Japan's Toyota Shokku
In the three months since Prime Minister Taro Aso took over the helm of the Japanese government, both the economy and his Liberal Democratic Party’s election prospects have deteriorated in tandem, forcing him to postpone the widely expected general election. The economic crisis has thrown virtually all fiscal restraint out of the window, with new spending supported by bonds and adding to the country’s huge national debt, which now stands at more than 180 percent of gross domestic product, by far the highest in the industrialized world. By contrast, the US's much more publicized national debt is about 65 percent of GDP.
Just how serious things are getting came home to many Japanese in late December when Toyota Motor Corp, announced it would suffer its first operating loss since the company was founded just before World War II. Toyota is in some ways the flagship and symbol of Japan Inc., and its difficulties are already being described as the “Toyota Shock”.
Of course, the global depression in the automobile industry is hardly limited to Toyota, and the company is not running out of cash, like the American giants that successfully lobbied Congress for bridge loans. But the Honda Motor Company, too, saw its profits tumble and announced it was pulling out of Formula One racing to save money.
The Diet (parliament) convened on January 5, just after the traditional New Year holiday, an unusually early sitting, to consider the passage of the Second Supplementary Budget for fiscal 2008 and the regular 2009 fiscal budget, both of which include multi-trillion yen spending proposals and tax cuts to stimulate Japan’s economy.
It’s is questionable if the spending will be directed effectively. Starting from 1990, when Japan’s economy first collapsed, successive governments have mainly responded by pouring vast amounts of money into the corruption-ridden construction industry, in which tender bids are regularly rigged and planning concessions are given out without regard to existing regulations. Japan is famously overbuilt, with massive spending on bridges to nowhere and airports without cities.
The prime minister tried to put a cheerful face on the economic situation with his first post-holiday remarks: “The future is bright,” Aso said. That contrasted with the brutally realistic assessment of Toyota President Katsuaki Watanabe: “It is a kind of emergency we haven’t experienced before.”
To confront what Aso himself, in a more serious moment, calls a “once in a century recession” the government has tabled a ¥77 trillion ($830 billion) stimulus program of tax cuts, housing loans and direct spending, which by some accounts equals about 2 percent of the nation’s gross national product. It compares with those bruited in the US and announced in China.
In a separate action in December the Bank of Japan lowered its benchmark interest rate to .01 percent. The action followed the Federal Reserve’s motion to cut rates to near zero, Like the Fed, the Bank of Japan has also promised to pump more liquidity into the market, perhaps by buying corporate bonds or even by propping up the stock market.
As in the US, the supporters of the stimulus are promising quick action. By some accounts, the House of Representatives could pass the supplemental budget after only a debate lasting a week or so, sending it to the House of Councillors, now controlled by the opposition Democratic Party of Japan (DJP), which can stall passage by 30 days if it wishes. The vote could be as early as Tuesday.
In a difficult year, the US has one advantage over Japan. For the most part, the politics are settled, allowing the new Barack Obama administration to concentrate on the economy with a considerable amount of bipartisan cooperation. In Japan, however, the politics are wildly unsettled. No one is even sure when a general election might be held, except that it must be held before September when the term for lower house members expire.
It seems as if the economy and the fortunes of the LDP have been deteriorating hand-in-hand. The Aso government’s public approval ratings now hover around 20 percent. The cabinet's approval rating has fallen to 19 percent. There is an undercurrent of dissent and resentment inside the party. Several polls and analyses see the LDP losing a majority for the first time in 60 years and going into opposition after the election.
A former cabinet minister Yoshimi Watanabe broke party discipline to vote with the opposition on a motion calling on the premier to hold an immediate general election, a move obviously calculated to draw out opposition in the LDP and add to Aso’s headaches as party president. Watanabe is only one member, but a move to bolt or join the opposition could bring along followers.
And, of course, there remains the problem of a divided Diet, with the upper house in hands of the DJP and its allies. When it looked like Aso would call a snap election last year, shortly after assuming office, the DJP was inclined toward cooperation. When Aso postponed the election, DJP leader Ichiro Ozawa reverted to the previous tactic of obstruction. Ozawa accused Aso of doing nothing to solve the nation’s economic problems, creating a political vacuum.
The opposition parties have promised to cooperate in swift passage of the Supplementary Budget, provided that the government drops a provision to hand out ¥12,000 ($1,200), to every Japanese citizen. DJP leader Yukio Hatoyama has dismissed the ¥2 trillion program as “a waste of taxpayer money” and an obvious ploy to win popularity in the forthcoming election.
His voice is not alone. The Nikkei, Japan’s largest financial newspaper editorialized that “much of [the stimulus plan] looks like vote-getting rather than true economic effects.” Opinion polls show that the cash handout is surprisingly unpopular with the public too, with 63 percent of the electorate against it.
But the LDP seems determined to keep the cash handout in the stimulus plan, using its big majority to jam it through the lower house. If he does that the opposition in the upper house will almost certainly delay final passage for 30 days, after which it would automatically become law as the lower house vote has priority on budget matters.
Aso’s stubborn determination to include the cash giveaway could cause him problems with his own members. LDP rebel Watanabe has said that its inclusion would be cause for him (and perhaps followers) to leave the LDP and form a new party.
As part of the budget proposal, Aso insisted on including language calling for an increase in the sales tax (called the consumption tax in Japan) in 2011 depending on economic circumstances. This example of fiscal probity is considered mainly a sop to the shrinking band of fiscal reformers, followers of former Premier Junichiro Koizumi, still left in the party.
The official GDP projection for the coming year is zero (some private firms project negative growth), with the economy not beginning to show even a taste of any recovery until the end of 2009. But that might be too late to rescue Aso and the LDP.