Japanese Media Predicting Landslide Victory for Democratic Party of Japan

Recent voter surveys by the Asahi Newspaper and the Nikkei (Japan Economic Journal) are now predicting a landslide victory for the Democratic Party of Japan (DPJ, Japan's equivalent of the Democrats in the US) over the Liberal Democratic Party (LDP, Japan's equivalent of the Republicans), which has ruled Japan for all but a couple of weeks since the end of World War II.

The Nikkei survey between August 18 and August 20 of 210,000 voters nationwide with 110,000 respondents indicates that the DPJ could win over 300 seats in the Lower House, or easily more than the minimum 241 seats required to capture a simple majority. If so, the win will be even more of a landslide than when the extremely popular Junichiro Koizumi and his band of reformists won for the LDP in 2005.

One of the DPJ's main political platforms is administrative reform, which has become one of the Japanese electorate's consistent demands and was a major driver for the Koizumi Administration's popularity. Since Koizumi stepped down as Prime Minister in September 2006, the ruling LDP has substantially backed away from administrative reform.

The DPJ plans to strengthen its power to determine and implement policy by appointing more than 100 DPJ politicians to government positions, and bring leading party politicians into the cabinet. Favoring a Westminster-style (U.K.) parlimentary Cabinet, the DPJ not only wants to expand the power of the prime minister's office, but also to make the cabinet the center of national policymaking by wresting de-facto control from Japan's various bureaucracies, such as METI (Ministry of Economy, Trade and Industry, industrial policy), the MOF (Ministry of Finance) and ministries that have long aggressively resisted reform, like the Ministry of Agriculture, Forestry and Fisheries (MAFF) and the Ministry of Land, Infrastructure, Transportation and Tourism.

If they do gain power, the DPJ must be prepared for a long, hard struggle to implant not only formal policy making but new customs and informal practices into long-standing collusive relationships between governing politicians and bureaucrats, and they will very much need the support of voters for the freedom to experiment, float trial balloons and launch test programs to mold Japanese politics and policy, and to redeploy still substantial national savings away from extremely wasteful and often pork-barrel existing government programs and institutions in order to put Japan back on the road to sustainable growth and generate sufficient revenue to meet the Japanese people's need for social security.

The twin challenges will be re-inventing Japan's outdated growth model while repairing government finances to stem what will soon be government debt in excess of 200% of Japan's GDP. Even with strong voter support, the DPJ is unlikely to easily loosen the bureacracy's grip on pubblic coffers, which means comprehensive fiscal reform could take the better part of the next decade.

With Japan's growth potential now estimated to be a mere 1% versus twice that during the economic recovery to 2007 and 4% in the late 1990s, the first priority of the DPJ will have to be to get beyond mere government support for employment that is transitory and has a limited economic multiplier, and address declining productivity as well as re-trenching deflation. Basically, the DPJ will be faced with,

1) Cleaning up the government's debt-ridden balance sheet with deep administrative reforms to ferret out structural waste to streamline and make government more efficient. This would include the disposal of under-utilized government-owned assets.

2) With only half of Japanese large corporations paying taxes, the DPJ will need to broaden the corporate tax base to reduce the current burden to individual consumers, and incentivize companies to become profitable, particularly in the services sector, which is around 70% of GDP but is dominated by small and medium-sized firms with chronic low productivity and profitability.

3) Indefinitely postpone and even lower consumption taxes and income taxes to revive domestic consumption.

4) And finally, to address a ballooning fiscal deficit after by reinstating the abandoned goal of achieving a basic balance in the fiscal budget.

While it is far from certain that the DPJ can achieve such lofty goals on its first try, the Japanese voting public for the first time since World War II will now have a real political choice, and a de-facto two party system that will eventually reinvigorate an out-dated, sclerotic political system.