Naoto Kan in Japanese budget impasse

By Roland Buerk
BBC News, Tokyo

Image caption,
Naoto Kan faces opposition to his economic reforms

Most new prime ministers enjoy a honeymoon, but in Japan, it rarely lasts long.

Naoto Kan has been in power only since June last year - and already opinion polls show nearly half of Japanese want him to resign.

His predecessors did little better. He is the fourth man to occupy his office in as many years.

Mr Kan is showing more mettle than some.

He has told reporters he doesn't want to go back to the "old way of doing politics", meaning a revolving door of instantly forgettable leaders who leave little trace.

But the prime minister's hand may be forced because Japan is heading towards a political impasse.

The immediate problem is getting the budget for the fast-approaching new fiscal year through the Diet, or Parliament.

Twist of fate

The opposition LDP controls the upper House of Councillors, while Mr Kan's Democratic Party of Japan-led government has a majority in the lower House of Representatives.

The situation is known in Japan as a "twisted Diet".

The lower house is more powerful, so even if the upper house votes the budget down, the government should be able to use the lower house to push it through on a second vote.

But bills to actually enact the budget require a two-thirds majority in the lower house, which the government hasn't got.

Image caption,
Opening up Japan's economy would please the country's industrialists

Smaller parties are playing tough and a revolt last week by 16 members of the Prime Minister's DPJ made things even more tricky.

In the worst-case scenario, the government could be unable to do things such as issue bonds to pay for public services.

Budgetary paralysis is some way off, but the political deadlock matters because it hampers any attempt to tackle Japan's big problems - an ageing population and a massive public debt.

Described by pessimistic economists as a time bomb waiting to explode, the debt is about twice the size of annual economic output.

By way of comparison, Greece has been tottering under a burden of about 140% of GDP.

Last month Standard & Poor's downgraded Japan's debt from AA to AA- on fears that the country lacks a coherent strategy.

And this week, Moody's followed suit, changing its outlook on Japan's Aa2 rating to "negative" from "stable", citing concerns it may not contain "the inexorable rise of debt".

Chance of change

Mr Kan wants to bring in reforms. He would like to join discussions on the Trans Pacific Partnership, a vast proposed free-trade area around the Pacific Rim.

Opening up Japan's economy would please Japanese industry, worried that South Korea has stolen a march by already negotiating free trade deals with the US and the EU.

Image caption,
Japanese public debt is about twice the size of its economy

But it would upset Japan's rice farmers, a politically powerful constituency that is sheltered by tariffs of nearly 800%.

The prime minister is also not giving up on increasing consumption tax, currently at 5%.

That would help end the situation where Japan issues more in bonds than it raises in taxes, but it is poison at the ballot box.

Mr Kan may be thrown overboard by his party before he can do any of these things, or he may agree to resign as part of a deal to get the budget through.

Another option being increasingly discussed in Tokyo is that he might call an early general election.

It would be a big gamble. The Democratic Party of Japan has been a big disappointment since it came to power in 2008 under Yukio Hatoyama.

But there is little enthusiasm for a return of the LDP, which until then had enjoyed half a century of nearly unbroken rule.

If Mr Kan does not want to follow his immediate predecessors in surviving less than a year as prime minister, appealing to the people for another chance may be his best option.

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