The winds of change is blowing again, with Japan's
Alternative Political Party -
the Democratic Party of Japan being sleighted to win and form the
next government in September 2009(*1);
The incumbent Liberal Democratic Party will be
replaced after governing Japan for more then 50 years.
Amidst such uncertain times, it takes courage for the Japanese
Citizens to take a bold step and opt for change to its present
state of political and economic limbo that has existed for more
then 10 years.
Will the same cold wind blow and strengthen the hearts
of Singaporeans ?
By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) -- Japanese voters will head to the
polls Sunday, where they will likely send the ruling Liberal
Democratic Party a message similar to the one heard in the U.S.
last November: We want change.
The main opposition Democratic Party of Japan has promised to
deliver that change. It seeks to form a government with a focus on
boosting domestic demand, rather than the LDP's traditional
emphasis on supporting businesses and industry.
But the DPJ has been vague on how this ambitious shift will be
funded, in a country where government debt already tops 170% of
gross domestic product.
"The challenge facing Japan's government is obvious:
diversifying the Japanese economy's base of growth from
over-dependence on expansion of external demand," said Naomi Fink,
Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.
"The financial crisis has indeed undermined Japan's postwar
economic model, yet has created the potential for a reform-oriented
administration to tap Japan's plentiful private-sector wealth," she
said in a research report this week.
The LDP's grip on power has been only rarely interrupted during
the past five decades, but analysts say it is unlikely to fare well
this weekend, when Japan holds its first lower-house election since
September 2005.
Recent opinion surveys predict a landslide for the DPJ, with an
Asahi Shimbun poll tipping it to take 320 of the 480 seats up for
grabs in the lower house, according to a Kyodo news report
Thursday.
The DPJ and smaller opposition parties already control the
less-powerful upper house of the Diet. But the lower house, which
holds the reins of power, is controlled by the LDP and its junior
ally, the New Komeito party.
The election campaign period officially began last week, with
candidates driving around the streets of their constituencies,
waving and blaring their greetings and promises from
megaphones.
When DPJ Secretary-General Katsuya Okada was asked at a press
briefing earlier this month about the key differences between his
party's policies and those of the LDP, he reportedly said that
"theirs is tailored toward agencies and organizations, while ours
is toward each and every one."
The global crisis that followed the collapse of Lehman Brothers
last autumn "proved that Japan's traditional growth strategy led by
exports no longer works," Okada said.
The DPJ has promised to pay cash allowances of more than $3,000
per child to families, abolish highway tolls, make public high
school tuition-free and provide more social programs -- all while
postponing a hike in the country's 5% consumption tax. Yet
officials haven't detailed how such measures would be funded.
"Although the [DPJ] party has most recently issued an addendum
to its manifesto outlining its growth strategy (aimed at increasing
households' disposable income), public doubts abound over the
practicality of plans to procure funds for its programs without
aggravating Japan's already monumental fiscal deficits," Fink
said.
In real terms, the Japanese economy returned to positive growth
in the April-June quarter, when GDP rose 0.9% from the
January-March period, at an annualized pace of 3.7%.
But nominal GDP fell 0.2%, meaning "the so-called recovery was
entirely due to a 1.1% fall in prices," Brian Reading of Lombard
Street Research wrote in a note.
See full story on Japan
GDP.
"It may be thought that recovery from recession will help
restore some support for the government. But it is worth noticing
that this recovery was a statisticians' construct," said
Reading.
Data released Friday painted a relatively grim picture of
Japan's economic situation in July, with unemployment hitting a new
postwar record of 5.7% and deflation increasing at the fastest pace
in decades.
See full story on latest Japanese
economic data.
Outside of Japan, investors watching the political developments
from afar appeared unfazed by the likely LDP defeat.
Weekly data released by the Ministry of Finance has shown that
overseas investors were net buyers of Japanese stocks for five of
the last six weeks. In the one week seeing net outflows -- Aug.
16-22 -- the sales were attributed to profit-taking amid a rise in
the yen, rather than any political factor.
"Well aware of the pending shift, foreign investors have stepped
up purchases of Japanese equities in recent weeks," and are "voting
with their feet or pocket books," said Marc Chandler, head of
global currency strategy at Brown Brothers Harriman in New York, in
emailed comments.
Given the DPJ's emphasis on boosting consumption, many
strategists expect companies with high domestic-demand components
to fare better than their foreign-demand-focused counterparts.
Peter Eadon-Clarke and Shih-Han Huang, analysts at Macquarie
Research in Tokyo, said in a recent report that a DPJ government
would be "pro-consumption and clean energy at the expense of public
investment."
They recommended possible DPJ-victory beneficiaries such as
education and child-care products maker Benesse Corp. /quotes/comstock/!9783 (JP:9783
4,370, -40.00,
-0.91%) , and Panasonic
Corp. /quotes/comstock/!6752
(JP:6752
1,478, -11.00,
-0.74%) , which could
profit from a boost to disposable incomes.
Read more on Japan election
plays.
But so far, there is no evidence that a shift to domestic demand
has begun, said Cantor Fitzgerald economist Uwe Parpart.
Parpart said in emailed comments Thursday that companies tilted
most toward foreign demand have fared the best so far this year and
are continuing to do so.
Citing a study by Nikkei, he said stocks of firms with at least
60% of total sales coming from outside the country had risen 40.4%,
compared with a 19.7% rise in the benchmark Nikkei 225 Average
through the close of trading Aug. 14.
The foreign-demand stocks account for 14% of Nikkei components
but comprise more than 25% of the index's value, he said.
"But quite possibly such underperformance to date is a plus and
an opportunity as the DPJ takes power and jacks up domestic
demand," he said.
If the DPJ's victory unfolds as expected, the head of the party,
62-year-old Yukio Hatoyama, will likely become Japan's prime
minister. Hatoyama started out in the LDP before leaving the party
in 1993.
One change a Hatoyama administration won't bring is a move away
from perceptions of nepotism.
The three prime ministers who preceded Aso all had fathers who
were either a Cabinet minister or served as prime minister
themselves.
Hatoyama wouldn't break this family tradition: His father was
foreign minister, and one of his grandfathers was prime minister in
the 1950s. In fact, that grandfather, Ichiro Hatoyama, was the
LDP's founder and first prime minister, and his main opponent was
Shigeru Yoshida -- current Prime Minister Aso's grandfather.
Lisa Twaronite reports for MarketWatch
from Tokyo.
