Memo on the Consumption Tax

Nothing says Happy New Year like talk of a (consumption) tax hike. Noda got the DPJ to go along by pushing the initial raise to 8% back six months from the original proposal to April 2014, and what’s a few months this way or that, no? Ozawa’s Plan A must be to get acquitted in time to mount a challenge in the DPR leadership election next September against a weakened Noda. Must get busy now; in the meantime, the following is a memo that I wrote a little over a week ago around the issue. I hope that you find it relevant. Finally, I wish you all nothing but happiness and joy in the year to come and thereafter.

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1. A majority of the Japanese public believes that a consumption tax hike is inevitable. The 1988 introduction of the consumption tax was highly unpopular with the Japanese public.
2. Big business generally supports a consumption tax hike. There is no overt opposition from SMEs, who, like big business, a) do not like the government's idea of shifting the growing burden of the social safety net on the shoulders of businesses (pushing 20-30 hour workweek employees into the Kosei Nenkin hurts big and small business alike) and b) would like to see the corporate tax instead. The 1988 introduction of the consumption tax was fiercely opposed by SMEs and many other businesses
3. The MSM generally supports a consumption tax hike. The MSM was split in 1988.
4. The LDP has supported a consumption tax hike. The opposition parties were strongly opposed in 1988.
5. Public disgust over the Recruit scandal that contaminated virtually the entire LDP leadership likely had some effect on the1990 election results. Besides, the 1986 election results were exceptional, making the 1990 results look worse that it is in a historical context. The 3% to 5% hike did not keep Hashimoto and the LDP from winning in the 1996 election, already well into the post-bubble decade.

So what's the problem?
1. Public mistrust of the conventional political class. The lack of political leadership and policy consistency has sapped the credibility of both major parties in asking the public to pony up. (That is why the largely symbolic (in fiscal terms) value of a notional downsized Diet is taking on significance.) The DPJ has had a longer distance to fall, which they did because only a small fraction of the promised savings materialized in its first three years in power. (There were of course Hatoyama's Futenma debacle and incoherence and Kan's inability to articulate and execute. Noda has so far proved (sic) pedestrian, though his persistence should prove useful in getting a compromise on the consumption tax.)
2. Poor economy. The argument is that this is not the time to put the brakes on consumption. That's a reasonable argument, although a trigger for 2013, BTW the more likely arrangement, should take care of it. (Economists and analysts argue over the effect on consumption and savings. I'm not competent to go into that; suffice to say that opponents bring up this argument and many of them no doubt believe it.)
3. The battle for the periphery. The DPJ won the (upper house) 2007 and 2009 elections in part by capturing seats in the periphery, many in districts in traditional LDP strongholds--with low-income, elderly demographics, who will feel relatively more pain from the tax hike. (To be fair, the DPJ also win in the metropolitan districts.) The LDP wants those voters back in their fold, while DPJ parliamentarians with insecure seats (presumably skewed heavily toward Ozawa allies and dependents) will be tempted to vote for their constituents' purses.

2012 should be a good year for the economy, while economists largely agree that it will be less so in 2013. Arguably, it's now or never for the Noda administration. But it can't do anything about the mistrust. But neither can the LDP. Public perception that the LDP is opposing a tax hike--and that's only if they actually manage to cohere around a clear position in opposition--for purely tactical reasons will cause significant damage to the LDP as well. One possibility lies in ganging up on the smaller parties and place the bulk of the consequences of downsizing on the proportional seats, make a compromise on a trigger-equipped consumption tax bill, then let Diet members vote their conscience. There is a huge upside/downside risk here, though. The likelihood of lopsided results become much higher with a smaller proportional-seat cushion. And voting their conscience may only delay the onset of thoroughgoing realignment. Also militating against the compromise that I suggest would be the LDP-Komeito campaign alliance, which the LDP would be loath to give up.

Those are my thoughts as of now. I know there is no convincingly overriding scenario here; all I'm sure of is that the LDP can't let Noda have his consumption tax and declare victory, nor can Noda drop the consumption tax hike and go on as if the whole series of events had never happened.

My Thoughts around the Nine Defectors and Beyond

It was more like minutes than hours, wasn’t it? So what kind of people bolted the DPJ today over the prospective consumption tax hike to form a new party? Mainly proportional-only candidates, most of whose prospects of reelection in anything but a landslide by the DPJ are nil, that’s who*. For these people, their best chances would lie in running as bi-candidates in a new party and hope that the new party wins enough votes (and they lose by small enough margins) to allow them to make it back as zombies.

Beyond that, my guesstimate says that the DPJ could win 180 out of the 304 first-past-the-post districts—the DPJ won 227 in 2009—and the DPJ’s 45 proportional-only incumbents would still be in danger of being wiped out**. It’s not a good time to be a DPJ Diet member who doesn’t have a single-seat district to hedge his/her bet and be eligible to compete with all the other bi-candidates for zombie status. But running in a single-seat district will cost you, so it’s not a viable option unless you’re deep-pocketed or willing to bet the farm.

There was another DPJ defector today, but that’s more the subject of comedy. I might go back to it tomorrow.

* Akira Uchiyama(3rd term) South Kanto ranked 1st, among DPJ proportionals; lost Chiba 7th; Ozawa group
Koichiro Wtanabe (2nd) Tokyo 29th among DPJ proportionals, of whom 23rd-29th got in; Ozawa; habitual loser
Juntaro Toyoda (2nd) Kinki 51st, 45th-52nd; Ozawa; repeat loser (one win in 1993)
Mitsuji Ishida (1st) South Kanto 37th, 37-39th; Ozawa; one-time prefectural assembly election loser
Masae Kobayashi (1st) Tokai 39th; 34th-41st; Ozawa; mayoral election loser
Yoshinori Saito (1st) (斎藤恭紀〈１〉（宮城２区）鳩山
Atsushi Chugo (1st) South Kanto 1st , lost Chiba 12th; Ozawa; two-time municipal assembly winner
Nobuki Miwa (1st) Tokai 38th, 34th-41st; Ozawa; four-time prefectural assembly winner
Yoshihiko Watanabe (1st) Kinki 48th, 45th-52nd; Ozawa; two-time loser, hid bankruptcy procedures to remain on DPJ list
** There are ways to develop more detailed estimates, but I’m not sure it’s worth my time unless I’m getting paid for it.

Who Will Jump the DPJ Ship over a Consumption Tax Hike?

For now, only a couple of handfuls, if the Asahi is to be believed. We’ll know in a matter of hours, if not days, but in the meantime, here are a few thoughts around the report that may be useful beyond the immediate future.

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So far, prospective defectors are small in number and are mainly (but not exclusively) first-term Ozawa children (Miwa is a ripe old 69) in the lower house representing the urban expanse between the true outback and the Tokyo/Nagoya/Osaka metropolitan. No upper house names have emerged.

How will they fare in a snap election? Intuitively, not so good. They will have to share the anti-consumption tax hike vote with Your Party, who will also be able to 1) run candidates in more districts, which will help it gather proportional votes, and 2) position itself as the reformist alternative. There are many other factors to be considered, some positive (Yasunori Saito, who has local celebrity status, will rake in votes outside his district; people like Nobuaki Miwa, who have independent political capital, maybe able to wrest away a larger part of the local DPJ chapter than otherwise possible), some negative (political novice rookies may not be able to take much of the local DPJ party machine away with him). All things considered, expect a few other multi-term Diet members as well a rookie or two that have strong local assembly backgrounds to make the leap, calculating that, at worst, they can slip back in on the proportional tickets. Conversely, pure political rookies will not jump ship unless Ozawa jumps with them.

Giving Kan Some Credit (though He Hasn’t Really Earned It)

Prime Minister Kan is trying to take the DPJ back to its reformist roots. His two most important policy initiatives:

1) putting the social safety net on a sound footing by raising the consumption tax rate; and
2) pushing economic reform by re-linking agricultural subsidies to FTAs—I’m talking about his bid to have Japan join the US initiative on an expanded Trans-Pacific partnership

revive the arguably two most important policy goals that Ichiro Ozawa threw under the bus when he beat Kan in the 2006 DPJ leadership election. His efforts to sideline Ozawa and his minions point to another key element of what the DPJ stood for until its fateful merger with the Ozawa forces—no more politics as usual. So why isn’t anyone giving Kan any credit for this? Or at least taking note? Could it be the reflection of an anti-DPJ bias in the MSM, which some political scientists (SR, JC, etc.) whom I know and respect claim exists?

I lay the blame squarely at the doorsteps of the prime minister’s office. Circumstances aside, it’s due to Kan’s inability to project a coherent political message and stick to it. In fact, if there’s one thing that the Founding Fathers of the ultimately successful anti-LDP movement—Ozawa, Kan, Hatoyama—it’s their inability to articulate what they stand for (something that has surprised me in Kan’s case) and give the appearance of staying on message. Another common thread that binds them, though, is their stubbornness. And that is what keeps their clocks ticking, even Hatoyama’s, who has decided that he is indispensable to Japanese politics after all. And keeps Kan plugging away, to turn the clock back to the future, the future that the DPJ saw, before it lent the eaves to Ozawa and almost lost the house.

Give Kan credit though; he isn’t giving up any time soon, like some beta version of the first-generation Terminator.

The Difference between the LDP and Komeito…Why It’s premature to Write Off the Kan Administration Just Yet…Plus My Pick for Kan’s Replacement

Opinion polls show the Kan cabinet dropping to near-last gasp Hatoyama lows and the DPJ falling behind the LDP for the first time in what seems like ages—when you are going through five prime ministers in four years, time seems to go by rather swiftly. So, is it time for a quick Kan write-off and a turn to a freshly recycled... Okay, not so great an idea, which may be one reason why nobody, not even an Ozawa surrogate, is willing to mount a leadership challenge. Still, with an opposition majority in the upper house, the April local elections (mayors, prefectural and municipal assemblies) looming, fragging from Ozawa and other discontents, and the media eager to promote major political upheaval, the Kan administration’s immediate prospects look dim. Or do they?

It is no secret that the DPJ is pining for Komeito, the one party—other than the LDP, which doesn’t count—that can ensure an upper house majority and erase the need for sucking up to the tiny SPD, former coalition member on the fringe-left, which can secure a lower house supermajority to force legislation past upper house opposition vetoes. (The problem with lower house overrides is that they will greatly increase the likelihood that the DPJ comes tumbling down in the next general election.) But conventional wisdom says that because of the April elections, the Ozawa smell test, and the sheer political inertia of the LDP-Komeito coalition years, Komeito is finding it difficult to provide assistance to the beleaguered DPJ, Kan or non-Kan, despite the shared urban, centrist leanings that would otherwise make the two parties natural allies. So it must be a relief to DPJ strategists to see that Komeito telegraphing its intent: We will fight the DPJ in the upcoming Diet session, but we will not push it over the brink and force a lower house snap election that the Soka-gakkai does not want.

For those of you who can’t read Japanese, Katsuya Okada, Kan’s second-in-command who runs the DPJ political operations, reiterated the Kan administration’s willingness to accommodate the opposition in order to avoid gridlock in the upcoming Diet session on the FY2011 budget, a turn of events that would doom the Kan administration and significantly raise the probability of a politically dangerous snap election. The opposition’s response?

LDP whip: We must create a political situation at the fiscal year’s end [March 31] where [budget-]related legislative bills will be voted down in the upper house.
Komeito whip: (The budget bill) has an extremely large number of problems, and [we] oppose it.

In last year’s extraordinary Diet session, Kometio voted against the supplementary (stimulus) budget but voted for the budget-related bills. Barring political failure of catastrophic dimensions, this means that Kan will survive the upcoming Diet session, which makes him an odds-on favorite to survive until the 2012 DPJ leadership election, when my money will be on a run-off victory by the top challenger, who will then call a snap election and win a new mandate for the DPJ.

Which begs the question: Which challenger? Good question, and the main reason, if some experts are to be believed, that the DPJ cannot afford to ditch Kan just yet. My pick: Goshi Hosono. He’s only 39, only in his fourth term as a lower house member in a society where seniority still matters, and has never served as a cabinet member. But neither did Shinji Tarudoko, who made a credible show of challenging Kan in the DPJ’s last leadership election despite similar shortcomings. Which brings me to what I think is the clincher. Hosono has something that none of the other telegenic, articulate policy wonks has: he’s on good terms with all the main actors, from Seiji Maehara to Ichiro Ozawa. That’s like playing for both national sides in the Japan-South Korea Asia Cup semi-finals. Go Blue Samurai!

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My thanks go out to the people who have asked me why I haven’t been blogging recently.

Kaieda Shows Roots in Pushing Zero-Interest Government Bonds

Banri Kaieda, the new State Minister for Fiscal and Economic Policy, is promoting zero-interest, estate tax-free government bonds as a cheap means to finance the public deficit. This is an idea that was already advocated by notable economic gurus Shizuka Kamei (most publicly when he held the Financial Services and Postal Reform cabinet portfolios) and Ichiro Ozawa (during the DPJ leadership campaign). This Yomiuri report states without further comment:

“The objective [of the zero-interest bonds] is to sop up tansu yokin (ed. ”Tansu yokin” is the Japanese equivalent of “mattress money”) and other assets that are lying about unused in households with government bonds and put the [funds] to good use.”

This is rubbish. Most people in Japan do not keep their savings in their bureaus (or their mattresses). Instead, they put the money into better use as financial assets, bank deposits, mutual funds, and the like. And guess what those banks (and Japan Post Office), fund managers, and the like purchase with the money…

So what’s the point of it all? Japanese inheritance tax law gives us the answer. The first 50 million yen of an estate is tax-free and there’s a 10 million deduction for each legal heir, so there’s a minimum 60 million tax-free to begin with. (There are other deductions that vastly complicate the picture, but let’s keep it simple. Besides, I’m not a tax attorney.) Beyond that, the marginal tax rate is highly progressive, beginning at 10% for the first 10 million but rising quickly to peak at 50% for anything over 300 million. At its simplest, the inheritance tax-free bond would result in massive windfalls for the heirs of the rich and elderly while the government avoids modest interest payments over the lifetime of the bonds. You don’t need to do the math to see that the government will be the big loser in terms of present value, while accepting more volatility in its long-term cash flow (interest payments being more predictable than mortality profiles of the eventual bond purchasers). It’s boondoggle, that’s what it is.

Then why are these politicians advocating the zero-interest, inheritance tax-free bonds? Well, Kamei and Ozawa are old men who have accumulated plenty of personal assets over their lifetimes. It is conceivable that they have a personal interest in pushing the measure. More likely, though, is the input that they get from the company they keep. As conservative political leaders with an ironclad grip on their Diet seats, their most important constituency consists of the rich, i.e. the members of the moneyed class who find vicarious pleasure in sponsoring their favorite politicians, much in the way that they might spend money on racehorses or professional sumo wrestlers.

I suspect that the reason for Kaieda’s support for the bonds is somewhat different, although it’s still represents doing favors for the rich. Before he became a politician, he had built up something of a reputation as an economic analyst. However, it appears that it was not as just any kind of analyst. A look through his bibliography shows that he was essentially a personal finance guru, more Suze Orman than Paul Krugman, Kazuyo Katsuma than Heizo Takenaka. And if an inheritance tax-free bond isn’t a personal finance advisor’s dream, I don’t know what is.

Case closed.

This does not, of course, bode well for economic policymaking under the Kan administration. It also does not speak kindly of the MSM in terms of economic literacy. On the other hand, this kind of nonsense gives me material for this blog, and in a very roundabout way helps put food on my table. So who’s complaining?

Scattered Thoughts on and around the DPJ Election

All the suspense went out of the process when they announced the party member/official supporter voting results 249 – 51, giving Kan an insurmountable lead. And the 206 – 200 Diet member split (412 – 400 for the point count) that gave Kan the victory in a 3 – 0 unanimous decision (60 – 40 for the municipal and prefectural assemblymen vote) has symbolic value. More significant, though, is the fact that nearly half of DPJ Diet members and two-fifths of the party-faithful preferred someone who had to give up control over the party coffers and party assignments due to political financing scandals that may result in his criminal prosecution as early as next month. That’s not exactly a vote of confidence for Kan.

I do not think that Ozawa is going to try to engineer a split any time soon, if only because a mere fraction of the 201 is likely to follow him into penurious exile. There will be much greater temptation to foment rebellion as the August 2013 deadline for the next general Lower House election approaches, but my money is on a strong challenge from one or more candidates—not Ozawa—in July 2012, when Kan comes up for reelection as DPJ chief. At that point, temptation will be strong to elect a new leader, who can call a snap election before the afterglow dies off. The DPJ can worry about the 2013 Upper House election later. There’s also a good chance of switching party allegiances and maybe even major realignment just before the Lower House election. If Ozawa is going to make a move, it’s most likely to happen then.

Kan did well in the metropolitan areas, while Ozawa did well in the periphery. I think that this reflects real, substantive differences that were evident even if many of Ozawa’s major policy pronouncements were opportunistic and ill-thought out. Can the DPJ forge a coherent set of policies that makes sense for the long-term wellbeing of the Japanese economy while satisfying both ends of the political geography?

Is Chief Cabinet Secretary Yoshito Sengoku Prime Minister Kan’s Masaharu Gotoda? He sees to have the intellect and some of the moxy of Prime Minister Yasuhiro Nakasone’s majordomo, and also manages to cloak his personal ambitions, if any (Gotoda was biologically too old and politically too junior to have any), for higher office. Of course any analogy breaks down at the Kan/ Nakasone level…

Forging an official bicameral majority that shares cabinet and sub-cabinet posts seems next to impossible to me. (I happen to think that, contrary to the majority view, it would have been even more unlikely under Ozawa. But we’ll almost surely never know.) However, flexible, multiple, issue-oriented alliances are eminently doable; if you don’t believe that, look at the substantial, if diminished, amount of legislation that got done without resort to a Lower House override after the LDP-Komeito coalition government lost its Upper House majority in the 2007 election. I’m going to explore this angle and others in a talk that I’ll be giving in a couple of weeks and getting paid for! I may dribble some of my thoughts out over the coming days or, more likely (I’m a terrible procrastinator), present them after the event.

Ozawa and the Sokagakkai Effect; Plus No-D Kan as Placeholder

Remember my caveat regarding the Sokagakkai effect, i.e. the reluctance to disclose one’s true preference for a socially controversial choice, a phenomenon that could result in undercounting the Ozawa vote? I now have some corroborating evidence.

The hard-copy version of this Yomiuri survey, conducted on September 8, says that of the 411 DPJ Diet members (305 Upper House, 106 Lower House; one Diet member no longer has voting rights since he left the DPJ in the wake of the conviction of one of his political operatives), 262 (202 LH, 60 UH) responded to the Yomiuri questionnaire. Based on the questionnaire and other information, Yomiuri concludes that Kan has secured support from 168 Diet members (127 LH, 41 UH) while Ozawa has 171 (127 LH, 44 LH). But does this mean that Kan has closed the gap among Diet members, despite the low marks everyone seems to be giving to his campaigning? I’m not so sure. This Yomiuri report gives the list of Diet members who agreed to allow their names to be disclosed. Of the 168 Kan supporters, 113 (87 UH, 26 UH) agreed to disclose their names for a disclosure rate of 67.3%, but only 86 Ozawa supporters (68 LH, 18 UH) were willing to reveal their preferences for a disclosure rate of 50.3%. Clearly, Ozawa supporters are more reluctant to declare publicly for their candidate of choice. I suspect that this reluctance carries over to the remainder, that Ozawa leads Kan among the 52 (411 – 168- 171) “stealth” members whose preferences not even “other information” would indicate.

The first Yomiuri report continues to give 60~70% of the 300 party member-supporter vote and the 100 assemblymen vote to Kan. But the Sokagakkai effect may be in play here as well. I still think that a Kan victory is a sure thing, but the tally will be closer than the raw numbers currently indicate.

Incidentally, much of Kan’s inability to shake the publicly unpopular Ozawa is attributable to his sheer ineptitude as a campaigner. This flaw has come as a surprise to seasoned insiders. Kan has come across throughout his career as an effective debater, but he was always on the offensive then. Now, he is utterly incapable of projecting himself as an effectively leader as Ozawa attacks him at will. There is no D in Naoto Kan and it shows. That will not be good going forward. Even odds, I’d bet against Kan surviving the next DPJ leadership election (2012) or the next Lower House general election (no later than 2013), whichever comes first. This means, of course, that the DPJ has another crack at choosing a new party head to lead them into the next Lower House general election. If I were a DPJ election strategist, I would ask myself, Why would I want to waste political capital now by picking a new prime minister with all his PR baggage plus his proven ability to generate enemies and alienate allies, when I can always go into the next general election, possibly a double election, without the downside of either one of the two current contestants? From this perspective, Kan is at worst the better placeholder.

The DPJ Leadership Election: It’s Kan’s Race to Lose

If the Mainichi report giving Ozawa a tentative 185 to 164 lead over Kan (with 63 not showing any preference) in support among the 416 DPJ Diet members is to believed, then the odds against an Ozawa victory appear to be insurmountably long. Barring an unforeseen disaster for Kan—a deeply wounding personal scandal might do the trick—or an as-yet undetected Sokagakkai effect of significant proportions, Kan will prevail in the overall vote on 14 September. I think that Ozawa has seen the writing on the wall. That might be the real reason why he looks so cheerful on the hustings; he knows he won’t have to be prime minister after all.

Anyway, here’s my arithmetic.

(The Diet member vote)
Let’s assume that none of the 185 + 164 already indicating their preferences changes his/her mind and that the remaining 63 Diet members break out in the same 185:164 ratio. This gives Ozawa and Kan 33.4 and 29.6 more Diet members respectively. Since each Diet member has two votes, Ozawa receives 436.8 votes and Kan 387.2. I’m giving Ozawa the benefit of the doubt here, since nothing is happening to make these fence-sitters jump to Ozawa’s side. To the contrary, subsequent opinion polls paint a bleak picture for Ozawa, as the Kan administration’s approval ratings have been shooting well above pre-election levels even as Ozawa’s deeply negative numbers show no sign of a turnaround.

(Official party members and supporters)

Early estimates put support for Kan and Ozawa in the 60-70% and 20% neighborhood respectively. More specifically, media reports put Ozawa ahead in only his home prefecture Iwate and no-to-US-military Okinawa. But let’s be improbably generous to Ozawa and give him 40%, or 120 of the 300 votes available and Kan only takes 60%, or 180.

( Local assemblymen)
Media reports say that Kan hold an edge here, but let’s be generous to Ozawa and split the 100 votes evenly, giving Ozawa and Kan 50 votes each.

(Total)
Kan : 387.2 + 180 + 50 = 617.2 votes
Ozawa: 436.8 + 120 + 50 = 606.8 votes
Kan wins!

Okay, that’s only a ten-vote difference. But look at the heroic assumptions that I’ve had to make to enable Ozawa to come close. Of course there’s another week to go, during which something unexpected might come up such as, say, 16 seconds of uncomfortable silence from Kan while looks for appropriate bullets from his crib sheet or an unexpectedly early, clean, and unequivocal bill of health (and I mean clean and unequivocal) for Ozawa from the committee investigating his political financing criminal case). But likely? Not.

The one factor that keeps me from betting the house on Kan is what I call the Sokagakkai Effect. Let me explain.

Komeito routinely outperforms public opinion polls by wide margins when it comes to actual election results. In fact, the margins are so wide that they cannot be explained away by extremely high turnout from its core support base, i.e. the members of the laic Buddhist organization Sokagakkai. The reasons for this can only be guessed at by this resource-poor blogger, but I suspect that it has a lot to do with the old social stigma attached to the cultish reputation that plagued Sokagakkai’s in its earlier decades of proselytizing through its faith-healing, marriage-saving, business-enhancing messages. I suspect that supporters don’t want to telegraph their Sokagakkai affiliation, not even to opinion poll canvassers at the other end of the telephone wire. (These polls only cover fixed line households.) Could the same think be going on with Ozawa admirers? Could they be too embarrassed to tell media reporters in the face of near-relentless criticism that they actually prefer that formidable old politico, political warts and all? More to the point, could there be enough such Kakure Ozawarians to deliver an unexpected victory to him come 14 September? For that one day, it’s surely as likely as if not more so than—the next Great Kanto Earthquake, the one event that the insurance companies refuse to offer a policy for my house.

Kan must of course also be careful around the media’s vested interest in keeping this a race.

The DPJ Leadership Election: Mainichi’s Remarkable Headcount

Mainichi canvassed all the DPJ Diet members to see where they stood on the Kan-Ozawa showdown. Adding information regarding their respective groups as well as the labor unions—(many DPJ Diet members rely to varying degrees on support from the labor unions), it has come up with a prospective breakdown of the votes. The resources of the local bureaus are being put to good use*, I see.

	Kan	Ozawa	undecided	total
Upper House	35	46	25	106
Lower House	129	139	38	306
LH rookies	55	65	23	143
total	164	185	63	412

Other bits and pieces of information:

1. Although Ozawa leads Kan 185 to 164 in total support, the two are tied at 122 each in firm votes; the others are merely leaning towards one or the other and presumably could be swayed.

2. Of the lower house rookies, Ozawa leads handily 22 to 8 (with 5 undecided) among those who ran solely on the regional proportional ticket, but Kan leads 47 to 43 (with 18 undecided) among those elected from single-seat districts and those who ran on both tickets and got by on the regional proportional ticket. Take out the pure proportionals, i.e. Ozawa’s truly handpicked candidates, and the “Ozawa Children” look remarkably like the rest of the DPJ’s lower house members.

3. Mainichi attributes Ozawa’s upper house lead to the preponderance of labor union affiliates there.

4. The single biggest factor that has the potential to affect the numbers in the near-term is the collective intent (if any) of the 30 or so members of the old Social Democratic Party group. Media reports say that they are likely to make up their minds early in the week. One weekend report said the group would be opting on Monday (today) to support Kan**.

* Yomiuri carried a similar report, but I could not find it online. One of the more remarkable points in the Yomiuri report was that a few Ozawa group members intended to vote for Ozawa, while the Kan group also had its share of Ozawa supporters.

** Even if the ex-DSPers don’t reach a collective decision, I am now more confident that my call of a Kan victory is the correct one. More about that later.

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In case anyone hasn’t noticed, the Wall Street Journal seems as good a place as any for a daily fix on the DPJ leadership election—if you can’t read Japanese. Just punch in a keyword or two and you should be able to pick up more WSJ and non-WSJ media links than is probably healthy for you. And if your interest in Japan is broader than that, you could probably do worse than using its Japan Real Time blog as a portal. Still, I don’t think that you’ll find the Mainichi report there, and it’s not often that you’ll find these kinds of numbers, so I thought I’d let you know.

The DPJ Leadership Election: Ozawa’s Charm Offensive Only Skin Deep

The other Ichiro is opening himself up to the media or what? He’s been flashing his million yen smile through most of the obligatory photo-ops as well as the open-air, shades-of-Lincoln-Douglas, head-to-heads against Kan. Which only reminds me of his boast in a fairly recent book of his that he campaigned like hell when he ran successfully for the Iwate lower house seat that had been held by his father until his untimely death but never had to personally campaign in subsequent elections. Here’s definitely a guy who wouldn’t be kissing babies and eating rubber chickens if he could help it.

But how about his direct dealings with the media? According to the headline for this Yomiuri report: “Regular Press Conferences If I Become Prime Minister,” he’s willing to make himself accessible—not. Here again, the new Ozawa is really the old Ozawa. In the text, he is quoted, “I think it would be better to do regular press conferences, rather than those ‘cling-ons.’ The prime minister should do press conferences as often as possible, once a month or twice a month.” Longtime followers of the Japanese political scene will remember that Prime Minister Abe tried to cut back the customary twice-each-weekday, cling-on sound-bite briefings to one a day and caught hell from the mainstream media. And you wonder why Ozawa gets such bad press.

The DPJ Leadership Election: The Ozawa Referendum

The first of what I hope will be several observations about the upcoming DPJ leadership election, where Ichiro Ozawa is making what is surely his last (and first, when you come to think about it) bid for the prime minister’s office, against incumbent Naoto Kan:

The Kan administration has looked good in the public’s eye recently, bouncing back in the media polls from the mediocre (but not disastrous) 40%-plus counts around the upper house election to make it over the 50% threshold. DPJ local assemblymen* and party members and official supporters* obviously have their ears to the ground, and are leaning heavily toward incumbent, according to this Yomiuri report. Then why is someone who, just three months ago, resigned from his secretary-general post, giving up control over party coffers and appointments, and whose main support comes from Yukio Hatoyama, who took him down with him when he resigned as prime minister, running neck and neck with Kan for support among the 412 DPJ Diet members*?

Kan has proven to be singularly uninspiring. His pre-upper house election message on an eventual consumption tax hike not only proved to be politically ill-advised, but came across as muddled and equivocating, the very qualities that had proved disastrous to his predecessor Hatoyama. This almost all by itself precipitated the political equivalent of the Narita divorce, or at least chased enough votes away from the DPJ in the July upper house election to prevent it from capitalizing on the still-considerable lead that it held over the LDP and the rest of the field. The public’s recovering support, such as it is, remains at best lukewarm. Only a small fraction of the positive respondents in the polls give his policies or his leadership qualities as the reason for their support. Instead, the majority think that it’s too soon to ditch a second DPJ prime minister in just one year, after going through three new LDP prime ministers in just so many years. The voices of his Diet member colleagues reflect this; METI Minister Naoshima, for instance, says, “I have been thinking about this for some time, and I intend to support Mr. Kan, since it is my role to execute the policies that I have developed as a member of the cabinet,” not exactly a ringing endorsement of the prime minister’s leadership or his program, such as there is.

However, these supportive colleagues of his have been more forthcoming about Ozawa’s failings—his political financing issues and holes in his broad-stroke and sometimes alarmingly off-the-cuff policy pronouncements—if the media reports are to be believed. And that is as good an indication of what this leadership election is all about. It’s really a referendum on Ozawa, and what he stands for. And the DPJ Diet members are being forced to take a stand.

I still believe that Kan will win, and that the DPJ will not fall apart as a result. However, Kan does not seem to be the poster child for the new DPJ, if that is what it is going to be. It seems more and more likely that the current configuration of the DPJ will last at most until the dust settles on the next lower house election and that Kan will not be the last man standing then.

* The assemblymen, the official party members and supporters, and the Diet members account for 100, 300, and 824 votes respectively. That’s a total of 1224 votes. The assemblymen votes are allocated among the candidates according to the proportional D’Hondt method, while the official party members and supporters cast their ballots in their respective lower house single-seat districts, with the vote for each going to the top vote-getter first-past-the-post style. Each of the 412 Diet members receives two votes.

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Janne: I think that we’ve come closer to a meeting of minds on Apple with your latest comment on my previous post. I intend to get back to that next week. But for now, it’s a subject that is well beyond my area of expertise, such as there is, so I need a little time to put my thoughts together as tightly as your comments typical demand, okay?

In Kan’s Words…

Here’s Kan’s press briefing. Same no saido-type message.

Kan Refused

Here is Ozawa’s this-is-it statement announcing his candidacy. It appears that Kan was the one who refused to adopt the one-for-all, all-for-one Kyoto icchi taisei that presumably would have staved off an Ozawa run in a power-sharing arrangement. According to Ozawa, Kan had second thoughts after sleeping on it. An immediate post-election split does seem to be off the table.

Good, Ozawa Is In the Race After All

So Hatoyama’s doings are likely to end up promoting…what? Maybe the no saido thing, “no side” being the rugby expression for the game’s end that has entered the Japanese lexicon as as an expression for the notion that all animosity is/should be dropped between the two antagonists in a show of sportsmanship. In fact, it appears to be one of the fractious DPJ’s favorite metaphors. Kan and Hatoyama seem to like it a lot.

”It’s My Party”

At least that’s the impression I get from Yukio Hatoyama’s “troika” efforts that look likely to result in a brokered power-sharing deal between Prime Minister Naoto Kan, Ichiro Ozawa, Yukio Hatyama, and upper house don and fourth tricycle wheel Azuma Koshiishi--before the election. Does Hatoyama (and Kan? Really?) think that it’s that important to abandon any pretense that it’s about policy to prevent Ozawa from taking at most four, five dozen Diet members—a Japan scholar whom I very much respect is willing to take the under in an over-under 20—with him into the wilderness when the DPJ doesn’t have an upper house majority or a lower house supermajority in the first place? I hope against hope that it won’t turn out exactly like what it appears to be: the three (four?) self-appointed founding fathers—they’re 63, 68, 63, and 74 years old respectively, for Christ’s sake—abandoning any pretence of policy differences and getting together to stave off the brave new world for at least another election cycle. But let’s wait and see what Kan and Ozawa have to talk about.

BYW I wonder if Hatoyama and his pals throwing the “troika” word around know exactly where the troika reference initially came from. That’s not all. The term, you may recall, more recently graced the popular political lexicon specifically to describe a certain power-sharing arrangement between Georgy Molotov, Laverntyi Beria, and Vyacheslav Malenkov. And we all know how that one turned out.

(Confession: I’ve been calling a brokered deal, but one before the actual election will be professionally inconvenient.)

Incidentally, the Japanese rendering of troika (トロイカ=toroika) can also mean something else. And I’m not talking about fatty squid. Just sayin’.

Long Hot Summer for Kan, Ozawa and DPJ Coming to an Early End?

The following is a memo that I dashed off in response to this WSJ report that an esteemed colleague sent me. Its shelf-life might wind up being as short as a couple of days, or even counted in hours, so I thought that I’d share it publicly. For the record, I edited it slightly.

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More an essay than an op-ed, the WSJ is a good encapsulation of the situation. A few comments:

I still find it hard to think that Ozawa is going to stand, or win if he does. In fact, there’s a growing possibility that Kan will win by acclamation.

For Ozawa, there’s the risk that he will actually win. He is personally unfit to be the head of government in a democracy, what with the highly public grilling in Diet sessions and press conferences (which he could mostly skip when he was merely party chief), and he is surely aware of that. And he’ll be held responsible for policy decisions.

For the DPJ, an Ozawa victory invites a near-unanimously negative media coverage—Nikkan Gendai, the antiestablishment tabloid, a rare exception among widely circulated dailies—as well as the very real possibility that Ozawa will have no choice but to resign if the prosecution review commission forces the Public Prosecutors Office to prosecute him. (Even a one-step downgrade that allows the PPO not to prosecute is likely to lead to a media campaign against Ozawa that will hound him out of office before long.)

But can he win in the first place? I’ve always been skeptical of the 130~150-member Ozawa group headcount that we regularly see in the media. The estimates appear to include up to 2/3rds of the DPJ’s 150 or so first-term Diet members. Yes, those kind of numbers showed up when Ozawa made his annual pilgrimage to Bejing, and appear to show face when they hear the dog whistle. But will they rally for Ozawa when it’s time to vote? Remember, it’s a secret vote, not a show of hands. Besides, last week, when Hatoyama held his annual Karuizawa bash—God, it’s great to have money, even if it’s not quite Goldman Sachs money—up to 100 Ozawa supporters showed up. (There were 150 participants in all, of which up to 50 could have been Hatoyama group members, plus Koshiishi the Upper House don and others including one Kan flunky.) Subtract the core Ozawa supporters (up to 50) and maybe a third of the DPJ rookies. I don’t think Ozawa (more accurately Ozawa’s kitchen cabinet) has the numbers.

Note that all the other likely suspects are back-peddling like hell. Never-ready-for-primetime Kaieda has all but abandoned his non-candidacy; Tarudoko, who fronted the Ozawa group in the June election, says once is enough for now; and the Kan cabinet’s resident otaku Kazuhiro Haraguchi (he himself spells it Haraguti, and how more otaku can you get than that?) says he enjoys his job too much to run.

I think Kan realizes all this, and is appropriately keeping his head down.

Hatoyama will eventually throw his support behind Kan. Hatoyama’s conditions for his support, according to one of his top flunkies, Yoshikatsu Nakayama, local sovereignty, the New Public Interest, the East Asia Community, Hatoyama’s GHG commitment, and one other that I cannot remember. They are expansive and explicit but highly conceptual, so they are easy to accept. The GHG commitment, of course, is only as serious as the extent to which the Japanese government is going to go to fulfill it, a matter which was already seriously in doubt under Hatoyama after Obama and the Democrats—a nice name for a 50s throwback doo-wop group FWIW; do you think Sarah and the Republikettes works?—dropped the idea of any serious US efforts. (And of course there’s always China.) Ozawa keeps bringing up the 2009 Manifesto, but how seriously did the Hatoyama-Ozawa odd-couple take it when they were in control?

The big story, then, is what Kan is going to pull out of his economic tool kit once his summer vacation is over. The last couple of weeks brought a sea change in public opinion. Mainstream editorials, reflecting rising main street voices, have been calling for intervention in the currency market in the face of skepticism over the utility of a unilateral intervention. Meanwhile, Kan is still sticking to what is surely the MOF story of a modest 1.7 trillion yen stimulus package consisting of near equal amounts of emergency funds in the FY2010 budget and unexpected carryovers from the FY2009 budget—No New Money. I’d say that the possibility of intervention, though still less than likely, has risen considerably. Also, I look for a considerable stimulus package, likely including an extension in one form or another of the quick-release eco-point system and some new business tax cuts.

That said, there is one wild card, which I’m surprised to hear nothing about lately: the DPJ local yokel vote. The local chapters and assemblyhumans are allocated 400 points (300 go to the local chapters while the remaining 100 are pro rated among the local legislators), while the 412 Diet members get two votes each. It’s a secret vote, whose results are not to be revealed until the Diet members have voted, but do you think that the media is not going to canvas the local voters as they always do on these occasions? I thought so. And Ozawa is rumored to have a strong following out there because of all the legwork and money he and his henchpersons put in over the years right up to the eve of the July election.

Kan Looks More Like a Survivor with Every Passing Day

There’s exactly one month to go before the DPJ presidential election, which perforce determines Japan’s prime minister and Banri Kaieda, a 61 year old moderately famous freelance economist turned politician who never made his way into the DPJ’s top leadership circles, is the only one who appears to be actively looking to challenge Naoto Kan. And that, only if he can manage to secure Ichiro Ozawa’s blessing. Ozawa capo Kenji Yamaoka is trying to whip up anti-Kan sentiment in the DPJ, particularly among the vulnerable lower house rookies, but is not securing too many followers. No one moves until Ozawa moves. Meanwhile, Kan has been keeping a low profile, and making nice with the opposition to the point of near-obsequiousness. The media does like this, but it keeps the own goals at a minimum. And the Japanese electorate has little stomach for a new administration or, heaven forbid, a snap election.

Go figure.

Ever Wonder What Happened to Akira Nagatsuma?

I thought so. Unless you can read Japanese, you won’t have heard anything of the LeBron James of the pre-Hatoyama administration DPJ who is looking more like a Captain Queeg version of Gerald Green (oxymoron?)—until the case of the missing centenarians. There’s more than good reason for Nagatsuma being pushed out of the Kan administration after the September battle for the DPJ leadership (which Prime Minister Kan is increasingly likely to survive), but I’d rather talk about the way the media misinterpreted the case of the missing centenarians when it portrayed it as a sad example of the deterioration of Japanese communities and (extended) families. (It’s in the same vein as the “criminality” of the US military in Japan.) If anyone wants to hear, let me know, and I’ll do my best to pick it up later in the week.

Kan could Still Lose in the September DPJ Leadership Election If Multiple Candidates Emerge

What are the chances of Prime Minister Kan surviving the September election for the DPJ leadership? Still good, though I now see a plausible scenario in which another person emerges to replace him. However…

Ichiro Ozawa is not going to challenge Kan directly. There’s no upside for him. If he loses, which would be by far the likely outcome, he’ll be finished as a central political force. If he wins—it’s highly unlikely, but the possibility cannot be dismissed—he’ll have to serve as prime minister. Case closed.

Would an Ozawa surrogate succeed? No. Everybody not in thrall to Ozawa (or owe him one, the two are not mutually exclusive) will fear the mass media implications of a strong, public association with him.

This leaves the chances of a multiple-candidate challenge that leaves the non-Ozawa vote divided between multiple candidates, with Kan being only one of several of his peers. As the voting results come in, Kan will have no choice but to resign, leaving the door open for one of the non-Ozawa candidates to emerge as the majority candidate over the Ozawa surrogate. (If Kan can’t make it on the first round, he’s almost surely a dead, not lame, duck.) Of course there’s always the possibility that the Ozawa candidate will make such a strong showing that the DPJ has no choice but to select him/her. The equivalent of an exit poll for the 400 local votes (in addition to the two per-Diet member votes) could also influence DPJ Diet members and grease the way for one of Kan’s challengers to take over.