Japan: DPJ's First 100 Days

As widely predicted, the Democratic Party of Japan (DPJ) won Japan's lower house elections over the weekend by a landslide. The relative political party strengths now approximately stand as follows;

Thus the DPJ now has the majority in both houses of Japan's Diet, and Japan's fiscal stimulus focus is now expected to shift from "concrete to people", i.e., more direct support for people's livelihood rather than wasteful public works spending.

The DPJ is already eyeing how they can cement their power base by ensuring they further reinforce a stable majority in the upper house elections next July.

The reaction of Japan's benchmark Nikkei 225 was first positive, but Monday's sesson ended with the Nikkei essentially marking time as the election news was mixed with a stronger yen and a renewed selloff in China's Shanghai exchange.

Observers are concerned that the DPJ has promised more than they can deliver, and since voters have been waiting since the first attempt at a power shift in 1993 for real change, expectations may be higher than any new regime can meet. But our take on the vote results is that, a) voters recognized that there was no hope under the old regime and politically gridlocked Diet, and b) they threfore rolled the dice for change, while c) being fully willing to vote their dissatisfaction again in July 2010 upper house elections if the DPJ is not making any forward progress on their manifesto.

As to the new ruling party's first 100 days, we will be looking at progress in the formation of what should become two key organizations for the DPJ and new administration, i.e., the National Strategy Bureau, and the Administrative Reform Council.

The National Strateg Bureau (NSB) will be tasked with crafting key national policies including budget guidelines and a basis for a new foreign policy, and is expected to replace the current Council on Economic and Fiscal Policy, headed by the prime minister. It is similar to the US Office of Management and Budget (OMB) although it will probably be a lot smaller in terms of staffing. The NSB will be a bellwether indicating how successful the DJP will be in reducing the role of Japan's powerful bureaucracy's to "experts on tap but not on top". The Council on Economic and Fiscal Policy began with a similar intent, but becam rather toothless after former prime minister Junichiro Koizumi and his go-to finance man, Heizo Takenaka, left office.

The Administrative Reform Council will be tasked with assessing budgets and programs with an eye toward squeezing out up to JPY10 trillion of wasteful spending over the next three years. This council will be similar to the US Government Accountability Office although again nowhere near as large as the OMBs headcount of 400,000 and reporting to the prime minister as opposed to the parliment (or Congress, in the US case). These savings are ostensibly how the new administration can fund most of up to JPY16 trillion of expenditures in shifting the policy emphasis to improving the livelihoods of Japanese consumers.

New legislation and administrative orders to form these two new organizations should be forthcoming by mid-October, after a new cabinet is formed and a new prime minister chosen by mid-September.

Disclosure: No positions.

Comments

[Flauren:]

Will new leadership have a positive effect on the Japanese economy? This is a pretty interesting piece I found.
www.newsy.com/videos/a...

Aug 31 06:56 PM

[William L. ...:]

Thanks. It is useful to have the commentary. I would encourage you to keep writing about how you think the new government will relate to the stock market.

Sep 01 08:59 AM