Friday, March 29, 2013

The High Courts Have Spoken on the 2012 Lower House election; So What Does This Hold for the Future?

Almost completely ignored by the international media, judicial panels in the Japanese high courts, the courts of first instance for disputes regarding the legality of elections and their outcome, have now ruled on all sixteen cases challenging the validity of a total of 31 single member seat elections in the December lower house election on constitutional grounds. Fourteen judicial panels have ruled that the elections in their respective disputes were unconstitutional while two maintained that they were merely in a state of unconstitutionality. However, only two of the “unconstitutional” rulings actually annulled the elections (one of the two giving the Diet until November 26, essentially a one-year grace period, to work out a five-seat reduction under to the November 2012 amendment that would bring the maximum population disparity between single member districts based on the 2010 National Census under the two-to-one threshold that appears to be the judiciary’s red line. The Supreme Court is expected to provide a final ruling on appeal, most certainly by the calendar year’s end. It is highly likely to go with the flow and rule the elections unconstitutional but decline to vacate the seats in question. The Supreme Court is typically more conservative than the most radical lower courts and, with all the 15 justices convening for the ruling on these appeals, there is less room for surprise. Think of this as the judicial version of the law of large numbers.

However, the five-seat reduction will not eliminate the one-seat set-aside for each of the 47 prefectures, which the Supreme Court rightly points to as the fundamental cause of the disparities. Thus, if the Diet fails to act by the time the next Census is taken in 2015, causing the judiciary’s red line to be crossed again—the maximum disparity under the current recommendation is 1.998-to-one according the 2010 Census—in a subsequent election, the Supreme Court is likely to be less forgiving and to rule the election itself unconstitutional, possibly even vacating the offending seats. In the meantime, the set-aside is in play as part of the broader overhaul that the Diet has been working on since the DPJ administration. What is the likely outcome of that?

The most likely outcome in my view is that the Diet will pass the five-seat reduction amendment under the redistricting recommendation from an advisory council to the prime minister that affects 42 districts in 17 prefectures but will fail to agree to a formula that satisfies the judiciary’s concerns. The Supreme Court will then grudgingly decline to put the “state of unconstitutionality” stigma on any election held under the new arrangement.

The DPJ, JRP, and Your Party are in favor of eliminating the single member seat set-aside, but the LDP-Komeito coalition has agreed to push the LDP overhaul formula that reduces the number of proportional seats from 180 to 150 but does not touch the single member seat arrangement beyond the five-seat reduction. But that does necessarily mean a standoff. At this point, I believe that the LDP-Komeito coalition is likely to use its lower house supermajority to pass the LDP-Komeito formula. This will be poorly received by the media, mainstream or otherwise, since it not only fails to meet the judiciary’s concern but also entails concerns over the constitutionality of a complicated formula that in principle sets aside 60 of the 150 proportional seats for the parties other than the party that won the most seats. However, last November, the LDP and Komeito, in an agreement with the DPJ, committed to significantly reduce the number of lower house seats by the end of the ongoing Diet session as the political pound of flesh for raising the consumption tax rate. Even if the LDP is too tilted in favor of the low-population prefectures to come to an agreement on a formula that satisfies the judiciary’s concern, it can at least use the supermajority to avoid the visceral reaction from the electorate come July that would be forthcoming if it misses out on the on the November promise.

Of course the LDP-Komeito could decide to pass only the five-seat reduction and revisit the overhaul issue after the July election. However, I believe that this is less likely since the LDP will bear the brunt of the criticism on both the constitutional question and the tax hike pound of flesh against the backdrop of an imminent national election. Better, then, to take a half measure and weather the backlash while the Abe administration and the LDP are riding high in the polls, and worry about the implications of the next National Census when it arrives. Or so I think.

Wednesday, March 20, 2013

Is Michiyo Yakushiji the Beginning of the End for the DPJ?

Today’s (March 20) Yomiuri reports that Toru Hashimoto’s Japan Restoration Party (JRP) and Yoshimi Watanabe et al’s Your Party (YP) have agreed to jointly support YP’s Michiyo Yakushiji in the July three-seat, Aichi Prefecture, House of Councillors election. This, if it is the harbinger of a breakthrough in the two parties’ attempts for nationwide coordination, is likely to be remembered as the beginning of the end for the DPJ, which had already been encountering difficulties raising and keeping prospective HoC candidates.

The objective of the mainstream opposition parties (JRP, YP, and DPJ) is to be the runner-up to the LDP. There is room long-term for only one such viable presence. Thus, the DPJ, coming off its rejection by voters in the December House of Representatives election, is standing at the crossroads of the path to revival—and irrelevance (and likely disintegration).The objective of the JRP and YP, in turn, is to not to beat the LDP but to make sure that the DPJ goes the way of the horse and buggy. They also happen to be natural allies policy-wise; they even share the same largely neoliberal advisors (one of whom stood successfully for the JRP in the last election). Their limited HoC presence makes it easier for them to coordinate their candidacies. This is in contrast to the DPJ, which has 28 incumbents in prefectural district seats that will be up for grabs in July. Yakushiji’s joint nomination suggests that the JRP and YP leaderships will be able to set aside their considerable egos to project a joint frontline, with fatal implications for the DPJ as currently configured.

Wednesday, March 13, 2013

Kuroda Needs a Quick Kill

In a concession to DPJ sensibilities, the Abe administration nominated Haruhiko Kuroda twice, first to serve the remainder of Governor Shirakawa’s term from March 19 through April 8 and second for a full five-year term. Although Mitsuru Sakurai, the DPJ’s Policy Research Council Chairman, reportedly suggested that the DPJ could still vote against him on the second vote, it would be a highly unlikely turn of events, given the all-but-certain political fallout from negative media and market responses. However, this makes it somewhat less likely that the BOJ Policy Board will vote on April 4 on a further relaxation of monetary policy along the lines that Kuroda has been advocating.

Not that Kuroda can wait that long. The currency and equity markets have been positioned favorably for the Abe administration and Kuroda solely on policy expectations. Kuroda must match reality with those expectations sooner rather than later, or marker sentiment could swiftly turn against him and do serious harm to Abenomics. Thus, a second, extraordinary BOJ board meeting could be in order soon after Kuroda’s confirmation for the full five-year term. I won’t hazard to guess what the outcome would look like—stretching JGB maturities and changing the composition of purchases under the Asset Purchase Program should be easier to do at this point in time than the two measures just voted down eight to one—but much pressure will surely be brought to bear regardless on the rest of the Policy Board members.

Sunday, March 10, 2013

And the Confusion Made the Brain Go ‘Round

Depending on which professional economists you listen to, the monetary and/or fiscal policy components of Abenomics will or will not work. There’s no consensus there. It’s as if astronomers couldn’t agree which was revolving around the other, the Earth or the Sun. Is economics more numeromancy than science or what?

Friday, March 08, 2013

The Kuroda Monetary Easing and the Question of When

Haruhiko Kuroda, the BOJ governor nominee, and the two deputy governor nominees are going to be appointed, no question about that. It is also widely believed that Kuroda will push for further monetary easing when the BOJ Policy Board meets for its next monthly session on April 3 and 4, or, less likely, even sooner in a yet-to-be-scheduled extraordinary session after the almost-done-deal March 19 appointment. Kuroda’s menu consists of 1) moving up the commencement, currently scheduled for January 2014, of the monthly 13 trillion yen purchases under the BOJ Asset Purchase Program, 2) easing or doing away with the BOJ rule that caps BOJ’s Japanese government bond (JGB) holdings at the total value of BOJ notes (all legal tender minus coins), 3) extending the maturity of Program-eligible JGBs, currently at three years maximum, and 4) changing the composition of purchases under the Program, currently scheduled post-January 2014 as 2 trillion JGBs, 10 trillion T-Bills, and the remainder to maintain the existing level of other assets (corporate bonds, commercial paper, etc.). What are the chances of Kuroda making headway on these items?

The Board has nine members, so Kuroda needs five votes to make any changes. Today’s (March 8) hardcopy Yomiuri casually reports that Board member Sayuri Shirai proposed 1) and 2) at the March 6-7 Board meeting and was voted down 8 to 1. Assuming that the two new deputy governors follow Kuroda’s lead, it only takes one Board member to change his mind—Shirai is the only woman on the Board—for a majority. But so soon after the March 7 vote? It can happen—the Abe administration could lean on the former Mitsui-Sumitomo Bank executive, while the former TEPCO executive looks particularly vulnerable to government pressure—but it’s not a sure bet, particularly with regard to 1) and 2), for the April session.

Take note, also, that purchase of assets denominated in foreign currencies is off the board for the foreseeable future. No matter what Prime Minister Abe may have said in the past, the political costs on the international front are too big. Japan is not South Korea or Switzerland. A good analogy is whaling, where Japan, not Norway, takes most of the flak.