Wednesday, March 12, 2008

The DPJ Veto on the BOJ Appointments and Implications for the Gasoline Tax Surcharge/Road Budget

It’s official. According to a notice on the DPJ website, the DPJ leadership met yesterday and unanimously decided to withhold consent for the appointment of Toshirō Mutō as BOJ Governor, as well as Takatoshi Itō as one of the two Deputy Governors. The DPJ is accepting Masaaki Shirakawa, the other candidate for Deputy Governor, since he worked as a career BOJ official. According to the notice, the DPJ is vetoing Mr. Mutō primarily because he 1) is the embodiment of the Ministry of Finance and will not be able to maintain the BOJ’s independence, and 2) shows no remorse for the bubble economy and the hyper-low interest rate policy. If the DPJ has its way, both Houses will vote on the appointments today.

It is a rare event that unites all the mainstream dailies from Asahi to Sankei in urging the DPJ to reconsider. Mainichi even manages to inject some unintended humor into the proceedings as it pleads with the DPJ to abstain from the voting or absent itself altogether as a less harmful way of registering its displeasure*. According to media reports, Ichirō Ozawa was willing to acquiesce but his colleagues refused to go along.

All of which, of course, is no excuse for this blog being dead wrong in its prediction. But what does this portend for the gasoline tax surcharge/road construction budget issue?

If the DPJ is willing to buck the entire mainstream media and the business and financial establishments and even dares to defy this blog to veto Mr. Mutō, then it will surely have no compunctions in rejecting any LDP overtures with regard to its far more populist and publicly appealing stand on the surcharge. The DPJ has backed this stand by a well-justified attack on road construction planning and expenditures that is supported by the national media.

The LDP could, of course, come up with more substantive ideas to bridge the gap. The elements are already in plain view: it could 1) lower the surcharge rate; 2) shorten the duration of the extension, 3) lower the 59 trillion yen estimate for the 10-year government construction plan, 4) shorten the period of the government plan, and 5) put the revenue into the general budget. If the DPJ refuses to negotiate, it could come up with its own compromise package, dare the DPJ to veto it in the Upper House, then exercise the Lower House supermajority override to pass it.

Unfortunately for the LDP, its road tribe and the special interests appear to be too strong for the Fukuda administration to make a move in that direction without the sense that the DPJ is also looking for a compromise. On the other side of the aisle, the DPJ intransigence on the BOJ appointments leads me to believe that there is now a very good chance that the DPJ will rip right through the March 31 deadline under the House Chairmen consent decree. Thus, it looks increasingly likely that there will be little movement on the substance on either side until the new fiscal year dawns and the surcharge lapses, on April 1. I dare not make a stab at guessing what the ultimate outcome will look like, but I doubt that either side will look any better and more worthy of holding the reins of power as the result.

* Yomiuri doesn’t have an editorial on the matter today. But it spoke out last Saturday and should be blasting the DPJ after the actual vote.

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