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Japan's budget battle

Kabuki comes home

Mar 3rd 2011, 3:47 by H.T. | TOKYO

WHEN America faced the shutdown of its government in 1995, during a budgetary duel full of exaggerated theatrics, The Economist called it “Budget-bill kabuki”. Even as Washington might well reprise that routine on March 4th, this time the imported show is coming home.

A few hours before dawn on March 1st, Naoto Kan’s ruling Democratic Party of Japan (DPJ) passed a budget of sorts, despite an unprecedented revolt from 16 of its lawmakers, who abstained. But for the time being it is only a pale imitation of a budget; it sets out the 92 trillion yen ($1 trillion) the government plans to spend in the next fiscal year, but not the means of paying for it all. Winning support for the latter is so hard, Mr Kan has not yet tried.

This does not mean government will grind to a halt on April 1st. About 44% of spending is backed by taxes that can be renewed automatically. But the rest comes from borrowing, which needs approval either from a majority vote in the upper house, or a two-thirds majority in the lower house. The DPJ has neither, nor has it had any success in persuading the smaller opposition parties to vote with it. Opposition lawmakers are blasé: two whom I interviewed could hardly stop chuckling at Mr Kan’s predicament. They say that for several months into the next fiscal year the government can fund itself through existing tax revenues as well as by raising up to 20 trillion yen of short-term debt, which would avert an immediate budget crisis. In the meantime, they hope that Mr Kan’s popularity will sink so low as to force him into stepping down or annulling parliament as a condition for winning passage of the financing bills. They are preparing for such a showdown in the summer.

This is a dangerous game, however. It is not just government financing that is jeopardised by the political impasse; it is a DPJ child-benefit scheme that some families may be counting on; a long-overdue cut in corporate tax; as well as tax breaks for fishermen and farmers and tariff cuts on imported food and cigarettes. If the budget battle comes to look like it will further strain Japan’s fragile economic recovery, voters may blame the opposition’s intransigence as much as the ruling party’s ineptitude. 

To drive that message home, the DPJ has circulated to some of its opponents extracts from the 2003 autobiography of Robert Rubin, Bill Clinton’s treasury secretary, which recounts how the Republicans, in sabotaging the budget in 1995, ended up hurting themselves. Opposition politicians acknowledge that even as Mr Kan’s popularity fell to a measly 22% in a Nikkei poll this week, their parties did not reap the benefits. Nor was there widespread demand among those polled for Mr Kan to resign. Then on March 1st it became news when he notched up his 267th day in office: surpassing by a day that of Yukio Hatoyama, his predecessor. How weary voters have become of having leaders who fall like dominoes. 

Yoshimasa Hayashi of the opposition Liberal Democratic Party (LDP) admits that the latest gridlock may be aggravating voters’ disdain for the mainstream  parties. But he shrugged this off as an occasional feature of Japanese politics, something which tends to pass.

A novel side effect is that some fringe parties seem to be benefiting at the expense of the big ones. Last month we wrote about a tax-cutting party in Nagoya, one of Japan’s largest cities, which we referred to as a Japanese “tea party” movement. (Mr Hayashi mischievously called it a “sake party”, probably in allusion to its leaders’ self-confessed fondness for drink.) On March 3rd the Kyodo news agency reported that a first-term DPJ lawmaker had quit the ruling party to join the Nagoya tax-cutting party, led by her former boss, Takashi Kawamura. DPJ members who remain close to the party’s scandal-tainted former boss, Ichiro Ozawa, preferring him to Naoto Kan, are also reportedly getting closer to Mr Kawamura and his group. Some believe they could bring about a split in the ruling party.   

Mr Kan’s forces are bitterly divided, which is one reason the opposition feels confident it can drive him into a corner. Never mind if polls suggest that no party would come out of an election a big winner. The irony is that the LDP and other opposition parties, such as New Komeito, quietly concur with many of Mr Kan’s ideas about fiscal reform and free trade. (We, too, think they are good ones.) But such is the crass self-interest of many Japanese politicians that the opposition would rather bring down this government than work with it towards meaningful reform. No wonder the public is disenchanted.

(Picture credit: Wikimedia Commons)

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1-17 of 17
Anjin-San wrote:
Mar 3rd 2011 4:50 GMT

More well-informed Japanese now view the LDP as essentially "Japanese Territory Administration for the US Government", but now they also realize that DPJ is actually "Japanese Special Administrative Region Legislature for the PRC", and feel that they are trapped between the rock and a hard place.

I apologize to the Economist for failing to notice the Article covering the Triple vote in Nagoya (How did I miss that one, I don't know. Maybe next time I should actually bother to do a keyword article search every week.)

prestwick-uk wrote:
Mar 3rd 2011 7:39 GMT

The attitude of Yoshimasa Hayashi and other LDP lawmakers on the opposition benches is absolutely startling! Even now nobody in Japan's establishment seem to realise that the gravy train of borrowing and pork is coming off the rails.

Anjin's point about Japan trapped as a client of two dueling super powers is spot on. The fact that even when faced with the opportunity to foster the development of its own military aviation industry its happy to spurn Europe's Eurofighter Typhoon (and all the technology transfers and license building agreements that go with it) in favour of an over budget and tightly controlled F-35 simply because it doesn't wish to antangonise either America by buying from Europe and China by expanding its military capability beyond its own borders.

Tai Chi wrote:
Mar 3rd 2011 7:53 GMT

"it doesn't wish to antangonise either America by buying from Europe"

The Japanese extreme caution in buying American aviation extends to civilian orders. Airbus has a 3% market share. (Bloomberg) Can't figure that out.

-Tai Chi
http://chinaoverindia.blogspot.com A China-India blog

Bokken wrote:
Mar 3rd 2011 12:36 GMT

Dear Sir, As a contributor to the Wikipedia and Wikimedia projets, I can only congratulate you for the attribution of the picture illustrating this post. Many medias do not even bother to respect the terms under which such files can be re-used.

However, it would be better to link to the description page :
http://commons.wikimedia.org/wiki/File:Date_Kurabe_Okuni_Kabuki.jpg
rather than to the full scale image.

Thank you !

prestwick-uk wrote:
Mar 3rd 2011 1:18 GMT

@Tai Chi: Yep that is absolutely correct. As for the Typhoon they've spent the last 18 months endlessly delaying the procurement process for their F-X fighter. First while the Japanese government begged the US authorities to approve a waver for the sale of the F-22 Raptor which was rejected, then to wait for a report on the suitability of the F-35 and then a further delay while they desperately hoped that the F-35 would get back on schedule.

Instead the F-35 is suffering a catalog of delays so now they're stalling AGAIN while they wait for Boeing to rush out a proposal on the F/A-18 Super Hornet Block II. At every step of this process BAE Systems and EADS have said again and again that Japan would have a full technology transfer and they'd be open to Japanese involvement in future development of the Typhoon AND would be happy for Japan to license make it to their specs.

doublehelix wrote:
Mar 3rd 2011 2:43 GMT

This is not so much kabuki as a stereotypical death spiral of a Western-style democratic state. The Japanese have spent themselves into a hole so deep that it is not only consuming all the resources of present and future taxpayers just to keep the government afloat, it is also putting so much political pressure on its leaders that they cannot get anything done. All their time and energy is being sucked into trying to find ways to finance old debt and new spending. This is madness. The Japanese have avoided a total collapse of their economy so far because of their substantial savings and balance of trade, but this cannot continue forever in one of the most rapidly aging countries in the world. The day of reckoning is nigh.

Wayne Bernard wrote:
Mar 3rd 2011 3:06 GMT

It's most interesting to watch the Federal Reserve reassure itself and the rest of the world about the success of its QE2 program despite the fact that it has only been in place for 4 months.

Despite the fact that the Federal Reserve's own research shows that Japan's decade-long experiment with quantitative easing was a failure, St. Louis Federal Reserve President James Bullard was already proclaiming Mr. Bernanke's QE2 experiment an unmitigated success as shown here:

http://viableopposition.blogspot.com/2011/02/quantitative-easing-part-2-...

Just ask those living in Japan how well QE works.

nkab wrote:
Mar 3rd 2011 8:51 GMT

Japan’s miracle economic development has benefited tremendously from the US protection umbrella ever since its surrender of WW2.

For its self defense force size of only some 250,000 troops, it’s ironic and bewildering that it should keep a defense budget of $46 billion. That’s about $10 b higher than Indian defense budget, a vastly larger country in terms of population and geographic area.

The US has a responsibility to watch out for Japan’s defense expenditure to out grow of its constitutional purpose to become menace to the peace of Asia, if not already, but also a direct threat to American security, right under America's nose.

nkab wrote:
Mar 3rd 2011 8:51 GMT

Japan’s miracle economic development has benefited tremendously from the US protection umbrella ever since its surrender of WW2.

For its self defense force size of only some 250,000 troops, it’s ironic and bewildering that it should keep a defense budget of $46 billion. That’s about $10 b higher than Indian defense budget, a vastly larger country in terms of population and geographic area.

The US has a responsibility to watch out for Japan’s defense expenditure to out grow of its constitutional purpose to become menace to the peace of Asia, if not already, but also a direct threat to American security, right under America's nose.

Alastore wrote:
Mar 3rd 2011 11:38 GMT

A patched political landscape indeed.

Looking closely one gets a different view in japanese politics comparing that of US. DPJ is no match against the long time entrenched LDP, albeit their recent victory (a novelty that's unlikely to last), therefore a mature two-party system like US is yet to be established in Japan; once LDP comes back to power, the politics would revert back to the wrestling matches among factions within LDP, which effectively left LDP as a ruling party in name only (the constantly changing coalition the PM personally manages to put together stays in power until it ends in a "coup" among participants).

Japan perhaps bears stronger resemblance to Italy in this matter.

Anjin-San wrote:
Mar 4th 2011 12:30 GMT

@nkab
$46 billion is only about 1% of Japan's GDP. India spends more than 2% of its GDP on defense. Who is overspending on defense?

Frog in Japan wrote:
Mar 4th 2011 11:18 GMT

Politics is often crazy, but in Japan it is really impressive.

We are talking of a party that won election less than 2 years ago, at few seats from 2/3 majority in lower house! Leaded by a guy who just won an internal election less than 6 month ago!!!!
And it is impossible to pass a budget? Not crazy?

What is the point of doing election, if nobody accept that the winner take power and govern, at least for while?

A last question I have, Is it a cultural issue in Japan? Or a systemic issue of their political system?
If latter it will last for ever, as Japan need a constitution change!

nkab wrote:
Mar 4th 2011 6:15 GMT

@Anjin-San wrote: Mar 3rd 2011 4:50 GMT

“More well-informed Japanese now view the LDP as essentially "Japanese Territory Administration for the US Government", but now they also realize that DPJ is actually "Japanese Special Administrative Region Legislature for the PRC", and feel that they are trapped between the rock and a hard place.”
---------------------

I wrote my previous comment before reading yours above.

There is no need to be trapped in between. Japanese people have always been smart, and that’s the way it should be. Yet for some reason, Japan today has been unable to wane its dependency from its war time mind set.

I am not saying Japanese should go back a thousand years in Tang Dynasty when Japan was a most studious student of China on just about everything. With I visited Koyto, they told me that’s how Chinese cities looked like in Tang period. Today, Chinese can learn many things from Japanese.

But Japan should break out from its cocoon to deal squarely with Japanese lack of repentance (of hideous war crimes) and shed its protective stance of guarding themselves jealously if somewhat contemptuously (because of earlier wins in wars) against China. The two should seek being partners in their peoples' minds, not at odds as may be dictated by any third country.

I know it’s not easy. With due respect, Japanese have been indoctrinated in this emperor thing for too long. All men are created equal. It makes no sense to have a person of a family line revered and submitted to as their semi God. It just may take a Jasmine revolution of sort to rid Japanese the bondage of “imperial emperor—subject” mentality, as China did 100 years ago in 1911.

As for defense budget, % of GDP means little for rich economies. Weapons know only one percentage: The per capita defense dollars (bombs), or defense dollars (bombs) per square meter of territory.

There, I don’t think I need to cite specific numbers to convince you that Japan is too overwhelmingly armed to the teeth for its own good. Japan could afford it financially being a rich nation of course, but Japan really couldn't otherwise.

Anjin-San wrote:
Mar 5th 2011 1:48 GMT

@Frog in Japan
As I said in my first comment, Japanese houses of parliament are about as effective as Hong Kong's Legislative Assembly; ie. it has only very limited power on internal policies, as the rest is dictated by either the bureaucracy in Kasumigaseki or their overlords in Washington DC.

@nkab
Throughout the recorded history of Japan (ie. ever since about 6th Century AD), stability of Japanese government depended on the Imperial house reigning but not ruling the country. There have been several occasions in history when the Imperial House got involved in ruling Japan, all with disastrous consequences (7th, 10th, 13th, 14th, and late 19th-mid 20th Centuries).

The Emperor also acted as rallying point for the opposition when ruling elites of the time became too corrupt or incompetent, as it had the power to grant legitimacy to the opposition [as it happened in 1185, 1333, 1600, and 1868] and aid in their success. This is no longer the case under the present constitution, so the need for Jasmine lies outside the Imperial Palace for Japan (in fact, it lies right across the moat at Kasumigaseki [Tokyo's Whitehall]).

Although given the same name, the role of Japan's Emperor and China's have diverged over 15 Centuries, and now it more or less defines Japan in a way much deeper than monarchs elsewhere. As for revereing a mortal as a semi-god, as the Pope is the representative of Jesus on Earth, is our Emperor is now the representative of our 8 million Kamis on Earth.

bernardpalmer wrote:
Mar 5th 2011 7:13 GMT

"But such is the crass self-interest of many Japanese politicians that the opposition would rather bring down this government than work with it towards meaningful reform."

The reason I would have thought why they can't "work with it towards meaningful reform" is because the system is broke--both physically and fiscally.

Japan has been the world's leading exponent of Socialism for the last 50 years. It is obvious that their economy should crash before the other Socialist regimes out there.

As I see it we are now all watching the slow motion kubuki, the dance of death. Japan being the lead dancer in the kubuki troupe is already heading outwards and downwards towards the abyss just beyond the stage. Behind her Ireland and the other Piigs have lost their balance and starting to fall forward as well. The US, the UK, Europe and China are all tied together by the US dollar will soon follow the Piigs down onto Socialism's massive funeral pyre.

And what a great crash it will be! Sparks everywhere! The air filled with the pungent smell of burning pork creating a potential carbon tax extravaganza for the greenies but no one to collect it.

Unless of course the Japanese mega companies who belong to the Keizai Doyukai and the Nippon Kiedanren decide amongst themselves to introduce a Internet based gold and silver micro payments system using a 99.99% purity to 4 decimal places of a gram and stop being scared of their dying government.

nkab wrote:
Mar 5th 2011 1:09 GMT

@ Anjin-San wrote: Mar 5th 2011 1:48 GMT

“@nkab
Throughout the recorded history of Japan (ie. ever since about 6th Century AD), stability of Japanese government depended on the Imperial house reigning but not ruling the country. There have been several occasions in history when the Imperial House got involved in ruling Japan, all with disastrous consequences (7th, 10th, 13th, 14th, and late 19th-mid 20th Centuries).
------------------

Sure, the “Imperial House” did all that, and some with “disastrous consequences”. But why are you still keeping him?

It was in the Japanese emperor’s watch that they invaded a weak China causing 35 million Chinese civilian lives lost with untold pain, suffering and devastation to their livelihood, historical buildings and artifacts. Not to mention despicable atrocities, rapes and murders committed by invading Japanese troops. (That’s 6 times more than the 6 millions Jews murdered by Nazis.)

It was in Japanese emperor’s watch that Japanese troops tortured tens of thousands of American, British, Australian and other soldiers to humiliating pains and deaths.

It was in the Japanese emperor’s watch that brought havoc to Japan and had Japan nuked twice, causing pains and suffering to thousands of Japanese civilians.

It was in the Japanese emperor’s watch that saw all Japanese people humiliated in the unconditional surrender and foreign occupation unprecedented in Japan’s recorded history.

Should any one of these “deeds” be reason sufficient enough to do away the “Imperial house” tradition by the Japanese people?

As amply demonstrated by the peace treaty signed by Japan and China after the war, Chinese sought no revenge at all, and instead offering a hand of peaceful cooperation and reconstruction.

That did not seem to have mattered much though, and I am wondering if that’s because the Japanese don’t give a damx, or else they are not allowed to by today’s US global strategic thinking.

Fooli Cat wrote:
Mar 5th 2011 6:19 GMT

nkab,

I'll make a deal with you.

Based on your logic of events and occurences during a ruling figures tenure being reason to dismiss the entire institution. And I do mean specificaly YOUR logic. Japan will oust the Imperial Family in trade for China doing the same with the CCP.

Deal?

1-17 of 17

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