Japan Whips Incumbents

Vote Could Present Challenges for Obama Administration

YUKA HAYASHI

Associated Press

Staffers open ballot boxes for the parliamentary upper-house elections at a vote-counting center in Tokyo on Sunday. The ruling party lost seats.

TOKYO—Voters handed a stunning rebuke to the ruling Democratic Party of Japan, just 10 months after giving the party the keys to government in a historic transfer of power.

Sunday's vote seems likely to usher in a new period of political instability in Tokyo, making it difficult for Prime Minister Naoto Kan to move forward on key policy matters, such as curbing the government's massive outstanding debt to prevent a Greece-style meltdown, or implementing an unpopular agreement with the U.S. on siting a marine base on the southern island of Okinawa.

Reuters

Prime Minister Naoto Kan will face difficulty governing with the failure in Japan's upper house.

The new weakness also is likely to stall a controversial push to expand the role of the government's postal system into the nation's financial-services sector, a move that has been opposed by Japanese and U.S. financial firms worried about tougher competition from the publicly subsidized behemoth.

The DPJ failed to meet its goals of winning a majority in the upper house of parliament, and even Mr. Kan's more modest goal of maintaining existing strength.

When the final votes were tallied early Monday morning, the DPJ claimed just 44 seats of the 121 seats contested—less than 40% of the total—down from 54. In last year's election, the DPJ took 64% of the seats at stake.

Because the DPJ has a huge majority in the more-powerful lower house, it will remain the ruling party despite Sunday's setback. But it will become much harder for the party to govern, as most legislation needs the approval of the upper house.

Photos: Voters Speak Up

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The Wall Street Journal

Photos: Election Day

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Associated Press

Sunday's election was, in many ways, a statement of disenchantment by Japan's voters, who had embraced the DPJ with high hopes last summer, only to find the party was in many ways like the long-ruling Liberal Democratic Party it displaced—indecisive and hampered by scandals—with the added disadvantage of inexperience.

The bigger-than-expected defeat will hurt Mr. Kan's standing within his ruling party, just five weeks after he took office, and could fuel challenges to his leadership in coming weeks. Mr. Kan follows four prime ministers who failed to hold on to the office for longer than a year.

At a post-midnight news conference, Mr. Kan was asked directly if he would step down, a notion he rejected, saying: "I will humbly accept the latest result...And I will start anew from a new starting line."

The election results could present challenges for the Obama administration, which views Mr. Kan as a straight-shooting ally on economic and security issues. Now, U.S. officials must expand their diplomatic efforts to his rivals within the DPJ and in other parties.

A Brief History of Consumption Tax

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Associated Press

The issue of the consumption tax, or "shohizei," haunting Japanese governments over three decades

Timeline: Wobbly Support

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Key moments for the Democratic Party of Japan since winning the national election last August

Japan's Economic Doldrums

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Take a look at key indicators for Japan.during its two decades of slow growth.

What's Next?

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A look ahead to key Japanese political events

More interactive graphics and photos

"The administration is going to have to really reach out and diversify its contacts in Japan," said Michael Green, an adviser on Asia in the George W. Bush White House who now follows Japan issues at the Center for Strategic and International Studies, a Washington-based think tank. "This shows that the process of political realignment continues, and there are leaders who are going to emerge in the coming years who we may not know so well."

U.S. officials had hoped the Okinawa base issue was resolved, but Sunday's election results now add uncertainty to that issue as well.

A U.S. State Department official on Sunday said: "We congratulate Japan on its Upper House Election. Japan's strong democracy is among the common values we share and forms the foundation of our enduring alliance."

Mr. Kan is just the latest world leader to suffer a setback at the polls, as voters world-wide show frustration with their governments amid continuing economic and financial turmoil. British voters tossed out the long-ruling Labour Party in May, Australia's unpopular prime minister was forced out in June in a power struggle in his ruling party and polls suggest U.S. President Barack Obama's Democratic Party could get roughed up this November.

But the DPJ's troubles also are of its own making, as two party leaders faced financial scandals, and Mr. Kan's predecessor stepped down after his indecisive handling of the Okinawa issue.

"When the [Liberal Democratic Party] ended its long rule, there were certain expectations and a sense of excitement," said Tatsuo Shigefuji, a 41-year-old insurance-company employee who backed the DPJ last year, but cast a vote in Tokyo this time for one of many smaller parties. "But when the DPJ actually took power, nothing had really changed."

Investors, in particular, are worried about Mr. Kan's ability to meet his pledge to limit borrowing. In light of the election results, the promise "is meaningless," said Makoto Yamashita, chief Japan interest-rate strategist at Deutsche Bank. "There is a high possibility that the...pledge will be broken."

Mr. Kan made his party's prospects tougher with an unpopular pre-election pledge to boost the consumption tax to rein in the country's outsize borrowing, thinking that Japan's voters would understand the severity of its fiscal conditions and appreciate his honesty.

The prime minister admitted after Sunday's election that the strategy didn't work. "My discussion on the consumption tax was received by the voters as rather abrupt," a sober-faced Mr. Kan said at his news conference. "I, myself, feel that a big reason [for the defeat] was I didn't explain it well enough."

Japan's political leadership now will be consumed with horse trading, as Mr. Kan seeks friendly opposition parties to work with in parliament while fending off critics in his party.

One of the most embarrassing results for Mr. Kan was that the Liberal Democratic Party, after crushing losses against the DPJ in the previous two elections, pulled more seats than the DPJ this time.

Japan Real Time

Your Party, a start-up popular among urban voters for its small-government platform, also benefitted from the voters' foul mood toward the newest ruling party.

The party, founded in August, increased its presence in the upper house to 11 seats from one, as it appealed to voters with a platform pledging to shrink bureaucracy and to put economic growth before tax increases.

Mr. Kan said at the news conference that rather than immediately look for a new coalition partner, the DPJ will seek to cooperate with opposition parties on a policy-by-policy basis. "With each party, we have policy similarities and differences," he said. "We'd like to start with those similarities so we can materialize those policies."

If Mr. Kan loses his job—a remote possibility at this point—he would be the fifth consecutive prime minister to step down a year or less into the job.

"Mr. Kan is a capable, self-made politician who has a strong desire for power," said Koichi Nakano, a political-science professor at Sophia University in Tokyo. "If even he fails to survive, it would send us a message that Japan's political system and its society itself have big problems."

—Yoree Koh, Kana Inagaki, Miho Inada, Kosaku Narioka, Andrew Monahan and Peter Wallsten contributed to this article.

THE LIBERTARIAN

Sunday, July 11, 2010