Wednesday, January 07, 2009

The Toyota Shokku

Prime Minister Taro Aso postponed the general election that was widely assumed to follow soon after his election last September in order to concentrate on the deteriorating economy in Japan and to boost the Liberal Democratic Party’s election prospects. In the three months since his election, however, both the economy and his party’s prospects have deteriorated in tandem.

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 fiscal2008 and the regular 2009 fiscal budget, both of which include multi trillion yen spending proposals and tax cuts to stimulate Japan’s economy.

Just how serious things are getting came home to many Japanese in late December when Toyota Motor Corp, announced that 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 prime minister tried to put a bright face on the economic situation with his first post holiday remarks: “the future is bright,” Aso said. They 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 yen 77 trillion ($830 billion) stimulus program of tax cuts, housing loans and direct spending, which by some accounts equals about 2 per cent of the nation’s gross national product. It compares with those bruited in the U.S. 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 U.S., 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.

In a difficult year, the U.S. 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. 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 he 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 yen 12,000 ($1,200), to every Japanese citizen. DJP leader Yukio Hatoyama has dismissed the yen 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.

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.

The economic crisis has thrown virtually all fiscal restraint out of the window, with new spending supported by bonds, adding to the country’s huge national debt. 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.


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