Highlights
– Aso defeats four rivals, including first woman to seek position, to become head of world’s second largest economy
– Snap elections likely to be held in early October 2008 to break political stalemate with Upper House
– Aso promises to revive the economy with increased government spending and tax cuts
On September 22, 2008, Japan’s ruling Liberal Democratic Party (LDP) chose conservative former foreign minister Taro Aso to be the country’s next prime minister. Aso won two-thirds of the vote for the presidency of the party, easily beating four other candidates who included the first woman to seek the job. The party’s control of the lower house of Parliament virtually ensures that he will replace Prime Minister Yasuo Fukuda in a parliamentary session to be held on September 24th.
A self-proclaimed foreign policy hawk who shuns a rigidly right-wing agenda, we anticipate Aso to aggressively pursue an economic stimulus package and a greater role for Japan’s military abroad once he assumes the role of prime minister.
Governing Party Faces Opposition in Upper House
After a striking victory in the Japanese general election in 2005, the LDP held an absolute majority in the Japanese House of Representatives and formed a coalition government with the New Komeito Party. Shinzo Abe succeeded then-Prime Minister Junichiro Koizumi as the president of the party on September 20, 2006. The party suffered a major defeat in the election of 2007, however, and lost its majority in the upper house for the first time in its history. On September 12, 2007 Abe abruptly resigned his position as Prime Minister and was replaced by Yasuo Fukuda. Fukuda in turn resigned on September 1, 2008.
The LDP has ruled Japan since the end of the US postwar occupation with the exception of a 10-month period in the 1990s. The Democratic Party of Japan (DPJ), the country’s socialist opposition party, claims to be the revolutionary antithesis to the LDP and could prevent any meaningful reforms from being instituted in the near-term.
As such, we anticipate that Aso will call for snap elections as early as October 2008 to parlay the momentum of his overwhelming party support and to derail the opposition’s current power hold over the upper house.
World’s Second Largest Economy on Brink of Recession
Washington’s bailout of Wall Street may also help bail out Japan and provide greater momentum for Aso. A country hobbled by aimless leadership, punishing public debt, a dwindling workforce and growing weakness in its export market, Aso will likely benefit from the $700 billion dollar stimulus package currently before the US Congress.
Despite having the world’s largest cash reserves, Japan’s economy is inextricably linked to the economy of the United States and, as such, cannot afford to criticize the current economic turmoil in the US or withdraw its $860 billion in US Treasury bonds. The country’s cash reserves may alleviate some of the pangs of global economic slowdown relative to many other nations, but unless something is done to improve the prospects of Japan’s export market, the chances are low that Japan will improve its economic growth. Until Japan’s parliament is dissolved, Aso will face the same political stalemate as his predecessors and be unable to address the economic conditions in Japan.
Outlook
After replacing the second Japanese prime minister to quit in less than one year, Taro Aso will be the 59th leader of the world’s second largest economy. As this election win represents the culmination of four previous attempts to gain the country’s leadership role, Aso’s positions on a number of issues are fairly well known. Nevertheless, given the looming world financial crisis, and Japan’s own precarious economic situation, it is difficult to predict the direction that Aso will follow in the coming months. We anticipate the following issues will be major foci of his first several months in office:
• Aso, who has served as economic planning minister, is likely to put a priority on spending and tax cuts to help stimulate Japan’s faltering economy. Given the enormity of Japan’s public debt, Aso is likely to be met by stiff opposition in Japan’s upper house.
• Aso has also expressed interest in seeing Japan play a larger role in global security affairs. As Japan’s foreign minister in 2006, Aso indicated that there was nothing wrong with discussing whether Japan should possess nuclear weapons.
• Aso is also likely to continue to improve relations with China and South Korea, taking a softer stance towards the country’s two former enemies by avoiding politically sensitive issues like visiting the Yasukuni Shrine, which honors Japanese war dead, including 14 convicted Class-A war criminals from World War Two.
Prior to initiating any measures to address the country’s economic situation or standing in the global security arena, however, Aso will have to deal with the political stalemate that exists as a result of the opposition’s control over the upper house. Should Aso not be able to find common ground with the opposition, none of his possible policy initiatives will find much traction.