Less Clout for Japan Inc.?

Tokyo - Does Japan Inc. need the Liberal Democratic Party? That's the question circulating in boardrooms and corner offices across Japan. In national elections on Aug. 30, the LDP—which has ruled the country almost nonstop since World War II—is likely to get the boot in favor of the Democratic Party of Japan. And some Japanese fret that the DPJ may not be any better at steering the economy than the hapless incumbents.

There's little doubt that corporate Japan will lose some influence. The DPJ has long opposed probusiness and pro-U.S. policies , and the party's 23-page "manifesto" puts the priority on helping consumers over companies. So a victory "could pit business against the government," says Jun Iio, a professor at the National Graduate Institute for Policy Studies in Tokyo.

It would be hard for the DPJ to do much worse than the current government. Although the economy is showing signs of life, it could shrink 6% this year, economists say. Government debt stands at more than 170% of gross domestic product, vs. 63% in the U.S. Exports are down, and later this year the unemployment rate is likely to top the postwar record of 5.5%.

There's plenty in the DPJ's program for consumers. One key initiative would postpone a hike in the 5% consumption tax. Others would raise the minimum wage by nearly 40%, to over $10 an hour, dole out money to new parents, subsidize schooling, cut the gasoline tax, and eliminate pricey highway tolls. "We will help households with their finances and revive the economy through stronger domestic demand," DPJ leader Yukio Hatoyama told reporters on Aug. 1.

For business, though, there's not much. The DPJ would lower taxes for small and midsize companies, reform fisheries and farming, and aggressively promote renewable energy technologies. But without more coherent policies for business, investment—and the economy—may suffer. "The DPJ has no real strategy for the corporate sector," says Takuji Aida, an economist at brokerage UBS (UBS).

To fund its agenda, the DPJ aims to cut $95 billion in government spending. That may not be enough to halt further erosion of Japan's finances. With interest rates near zero, financing government debt is a relative bargain. But if rates rise, the DPJ may have to curb its ambitions. Susumu Kato, chief economist at Calyon Capital Markets Japan, says: "Market turbulence would make things difficult for the DPJ."

With Hiroko Tashiro

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