Fiscal policy in the eyes of the Japanese public

It increasingly seems that if Abe Shinzō is going to remain in office, he will need to retain the approval of the Japanese public, and that if he is going to retain the approval of the Japanese public, the Japanese public will need to reap some of the benefits from the purported revival of economic activity. But beyond the basic question of whether or not Japan is growing and whether the benefits of growth there are larger questions about the future of Japanese capitalism. Will Japanese companies focus more on shareholder value and profit maximization instead of protecting jobs, preserving relationships with contractors, and prioritizing bank financing over equity financing? Will individuals embrace unconventional career paths, less on-the-job training, more mid-career job changes, more control over pensions and personal investments, with the risks that all of these changes entail? Does the Japanese public believe that the pillars of Japanese capitalism should change?

Of course, opinion polls can only reveal so much and suffer from flaws that undermine their validity — and public officials are free to ignore the preferences of the Japanese public in pursuit of their goals. But polls can provide hints as to how the Japanese public will respond to government policies or market developments.

In a series of posts over the coming days, I will review public opinion polls dating as far back as 1993 to assess Japanese attitudes to government spending, deficits, and fiscal retrenchment; structural reform; the social security system; and saving, investment, and the financial sector.

Fiscal stimulus, fiscal retrenchment, and the state: If there is one fundamental fact concerning Japanese public opinion about economic policy during the "lost decades," it's that, while recognizing the need for fiscal stimulus the Japanese people are ambivalent when it comes to how the government should pay for it. For example, in September 1993, early in the first lost decade, 80% of respondents in an Asahi poll said they wanted the government to cut income taxes as soon as possible, with only 11% in disagreement. However, when asked whether the government should issue deficit bonds to pay for tax cuts, only 23% agreed, with 55% opposed.

The same ambivalence has appeared repeatedly over the past twenty years.

• In March 2000, an Asahi poll asked whether issuing new bonds to pay for economic stimulus was “unavoidable” or whether the time was coming to reduce borrowing and fix the country’s finances: only 17% of respondents supported the former proposition, while 77% supported the latter.





• The percentages were roughly the same in response to that question in December 2000 and February 2001 — despite a July poll finding that 47% felt the Mori government should focus first on economic stimulus, compared to only 18% who felt it should put fiscal reconstruction first. 
• The public was often dubious about structural reform under the Koizumi government (more on this in a bit), but was overwhelmingly supportive of structural reform when it came in the form of public spending cuts or restructuring (or privatizing) public corporations. For example, the public favored a 10% cut in public works spending in the 2002 budget, with 52% in support and only 37% opposed. When asked in December 2002 whether the government should build more roads, 64% opposed the notion with only 24% in favor. The public also went from neatly divided on postal reform to decidedly in favor of the reform that was Koizumi’s pet project.
• As the Aso government coped with the global financial crisis in 2008-2009, the public signalled that it favored focusing on economic growth instead of fiscal reconstruction. However, as before, the public was overwhelmingly opposed to financing stimulus through deficit bonds. An October 2008 Asahi poll found only 24% of respondents in favor of paying for stimulus with deficit bonds, compared to 56% opposed.
• The DPJ encountered the same ambivalence. The public once again wanted the government to focus on stimulus, but when asked in January 2010 whether they approved of the Hatoyama government's having to undertake the largest deficit bond issuance to date to cover its budget, 69% of respondents were largely or completely opposed, with only 1% giving their full approval and 35% giving partial approval.
• While commentators usually attribute the persistent campaign for a consumption tax increase to the ministry of finance, the public has at various times signalled its willingness to support a higher tax rate, perhaps because of long-term uneasiness about the state of the government's finances. The Japanese public may be open to the idea, but whether it supports a particular plan depends entirely on the details (the timing, the size of the increase, the state of the economy, how new revenue will be used, etc.). There is, of course, a lesson for the Abe government as it decides whether to proceed with the plan to raise the consumption tax to 8% next April and 10% in October 2015.





• The Japanese people remain ambivalent about government finances. In August 2012, Asahi found that 62% of respondents felt that Japan's fiscal situation is very serious, with another 32% who said it is somewhat serious. At the same time, however, 90% of respondents said that growth and jobs would be very important (53%) or somewhat important (37%) for deciding how to vote in the next general election, making it the most important issue for voters.
• Abe has not been exempt from the public's ambivalence. A poll in January found 49% approval for fiscal stimulus based on public works projects, but when asked whether they thought it was good that stimulus spending would be funded by deficit bonds, only 22% agreed while 65% did not.

As the above data suggest, the Japanese people have indicated that they want the Japanese government to focus on economic growth and jobs, but they have consistently opposed the use of deficit spending to pay for economic stimulus. The Japanese public is not, however, opposed to the state's providing social security, economic stimulus, or support for business using public funds. Public support for the former policies is consistently strong, and regarding the last point, during Abe's first government, Asahi found 49% support for Abe's emphasis on support for businesses as part of his growth policies, with only 33% opposed. In theory, the public may also be willing to support higher taxes. A March 2010 Asahi poll asked respondents about the kind of society they wanted Japan to be. Most preferred a high tax, high welfare society: only 10% were absolutely in favor, but 55% opted for "if I had to say, high tax, high welfare." Only 23% said "if I had to say, low tax, low welfare" and only 6% were absolutely in favor of low taxes and low welfare. Similarly, when asked whether it was better to strengthen or weaken progressive taxation, 38% said it should be strengthened, with another 45% opting for "if I had to say, strengthen it." Only 13% said it should be weakened.

Given that Japan's central government has consistently been at or near the bottom of the G7 countries in terms of tax revenues, there's certainly room for the government to collect more, but as with the consumption tax, whether the public will support higher taxes depends entirely on the details: which taxes are being raised, how much they're being raised by, and, most importantly, how the new revenue will be used. Perhaps the public's opposition to public works for most of the 2000s and its longstanding opposition to deficit bonds ultimately stem from skepticism about what the government promises to do resulting from seeing government after government fail to end Japan's economic stagnation. In that sense, the public's enthusiasm for Abenomics looks that much more remarkable.

The next post will shift from thinking about how the Japanese public wants the government to tax and spend to thinking about what the public wants the Japanese private sector to look like, how they think companies should act, and what they think of structural reforms to change the face of Japanese capitalism. 

Professor Hatoyama holds forth

Before entering politics — the family business — Hatoyama Yukio was a fledging academic, a Stanford-educated engineer. His background as an academic is often on display when he delivers set piece addresses. He has a penchant for abstraction, for drawing upon broad principles and shying away from the nitty gritty details of policy. This tendency is perhaps common to all leaders, but Hatoyama seems to take particular interest in how to frame policies intellectually (see his persistent use of his pet term yuai last year).

Remarkably, Hatoyama only used the term yuai once in his latest address, his policy speech for the new ordinary session of the Japanese Diet. But in this speech Hatoyama once again spent an inordinate time discussing the abstract principles behind his government's policies, in this case the idea of "protecting life." It took nearly half the speech before the prime minister began discussing the specifics of his agenda.

And even then, the policies were discussed less in terms of specific items of legislation than in terms of goals to be achieved at some point in the future. Like his government's growth strategy, it is unclear how the Hatoyama government plans to get from where Japan is today to where it wants Japan to be in ten years. Japan faces serious, immediate problems, most notably continuing deflation. (For a reminder of why deflation is destructive, Brad DeLong recently linked to an old paper of his explaining "why we should fear deflation.") On this question of deflation, Hatoyama simply waved at his government's budgets and said that his government is promoting "strong and comprehensive" economic policies with the Bank of Japan. As the Economist reports, the truth behind the prime minister's statement is more complicated. On this question of deflation, what for most governments would be at the top of the agenda, Hatoyama breezed through it with nary a detail.

As was clear during last year's campaign, the DPJ under Hatoyama is much better on political and administrative reform than on the economy, promising reforms to the administrative and public-service corporations that have been a source for considerable waste through amakudari, writing the national strategy bureau into law, centralizing the cabinet's personnel management, and reorganizing agencies and ministries (perhaps for real this time, unlike the Hashimoto-era reforms that simply created agglomerated superministries). While this section is also short on policy specifics, it is at least rooted in a clear-headed assessments of problems in national administration and a consistent set of proposals to fix them.

The same cannot be said for Hatoyama's remarks on economic reform. Under the heading of "Turning crisis into opportunity — opening frontiers," Hatoyama renews his party's call for an economy and economic growth that serves individuals, instead of enslaving them. What follows is the familiar refrain of green technology as a chance to transform the Japanese economy, coupled with embracing Japan's links with other Asian economies, especially through the promotion of tourism (he speaks of "tourism policy" without stating what that means in detail). Similarly, turning to economically stagnant provincial Japan, he calls for the modernization of Japanese agriculture and the achievement of a fifty-percent rate of self-sufficiency in food production, although the only policy to which he refers is his government's plan for direct income payments to farmers, which could prove beneficial for Japanese agriculture but not without other policies. Hatoyama is a little better when discussing decentralization — he calls for the creation of an equal relationship between central and local governments and describes this year as year zero for the "regional sovereignty revolution," but once again, there are few specifics on how this will translate into legislation.

Compared to these sections on the government's agenda at home, the foreign policy section of the speech provides a useful guide to the Hatoyama government's thinking. This is in part due to the nature of foreign policy, which is more abstract and therefore involves fewer proposals in the form of legislation or regulation. A policy address can actually provide a useful guide to how a government approaches the world.

What does Hatoyama's address tell us about his government's worldview?

First, his government takes the US-Japan alliance seriously to the point of wanting to change it so that it is suitable for twenty-first century challenges. Tellingly, his section on the alliance discusses Futenma briefly — reiterating his promise that his government will have a plan by May, and that any plan has to square with the desires of the Okinawan people — but focuses mostly on transnational challenges, namely climate change, nuclear proliferation, and terrorism (briefly). He does not speak of deterrence or regional public goods. While it would be nice to get some statement on the security cooperation layer of what Hatoyama calls a multi-layered relationship, I understand what the Hatoyama government is trying to do. A US-Japan relationship that focuses on bilateral security cooperation to the exclusion of nearly everything else is inevitably an unequal relationship, a relationship in which the stronger US presses a weaker Japan to take on new roles and acquire new capabilities. A relationship in which the two countries discuss other issues, non-traditional security issues or development for example, is inevitably a more equal relationship.

Second, the Hatoyama government is determined to reorient Japan to Asia. For decades Japan has tried to square its Asia policy with the US-Japan alliance; henceforth Tokyo will have to figure out how the alliance fits in with its Asia policy. This change did not begin with Hatoyama, but it has definitely become more pronounced. What is clear in this speech and other statements by Hatoyama is that Japan is not "America passing" when it comes to China. Just as Japanese concerns about the US government's "Japan passing" were (are?) overwrought, so too are American concerns about the Hatoyama government's cozying up to China. Yes, the Hatoyama government wants a "strategic, reciprocal relationship" with China (a phrase that originated with Abe, by the way), but it also wants better bilateral relationships with South Korea, Russia, India, Australia, and the countries of ASEAN. He wants Japan to have numerous bilateral, trilateral, and multilateral relationships in the region, and he wants his country engaged in tackling transnational problems within the region and around the world. While there are plenty of obstacles standing in the way of realizing these foreign policy goals — not least the limits imposed on the government by the public's desire to see domestic problems fixed — these remarks provide some indication to how Hatoyama's government will act internationally.

With that in mind, this speech is still instructive even though it is short on policy details. Perhaps the most noteworthy lesson from this speech is what it says about the DPJ's political base. In one section Hatoyama discusses the goal of "not allowing individuals to be isolated." To that end his government will protect employment, regulate the use of temporary workers, and enabling women, the young, and the old to participate fully in the economy and make use of their skills. Combined with its advocacy for stagnant regions, there are hints here that the DPJ over time could become the party of outsiders and laborers (whose interests clash to a certain extent). The natural rival for this party would be a Koizumian party, rooted in the middle and upper classes, prosperous urban and suburban districts, and supported by big business. Given that the Koizumians have been virtually driven from the LDP, it is difficult, for the moment, to see the LDP becoming this party. For now, economic insecurity means both parties are competing to speak for the marginalized, but should the economy recover a cleavage of this sort may be likely.

Finally, reading this speech calls to mind another recent prime minister from a prominent political family whose speeches were long on vision and ideas (and phrases in katakana) and short on policy details: Abe Shinzo. Obviously there are major differences between how Hatoyama and Abe see the world — Hatoyama is at least interested in the problems facing the Japanese people today — but like Abe, Hatoyama seems disinclined to dirty his hands with crafting a detailed policy agenda or the messy work of making policy proposals reality (i.e., politics). I cannot help but wonder whether a leader who appears so uninterested in the details of his policies and so unwilling to fight for them can be successful in power.

Has Aso made up his mind about an election?

In recent days Komeito has upped the intensity of its disapproval of the government's calling a general election following the passage of its proposed stimulus package.

The LDP's junior partner is still concerned about an overlap between the general election and the Tokyo prefectural assembly election in July, but it has added a new argument against an early election: this past week both Ota Akihiro, the party president, and Kitagawa Kazuo, the secretary-general stressed that the government should prioritize important legislation over an election, arguing that there is more work for the Diet beyond the first supplementary budget, especially the piracy countermeasures bill, budget-related bills, and the revision of the national pensions law. In fact, the Diet has enough work to do that Komeito called for extending the ordinary Diet session until the end of July, presumably to ensure that the government will have enough time to get the budget-related bills through the Diet and have them pass via Article 59 over upper house resistance. On Wednesday, both Ota and Kitagawa met with the prime minister to request an August election, suggesting a degree of urgency in the debate over the timing of a general election.

Prime Minister Aso Taro claims to be taking all opinions and insists that he is not leaning one way or another, but is the intensity of Komeito lobbying a sign that Aso has made up his mind already, that he is leaning to exploiting recent political gains and opting for an early election? His party has made its position clear. Hosoda Hiroyuki, the LDP secretary-general, said Sunday that a general election following the passage of the supplementary budget and budget-related bills, which would of course give the opposition a stake in determining the timing of the election. What Hosoda did not do was give any ground to Komeito. The two ruling parties are now on record as disagreeing on what may be the most important question facing the government. My question from last week remains unanswered: does Komeito have any leverage over the LDP in this situation — is it actually threatening to withhold Diet votes, for example? — or is it simply begging the prime minister in the hope that he'll be solicitous of the opinions of his junior partner in government?

Meanwhile, I think Komeito's desire to extend the Diet session to late July is a non-starter. It is easy to imagine the uproar from backbenchers of all parties if they were forced to remain in Tokyo with an election imminent. Are the LDP's backbenchers with the party leadership on an election sooner rather than later, or are they prepared to wait until August or September, preferably with the summer free for campaigning?

After initial signs that it might bargain with the government over the supplementary budget, the DPJ has opted for outright opposition, rejecting the government's stimulus plans as "merely camphoric baramaki" while deciding not to submit amendments to the government bill. This decision will force Aso to decide whether he will engage in a prolonged battle with the DPJ to get the stimulus package and related bills passed (ensuring that Komeito will get its wish of a delayed election) or whether he will opt for a snap election sooner rather than later. As Ozawa Ichiro said Thursday, there are only two options for the general election, early June or early August.

As for Ozawa's own preference, while he didn't say, I suspect he would prefer the latter, giving himself time to reintroduce himself to voters around the country and hope for another momentum shift in the DPJ's favor.

The LDP's window of opportunity

The Aso government and the LDP, confident due to polling numbers trending in their favor, are publicly mulling the timing of the next general election, raising the possibility that the government will not wait until the end of the current Diet term in September before calling an election.

Sankei reports that members of Aso Taro's cabinet are celebrating the government's new strength, insisting that the government has emerged stronger from its flirtation with single-digit public approval. Chief Cabinet Secretary Kawamura Takeo suggested that the bump in public support is a reflection of public understanding that the government is working diligently to overcome the economic crisis. Hatoyama Kunio, the minister of internal affairs and communications, argued that the government's fortunes are looking up because "the prime minister's character is of a type whose true value takes time to be displayed and understood." Hatoyama foresees the government's public approval rising above 50%. (Does anyone want to take that bet?) Suga Yoshihide, the vice chairman of the LDP's election strategy committee, said that the public is "losing its allergy" to the LDP on the basis of the party's response to the economic crisis and the North Korean missile launch.

However, as Sankei notes at the end of its article, the members of the Aso cabinet have conspicuously neglected to mention that Ozawa Ichiro's struggles might have something to do with the change in the government's fortunes.

For his part, the prime minister has refused to celebrate prematurely — for good reason. Despite Hatoyama's inexplicable optimism, the Aso government and the LDP still have a perilous road ahead before they can be confident that an election is theirs to win.

First, Komeito continues to oppose an election before the July 12 elections for the Tokyo assembly. The party's leadership has publicly rejected a mid-June election, at the close of the ordinary Diet session, as too close to the Tokyo election, upon which the LDP's junior partner has long attached considerable weight when it comes to election timing. Komeito head Ota Akihiro questioned whether the governing coalition should be so confident about the general election, arguing that, contrary to the judgment of Suga and others, it may be a mistake to generalize from the Chiba and Akita elections to determine public openness to voting for the LDP in a general election.

Komeito could be bargaining with the LDP, but for what? The government has already announced its latest stimulus package, meaning Komeito has probably already received the bulk of the benefits it will be able to squeeze out of the LDP in this round of economic stimulus. Can Komeito stop the prime minister from calling an early election? Komeito has stated its preference for an election sometime after July 12, but what is it offering or not offering the LDP in the debate over election timing? Conceivably the LDP will be solicitous of Komeito's opinions — Aso certainly has been up to this point — due to Komeito's holding the balance of the government's supermajority in the lower house, but what leverage does Komeito have when it comes to election timing? The timing of a general election might be one issue over which Komeito has little control.

More significant than Komeito opposition to an early election is the state of the economy. As I've argued previously, Aso is trapped between his commitment to put fixing the economy above everything else and the pressure from within LDP and the government to exploit what looks to be a window of opportunity during which the political situation favors the LDP. Can the LDP win on the basis of its "exhausting all power" to stimulate the economy, even if the government's efforts have had precious little impact on the health of the Japanese economy? Do Aso's ministers truly believe that the public is responding to the government's diligent efforts?

The DPJ, as expected, has stressed the need for "sufficient debate" on the 15 trillion yen stimulus plan, prompting Yamaguchi Shunichi, one of Aso's cabinet aides, to note that if the DPJ prolongs the debate — which he characterized as extending the debate in the upper house to longer than a couple weeks — it is possible that the prime minister will retaliate by calling an election. (Who is the prime minister or his aide to decide what makes for the appropriate amount of debate, especially the size of the stimulus package, the amount of debt entailed, and the fact that LDP no longer controls the upper house?) I suspect that the DPJ will call the prime minister's bluff; Ozawa, it seems, will do so gladly, as he said Tuesday that he still thinks that an election should be held as soon as possible.

The final piece of the puzzle is, of course, the DPJ. Ozawa's position is purportedly in jeopardy once again following Sunday's defeat in the Akita gubernatorial election, but as before, it is hard to see precisely how dissatisfied the party rank-and-file is with the beleaguered leader. There have been few hints of dissatisfaction from the party prefectural chapters or defections from the party leadership's decision to back Ozawa, aside from the usual suspects. In the wake of Sunday's defeat Hatoyama Yukio has called for Ozawa to make his case directly to voters in town hall meetings, something that I am surprised Ozawa has not been doing every day since the scandal broke. Ozawa might be clean and might have good reason for criticizing the Tokyo public prosecutor's office, but if he does not communicate directly to the public, without the filter of the media, polls will continue to show majorities in favor of his resigning. What remains unclear is whether those same majorities will be disinclied to support the DPJ in a general election if Ozawa stays on — despite Sunday's defeat, it still seems up to Ozawa whether he stays or goes, depending on a few factors beyond his control, and for now he shows no sign of going anywhere.

It seems clear that it is Ozawa who opened the window of opportunity that now tantalizes the LDP. The question for Ozawa is whether he can slam the window shut in the prime minister's face, without having to step down in the process.

Is the government running out of options — or out of options already?

The political system is gearing up for a debate over the government's 15 trillion yen stimulus package that could decide the timing and the outcome of the next general election.

Kan Naoto has indicated that if the government is open to revising the plan, the DPJ will cooperate to smooth its passage. What choice does the DPJ have? Now that the LDP and the DPJ have swapped preferences regarding election timing — after years of demanding an immediate election, the DPJ has backed down due largely to Ozawa Ichiro's struggles, and the prime minister, enjoying what could be a temporary shift in his favor, is contemplating an election sooner rather than later — the DPJ has every reason to cooperate if it means depriving the government of an issue which it can use as justification for a snap election. Although there is some debate within the party about the right course of action, it seems likely that the DPJ will opt for this strategy, forcing Aso to decide whether he will live up to his oft-repeated commitment to putting policy and the resolution of the economic crisis before politics or whether he will opt to exploit what looks like a window of opportunity for a general election.

At the same time, the DPJ ought to engage in good-faith debate for reasons having nothing to do with its political standing. Given the amount of money the government is pledging to throw at Japan's crumbling economy, the leading opposition party and master of the upper house ought to be thoroughly reviewing the government's plan and questioning whether its components are intended to stimulate domestic demand or buy the votes of straying LDP constituencies (or throw money at the prime minister's hobby). The press coverage of the government's plan makes the mistake of treating it as wholly dedicated to fiscal countermeasures. As Ikeda Nobuo notes, emergency measures comprise 4.9 trillion yen, compared with 6.2 trillion yen for the government's "growth strategy." Ikeda, a libertarian economist, says that the growth strategy measures could be conceived as old-fashioned LDP pork-barrel spending, but they should also be understood as an effort to revive old-style MITI targeting — and which Ikeda rejects as inconsistent with the latest economics research and likely to do more harm than good. The DPJ ought to be raising questions about whether the government's spending plans have the slightest chance of nurturing new industries and reorganizing the Japanese economy. Hatoyama Yukio has already started on this line of argument, but the DPJ may have a hard time continuing in this vein given its own spending plans.

Nevertheless, there are plenty of questions about the government's proposal that can and should be asked. Looking at Prime Minister Aso's statement about the stimulus package, a number of questions came to mind.

The prime minister himself said, the goal of the government's proposal is "to prevent the bottom from falling out of the economy," meaning that the government's emergency measures have less to do with stimulating consumption than with minimizing the hardship suffered by laborers and small- and medium-sized businesses. To that end, the government has pledged more subsidies for businesses that have retained employees and greater support for retraining for laidoff employees, and greater access to credit from public financial organizations for small- and medium-sized businesses. (Jun Okumura notes the importance of this measure here.) Additionally, Aso pledged greater support for working single mothers, higher child allowances, scholarships and tuition reductions for private school students, and some 310 billion yen in subsidies for rural medical institutions.

The third part is the portion criticized by Ikeda, the government's medium-term growth strategy. Central to this plan is environmental technology, and thus Aso called for spending to promote greater use of solar panels in schools, homes, and businesses and the development of electric cars. The government will also ease the burden on local authorities for public works projects (i.e., greater central government spending), will promote the construction of a Tokyo ring road, and raise the level of subsidies to localities. He also alluded to medium-term tax reform that includes a consumption tax increase, prompting Nakagawa Hidenao to criticize the prime minister sharply for speaking of a tax increase as the economic outlook worsens. (Yosano Kaoru acknowledged in a TV appearance Saturday that as the government debates fundamental tax reform it needs to set a new target for balancing the budget now that 2011 is out of the question.)

The first thing that stands out is just how much Aso has lowered his sights since January. Recall that in January Aso insisted that he would make Japan the first country to escape the crisis. No longer. Now his government is merely trying to stave off complete collapse. Aso appears to have lost much of the optimism that characterized his response to the crisis earlier this year.

The question is whether this will be too much, too late, whether the fate of the economy rests in non-Japanese hands, making the government's plan a gambit to buy time in the hope of economic recovery elsewhere. It's an expensive gambit, and the DPJ should be concerned. If the government's salesmanship works, the massive stimulus package might be enough to convince the public that the LDP is steady and reliable in troubled times and deserves to be returned to office. And if the latest stimulus package fails, it will have the unintended consequence of leaving a new DPJ government facing an economy in freefall with its options even more limited on account of the additional debt the government will issue to pay for the stimulus package (which suggests that despite Yosano's desire for progress in the direction of tax reform, the LDP has every reason to wait until after an election to commit to a course of action — why should the LDP commit itself to a politically fraught policy when it could be the DPJ's problem in a matter of months?).

The uncomfortable question raised by this debate is whether the Japanese government is wholly powerless in the face of the worsening economy. Monetary tools? Limited. Fiscal policy? How many more stimulus packages can the government pass while waiting for recovery, ensuring that future generations of Japanese will bear an ever greater burden of paying for the current government's restless impotence?

The Aso government's need for speed

Ozawa Ichiro, marking the third anniversary of his leadership of the DPJ, gave a long (and rambling) press conference at DPJ headquarters to mark the occasion.

In the midst of Ozawa's winding and evasive answers to questions pertaining to North Korea's rocket launch, political strategy, the coming general election, and economic policy, it is hard to find a coherent message, which betrays a certain lack of confidence that Ozawa and the DPJ are feeling at this juncture.

For the first time in months, the DPJ is on the defensive. The momentum has shifted perceptibly. The DPJ, rather than criticizing the government from one misstep or another, is forced to defend Ozawa's alleged misdeeds and respond to an Aso government that has appeared more vigorous of late.

Despite North Korea's pushing Nishimatsu out of the headlines for the moment and Ozawa's having secured the support of the bulk of the DPJ — the latest vote of confidence coming from Okada Katsuya, his most likely successor — for his staying on as leader, the impact of the Okubo indictment remains that the DPJ is now answering the questions instead of asking them. As the LDP knows all too well, politically it is much easier to criticize or threaten censure than to have to explain why apparent wrongdoing is not in fact wrongdoing. The DPJ has enjoyed a run of good luck, with the LDP's making plenty of mistakes for the DPJ to exploit, but now finds itself on the receiving end of the public's doubt.

Perhaps the more important reason for the swing of the pendulum away from the DPJ is the appearance of action on the part of the Aso government. Between North Korea and the financial crisis, the Aso government appears to be getting things done. I think Ozawa is right to question the government's handling of last weekend's launch, but this argument may have little political utility. The public is more concerned about North Korea than the mistakes the government may or may not have made while acting to keep Japan safe. Not surprisingly, the media wanted to know what an Ozawa government would do in the Aso government's situation. The media asked about whether the DPJ would be able to work together with the SDPJ on security policy in a coalition government, given that the party abstained from the Diet vote condemning North Korea's launch — and Ozawa prevaricated. The one clear answer he gave rejected calls within the LDP for the capability to launch preemptive strikes against North Korea. He also called for greater cooperation with China and Russia on North Korea, which is fine seeing as how the US has already beaten a well-worn path to Beijing to cooperate on North Korea, but hardly certain of yielding results. The DPJ will not win by meeting the appearance of action on the part of the LDP with mealy-mouthed obfuscation.

The same applies to the DPJ's response to the Aso government's latest stimulus plan, which will amount to roughly 15 trillion yen and push the total budget for 2009 over 100 trillion yen for the first time in history. The plan includes environmental technology projects, tax relief, infrastructure projects (lengthening the runway at Haneda, for example), allowances for children not yet in school, and greater protection for temporary workers. As Mainichi suggests, this stimulus package is redolent of baramaki, of throwing money about willy nilly.

I think it is fair to ask whether the government's latest plan will make a dent in shifting the public's propensity to consume, which remains the primary challenge for economic recovery. Claus Vistesen, in a long discussion of how the government can get people to consume more, once again comes back to demographics — he questions the argument that the government can fix the lack of domestic demand by incentivizing the transfer of wealth from the older to the younger generation and suggests that the answer is "to rely on the ability to keep a structural surplus towards the rest of the world" (which means constantly finding countries able to maintain deficits to complement Japan's surpluses, something the US may not be able to keep doing).

But without a plan of its own, the DPJ is also on the defensive on economic policy. The DPJ's "next cabinet" compiled an economic stimulus proposal this week, but for the most part it looks like the DPJ is simply trying to outbid the LDP rather than determine measures the DPJ can take to promote recovery and transformation. Promising 21 trillion yen over two years, the DPJ is offering 26,000 yen monthly child allowances (a proposal straight out of the party manifesto), making highways free, strengthening support for workers, and investing in green technology. The party is also calling for tax cuts for small- and medium-sized businesses and removing the temporary gasoline tax. Ozawa insisted that the party's manifesto remains pertinent despite economic conditions, that its focus on livelihood issues remains sound, but it is hard to escape the impression that the DPJ is punting on the most significant livelihood issue of all: the economic crisis. The party is still focused on comprehensive adminstrative reform as a means for freeing up funds. Adminstrative reform may save some money, but it certainly won't be a reliable source of funds in the short or medium run. Saving the Japanese economy will require more than cutting waste.

As a result, the party has, for the moment, ceded the initiative to the Aso government. Prime Minister Aso is even feeling confident enough to speculate openly about the timing of the general election, as he did Monday evening of this week: "Soon," he said. He may not have been serious — Sankei suggested his remark may have been intended to disorient the DPJ — but subsequent remarks suggest that the prime minister may be thinking hard about exploiting the DPJ's situation by calling a general election should the DPJ oppose the government's stimulus plans. The government is clearly desperate to appear to be doing something in response to the crisis. The content of policy appears to matter less than the recognition that the government is acting. Chief Cabinet Secretary Kawamura explicitly appealed to the speed with which the US passed a stimulus package earlier this year in a call for cooperation with the oppostion parties (ignoring the reality of the Republican Party's fierce opposition to the stimulus). The Aso government clearly wants to consolidate recent gains and build on its momentum. Whether it will succeed will depend in part on events, in part on the response of the DPJ.

The DPJ needs to tailor its message to acknowledge that it is no longer 2007. There is no ignoring the economic crisis. This week's next cabinet discussions were a start, but there is more work to do. The DPJ should have little trouble doing this: isn't fixing the economy a lifestyle issue? The DPJ cannot answer the Aso government's frenetic activity by waving its 2007 election manifesto.

The DPJ also needs to find the right message on North Korea. It ought to point to irresponsible comments on nuclear weapons by the prime minister, his former finance minister, and, most recently, Sakamoto Goji, a six-term LDP member and director general of the party organization. Asahi reported that Sakamoto stated his support for the possession of nuclear weapons and withdrawal from the UN at a meeting on Tuesday, but denied the validity of the report. If the DPJ can confirm that Sakamoto said this (confirm being the operative word), it ought to be able to appeal to public disapproval of this argument and paint the Aso government as excessively bellicose. The public certainly wants a hard line on North Korea, but there appear to be limits to just how hard a line the public will support. In general, the DPJ might be better off supporting the government on this issue, applauding the decision to go to the UN and work closely with the US and other countries. The DPJ gains little from criticizing a decision that has broad public support, and supporting the government on this issue could neutralize it in an election campaign and make the DPJ appear as something other than rejectionist.

The point is that the DPJ has not lost the next election yet. Momentum may have momentarily shifted in the LDP's favor, but the DPJ and Ozawa are still in a position to pressure the government. But it cannot merely play for time and hope that the Aso government will make mistakes.

Before the deluge

After an abbreviated recess, the Diet will reconvene today for its 2009 ordinary session.

The situation facing Aso Taro, his party, and his country is dire, and growing darker by the day. The latest development is the tent village — is it appropriate to call it an Asoville or Aso-mura? — that has been growing in Hibiya Park, populated by unemployed temporary workers with nowhere else to go. From Monday the unemployed will relocate to four sites in the Tokyo area, but after next week it is unclear what will happen to them. Asahi reports that the denizens of the temporary village will be demonstrating at the Diet on Monday.

A crowd of unemployed workers sleeping in Hibiya Park, living on emergency food aid: it is with this backdrop that the LDP approaches what may be its final Diet session (for now) as Japan's ruling party.

Mr. Aso, in a press conference Sunday, did his best to remain positive, as is his wont. Far from heeding Franklin Delano Roosevelt's 1933 warning about "[denying] the dark realities of the moment," Mr. Aso insisted once again on speaking of a bright future while ignoring the ever bleaker present.

"The future," he said, "is built by us. We build. The future is bright...I want to build a bright Japan for all the people."

He insisted that the supplementary budget containing a second stimulus package must be passed before the end of the fiscal year. He repeated that he is not thinking about calling an election until the second 2008 supplemental and 2009 budgets are passed. He said that it is appropriate for the LDP to discuss a future consumption tax hike, following the restoration of economic growth. Finally, he concluded by saying that he is not worried about the possibility of rebellion by LDP malcontents, that he even understands their grievances.

It increasingly appears like Mr. Aso's anodyne remarks are intended not so much to reassure the public as to reassure himself. Perhaps it's working; maybe Mr. Aso really believes that a brighter future is right around the corner.

The reality, of course, is that it increasingly appears that not only will Mr. Aso preside over the continuing disintegration of the Japanese economy, he may also preside over a disastrous general election for the LDP and the disintegration of the LDP. Watanabe Yoshimi, the man in revolt, appears to be steeling himself for a break with the party. Speaking to his koenkai in Tochigi over New Year's, Mr. Watananbe told his supporters that he remains opposed to the government's two trillion yen payment plan and, moreover, that if the government does not continue to reform the bureaucracy — his pet issue — he is resolved to leave the party and place himself at the head of a popular movement. It remains to be seen whether Mr. Watanabe is bluffing. I'm inclined to believe he's not. Indeed, it appears that Mr. Watanabe may be setting the table so that it appears that the Aso government is to blame for his leaving for failing to accept his conditions (including an immediate dissolution of the lower house followed by a general election). The pertinent question then is whether anyone will follow him out of the LDP, or, failing that, whether a popular movement will materialize around him.

Unfortunately I'm pessimistic about both. The LDP's would-be defectors appear to have been sufficiently restrained by the party, at least until after a general election. As for the other alternative, would Mr. Watanabe be able to repeat Hosokawa Morihiro's feat of channeling popular discontent into a new micro-party that could propel him to power? Mr. Hosokawa's Japan New Party formed in 1992 and competed in upper house and local elections before the 1993 general election. Mr. Watanabe will have far less time. Would he be able to find enough candidates, not to mention enough field supporters, to make his movement into a factor in the post-election landscape? The presence of the DPJ will further complicate matters, potentially dampening enthusiasm that might otherwise have bolstered his movement.

In the meantime, Mr. Watanabe — along with Nakagawa Hideano and other reformists — will continue to agitate from within the LDP. Mr. Nakagawa began the year by declaring his belief in the need for a political realignment, and rejected all talk of a consumption tax hike. Discontent within the LDP will only grow in the coming months, whether or not Mr. Aso is prepared to address it.

Ozawa Ichiro is undoubtedly heartened by the news surrounding the start of the new Diet session. He reasserted the importance of putting the people's livelihoods first and, in a deft move, criticized both the government's delay in introducing a new stimulus package and the content of the stimulus package on offer. His point that a new stimulus package should reflect the DPJ's concerns too is a salient one, if only because the DPJ, as the master of the upper house, should be involved in the drafting of such an importance piece of legislation. The LDP still has not learned that the divided Diet means that consulting with the opposition should occur before the introduction of legislation. Of course, doing so would probably mean cutting side payments to important LDP and Komeito constituencies. (But the DPJ is the only party playing politics with an issue of national importance...)

Mr. Ozawa also voiced his approval of Mr. Watanabe's remarks before launching into an extended criticism of Mr. Aso's remarks. Addressing Mr. Aso's declaration that the key words for the Diet session are "security" and "vitality," Mr. Ozawa said, "While saying these words, the true figure of the Aso government is that by doing nothing for three months it created a political vacuum. I think the people really understand this. Therefore it's impossible for the people to be deceived by this word play."

In response to a question from a journalist, who wondered why Mr. Ozawa is spending so much time on rural districts, Mr. Ozawa reasserted the importance of the DPJ's campaigning in longtime LDP strongholds in rural Japan. He believes that the DPJ's message of opposition to market fundamentalism, competition, and the inequalities "that have resulted from globalization" can succeed across Japan — although he declined to offer specifics for what the DPJ is promise in place of these enemies.

For now, however, it seems that the DPJ will not be penalized for doing little more than campaigning on the basis of the insecurities, the grievances, and the anger of the Japanese people. The DPJ is setting the public agenda; the LDP is now talking of "protecting the people's livelihoods," not unlike Mr. Ozawa's "The people's livelihoods first." The party owns the issues that matter most to the public, and as the economy worsens may even appear to be a reliable steward of the economy compared to the LDP.

The DPJ should not be too upbeat. If current trends continue and if the DPJ wins this year's election, it may come to regret taking power thanks to a historic economic crisis that appears far from finished in Japan, not to mention everywhere else.

Slouching towards irrelevance?

Prime Minister Aso Taro, faced with dismal poll numbers, a potential rebellion within the LDP, and an economy galloping into recession, sought to stem the tide against him by announcing a second stimulus package at a press conference on Friday.

The government's purpose is to ease the insecurities of the Japanese people, but also to make Japan "the fastest among the developed countries to escape the current recession." To that end, Mr. Aso promised ten trillion yen (around $109.7 billion) in countermeasures for employment and business finances, including one trillion yen in residence and capital investment taxes. He promised thirteen trillion yen (around $142.7 billion) for shorimg up the financial system.

On employment, he focused particular attention on the plight of irregular and part-time employees, promising to create employment opportunities in rural areas. He pledged that the forthcoming budget will offer assistance to these workers in finding new employment, and will increase subsidies to local governments by one trillion yen in order to promote job creation.

The new plan's assistance for financial institutions adds an additional ten trillion yen to the two trillion included in the assistance bill that just passed the Diet, with an eye toward encouraging banks — particularly banks in rural areas — to resume lending to firms, especially small- and medium-sized enterprises.

But the impression one gets is that Mr. Aso's latest plan is lots of trees, no forest. Coverage has focused on the sheer scale of the package, although it's not clear just how much the second stimulus package will total, because the prime minister was unclear which figures are totaled in other figures and which constitute separate categories of spending. If other governments are improvising their responses to their respective economic crises (as argued by John Gapper in the Financial Times), Mr. Aso's approach seems to amount mostly to throwing ideas against the wall in the hope that something sticks. For all the pieces of the new plan, it amounts mostly to hope: hope that the government's subsidies for local governments will create more jobs, hope that banks will start lending upon being shored up by government funds, hope that tax cuts can get businesses and homeowners investing again. It is unclear how the government plans to stimulate consumer demand to replace slack demand from abroad — demand that is unlikely to return anytime soon if the yen stays as strong as it is for any considerable length of time.

It's all well and good that Mr. Aso appreciates the importance of saving rural Japan and preventing the emergence of yet another lost decade, but perhaps the time to do that was in the "longest postwar expansion." Now, in the midst of what government officials repeatedly call "the worst crisis in a century," it is uncertain whether fiscal policy will have any effect whatsoever. It certainly won't in time to reverse the downturn before the LDP has to face the voters. The government faces the monumental task of solving Keynes's paradox of thrift, getting the public to spend at the same time that it is bombarded with bad economic news that has the effect of discouraging consumption.

There's also the question of how the government will pay for its new commitments. The prime minister insisted that the government will not depend on bonds to cover the new stimulus, turning instead to the unemployment insurance special account and the Fiscal Investment and Loan program (FILP). But the tax question will not go away. This is hardly the time for the LDP to increase taxes, and it's understandable that Mr. Aso is reluctant to commit to a date for comprehensive tax reform and a consumption tax increase. Doing so can only worsen his political prospects. Why should he commit to a tax increase in 2011 when he may not even be prime minister, considering that he could suffer political consequences in 2009 as a result of his pledge? (Yosano Kaoru, his economy minister, is reportedly outraged at the prime minister's inability to commit.)

The government has little choice but to throw caution to the wind in the hope that somehow, miracuously, the economy recovers. Not to reopen the debate about whether Japan or the US is in worse straits, but Japan truly appears to be teetering on the brink of disaster. I don't mean merely another lost decade or a depression. I mean slouching to irrelevance. Another prolonged downturn could mean another lost generation, with questionable job prospects and correspondingly low ambition. Another lost generation will only compound Japan's demographic crisis. Fewer steady jobs presumably means fewer Japanese getting married and having children. Hokkaido University's Yamaguchi Jiro, writing about the employment crisis, argues that it's essential for Japanese to reconsider the meaning of work. True, but will that reconsideration happen in time to rescue Japan?

This is the great failure of the Aso government. Faced with a widespread and deepening crisis, the government has offered a cobbled-together plan that may only entail suffering firms to limp on until the next crisis. Mr. Aso has not, however, offered a compelling intellectual framework for a post-crisis Japanese economy. Rural Japan is in desperate need for some scheme to ensure future prosperity — public works and agriculture will no longer suffice. Perhaps it's too difficult a question to ask of the government when it is simply trying to stanch the bleeding, but at some point the government (or a government) will have to answer it.

The DPJ gambles

Prime Minister Aso Taro returned from the G20 meeting in Washington and immediately met with Ozawa Ichiro to discuss the conclusion of the extraordinary session of the Diet.

The LDP and the DPJ are set for another showdown over the MSDF refueling mission in the Indian Ocean, as the DPJ has announced that it will boycott upper house deliberations and prevent the enabling bill, which passed the lower house on 21 October, from coming to a vote in the upper chamber. By boycotting deliberations it will also prevent a vote on a bill to recapitalize struggling banks. By blocking votes, the DPJ hopes to force the government to extend the Diet session — originally scheduled to expire at month's end— in order to pass these bills. To pass both bills for a second time in the lower house (by way of Article 59), the government would have to extend the Diet session until 5 January; to pass only the refueling mission bill, it would have to extend the session to 2o December.

This time around the refueling mission is an incidental hostage. Mr. Ozawa's strategy in blocking a vote is eminently clear. By forcing the government to extend the Diet session to pass the aforementioned bills, Mr. Ozawa hopes to pressure the government into submitting a second stimulus package in the current session rather than waiting until next year's ordinary session. In his meeting with Mr. Aso, Mr. Ozawa was adamant — the stimulus must be submitted in the current session. The government is now on the defensive. If it fails to submit the bill in the current session after the DPJ declared its willing to cooperate, it leaves itself vulnerable to charges from the opposition that it is dangerously passive in its management of the Japanese response to the crisis. If it yields to Mr. Ozawa's demand, it runs the risk of the DPJ's withdrawing its offer of cooperation. Little wonder that the government is already trying to use the media to bind Mr. Ozawa to his promise. Yomiuri reports that according to the executive of the ruling party (parties? — Yomiuri's sourcing is vague), Mr. Ozawa said in his meeting with Mr. Aso that "if the second stimulus is submitted, we will cooperate. In the event that I break this promise, I will resign my seat."In a press conference after the meeting Mr. Ozawa denied that he said such a thing, and based on Yomiuri's dubious sourcing, I suspect there's little truth in the quote. But it does show the government's need for a guarantee for DPJ cooperation if it is to submit the supplementary bill before it would like to.

Of course, the government could simply call Mr. Ozawa's bluff and submit the bill, daring the DPJ to reject it. Asahi suggests that this is what the LDP is beginning to come around to this view. Presumably the DPJ reasons that if it does reject it, it will trigger an election contested on the question of economic stimulus. It is conceivable, however, that the government could stick to its intention to postpone an election until after April, resubmitting a new stimulus package in the regular session as planned.

However, it is worth recalling that amidst all of this tactical maneuvering by the LDP and the DPJ, the Japanese people are not entirely convinced that it will make any difference in their lives.

In short, this clash has less to do with the content of the legislation in question than in the images each party wishes to project to the public. The DPJ wants to show itself as concerned about the public, compared with the out-of-touch LDP. The LDP wants to appear responsible and deliberate, compared to the reckless and untrustworthy DPJ (led by the shifty Mr. Ozawa).