• Bloomberg


Prime Minister Yoshihiko Noda risks sparking the deepest split in his party since taking office two months ago as he determines whether to join trade talks led by the U.S., Japan’s No. 2 export destination, on the Trans-Pacific Partnership free-trade agreement.

Noda, who last week responded to exporters’ concern over the yen’s strength with what might have been the biggest currency intervention on record, set a deadline of this week for proceeding with the TPP talks.

The TPP would slash tariffs like Japan’s 778 percent duty on rice and open competition in industries including pharmaceuticals, stirring the opposition of about half of the lawmakers in the ruling Democratic Party of Japan.

With South Korea having reached a deal with the U.S., failure to proceed ahead of the Saturday-Sunday Asia-Pacific summit risks further diminishing the stature of a nation surpassed by China as the world’s second-largest economy. Noda, Japan’s sixth prime minister since Junichiro Koizumi left office in fall 2006, will have to draw on his political skills to head off an intraparty rebellion.

“If the prime minister pushes this through in spite of strong opposition within the party, it could derail his administration,” DPJ lawmaker Kazuhiro Haraguchi said.

Exporting farmers such as Hirokazu Kiuchi, who runs a ¥6 billion business that gets 10 percent of its sales by selling vegetables to Hong Kong, Thailand and China, hope Noda proceeds.

“Of course we should, (join the TPP talks)” said Kiuchi, president of Wagoen, a farming cooperative in Chiba Prefecture. “Japan is a trading country. This situation is inevitable.”

His is a minority view in the industry. Japan’s largest agricultural lobby, JA, submitted a petition with almost 11.7 million signatures saying the accord would mean the “collapse of agriculture and fisheries.”

Noda has said the country must open its markets to boost an economy buffeted by weak growth and struggling to recover from the March disaster and nuclear crisis. Participation in the TPP would mean an annual boost of ¥2.7 trillion once participants lower their tariffs, according to the Cabinet Office.

A group of more than 200 mostly DPJ lawmakers is demanding the government not make a decision on the TPP before the Asia-Pacific Economic Cooperation forum summit in Honolulu, where Noda will meet with U.S. President Barack Obama. Lawmaker Yoichi Kaneko said opponents “are aggressively collecting signatures” to pressure the prime minister.

The area struck by the March 11 earthquake and tsunami that killed almost 20,000 people accounts for more than a quarter of the country’s rice production. Farming subsidies totaled $46.5 billion in 2009, according to the Organization of Economic Cooperation and Development. The comparable figure for the U.S., with a population more than twice that of Japan’s, was $30.6 billion.

Noda, 54, unveiled steps last month to revitalize the farming industry, where workers’ average age is 66. The plan aims to increase the average cultivating area tenfold to between 20 hectares and 30 hectares per household over the coming five years.

Embedded in the debate are notions of national identity. Rice is the staple of the traditional Japanese diet, and until the late 19th century was the basic measure of wealth. The word for “meal” translates as “cooked rice.”

“If we join the TPP, Japanese rice farming will be destroyed,” said Nobuhiro Suzuki, a professor of agriculture economics at the University of Tokyo.

Business groups say failure to participate risks seeing Japan lag behind regional competitors. Japan’s trade agreements with 12 countries and the Association of Southeast Asian Nations cover 17.6 percent of trade, while South Korea’s deals account for 36.2 percent, according to government statistics.

The March disasters exacerbated Japan’s economic contraction, and the yen’s strength has hurt exporters’ profits. The government on Oct. 31 intervened to push the yen down after it rose to a postwar high of 75.35 per dollar, spending what analysts estimated was about ¥8 trillion.

“Without the TPP, Japan has no future,” Fast Retailing Co. Chief Executive Officer Tadashi Yanai said in an interview Friday. “It would be hard for foreign firms to invest here if our country showed signs of being closed to the rest of the world.”

Nine countries — Singapore, New Zealand, Chile, Brunei, the U.S., Australia, Peru, Vietnam and Malaysia — are pursuing the basic framework of a trade deal at the APEC summit.

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