Prime Minister Yukio Hatoyama’s surprise announcement that he is stepping down before the July Upper House election is likely to deepen uncertainty about Japan’s politics and raise more concerns about its still fragile economic recovery, economists and analysts said Wednesday.

The once popular Hatoyama announced his departure amid mounting criticism over flip-flops involving a deal to relocate a U.S. Marine base, as well as political funds scandals involving him and departing Democratic Party of Japan Secretary General Ichiro Ozawa.

“Investors cannot draw a positive picture of the economy, and their stance will not change even after his resignation because the political turmoil will deepen further,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

The benchmark 225-issue Nikkei average closed at 9,603.24 on Wednesday, down 108.59 points, or 1.12 percent, from Tuesday’s close. Stock gains in the morning following the news of Hatoyama’s resignation were later erased on fears that political instability would continue.

The yen slid to 91.79 against the dollar, its lowest level since May 20, from 91.40 at 3 p.m. in Tokyo.

In the short term, market watchers will focus on who will become the next finance minister, as the appointment will affect an anticipated hike in the consumption tax and other important issues involving the country’s fiscal and financial policies, said Yasunari Ueno, a chief market economist at Mizuho Securities Co.

For example, current Finance Minister Naoto Kan is an active supporter of hiking the consumption tax, now at 5 percent.

Other issues include whether the next finance minister will support the Bank of Japan’s current loose monetary policies or try to keep the yen from continuing to rise against other major currencies, Ueno said in a report published on Wednesday.

Some economists, however, say if Kan become prime minister, it would help improve the country’s fiscal deficit.

Meanwhile, Hatoyama’s departure may directly affect economic and fiscal policies instituted by his administration.

In fact, the chaos now threatens to delay policies scheduled to be put together this month, including the economic growth strategy and midterm fiscal framework.

But Hideki Matsumura, senior economist at Japan Research Institute Ltd., said the government has no need to put those policies together in a hurry because they could end up becoming mediocre.

He said a big problem is the DPJ’s lack of a clear long-term economic vision, as its campaign pledges for the Lower House election last year were simply a patchwork of various opinions.

For example, it is unclear how DPJ policies, such as the child allowance and waiver of high school tuition, will contribute to the economy in the long term, Matsumura said.

“If the new prime minister shows strong leadership and creates a new package of policies, that could be seen as a change for the good,” he said.

Economists are meanwhile concerned about the possible negative effects on the economy in the long term.

“His resignation is certainly a negative factor for the economy,” said Kumano of Dai-ichi Life Research. The recent sharp fall in Hatoyama’s support ratings already triggered doubts that he could take aggressive steps to recharge the economy or improve the country’s debt-saddled fiscal condition. Such doubts have kept foreign investors on the sidelines, Kumano said.

In September, when the DPJ ousted the Liberal Democratic Party, Hatoyama enjoyed approval ratings between 60 percent and 70 percent. But his support tumbled to around 20 percent last month, a territory that political analysts see as making it almost impossible for him to stay on.

“The political confusion will continue for at least a month and a half” while the DPJ appoints a new leader, and thus the next prime minister, ahead of the Upper House election expected in July, Kumano said.

Ueno of Mizuho Securities echoed the view.

“I believe the political instability will remain unless the DPJ alone wins a majority in the Upper House, a scenario that is currently viewed as very unlikely,” he said.

Kamei presses case

Kyodo News

Financial services minister Shizuka Kamei reiterated the need Wednesday for the bill to scale back the planned privatization of Japan Post Holdings Co. to be passed during the current Diet session that ends June 16, despite Prime Minister Yukio Hatoyama’s resignation.

“It’s obvious that we must enact the postal reform bill during the present Diet session,” Kamei said.

APEC meet to go on

Kyodo News

Trade minister Masayuki Naoshima said Wednesday that the upcoming meeting of APEC trade ministers in Hokkaido will be held as scheduled despite the political turmoil following the prime minister’s resignation announcement.

“As we have extended invitations (to other countries), the meeting itself will be held as scheduled,” Naoshima said, adding he will attend the Asia-Pacific Economic Cooperation forum meeting Saturday and Sunday, which he will cochair with Foreign Minister Katsuya Okada.

A Foreign Ministry official also confirmed that Okada will attend the meeting.

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