether Japan will open up the country for reform, or continue with the status quo,” said Shujiro Urata, an economics professor at Waseda University in Tokyo. “Japan’s economic future is at stake.”
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