Prime Minister Junichiro Koizumi dissolved the Lower House on Monday after a rebellion within his Liberal Democratic Party in the Upper House killed the postal privatization bills, the centerpiece of his reform agenda. Despite his prompt countermove, Mr. Koizumi’s overall political agenda has suffered a big blow.

For Mr. Koizumi, who was elected LDP president and has led the party to electoral victories with a policy agenda of structural reforms centering on the postal reform, Monday’s rejection of his postal reform bills apparently was tantamount to a rejection of his public pledge.

The decisive division created by the handling of the postal bills raises a strong possibility that the LDP may be split in the coming snap elections. If this development takes place, the LDP’s fortunes will be doomed. There is also a possibility that the LDP will lose its coalition partner, New Komeito, whose party’s secretary general, Mr. Tetsuo Fuyushiba, has said that the party might align itself with the Democratic Party of Japan if the LDP lost in the next elections.

In Monday’s crucial poll, 233 votes were cast, 108 for the bills and 125 against, with eight members abstaining or absent. Twenty-two LDP members cast “no” votes, considerably more than the 18 “no” votes that were regarded a minimum necessary number to kill the bills.

As Mr. Koizumi has emphasized, the behavior of the rebellious LDP Upper House members is illogical in view of the LDP’s past electoral pledges. It must be noted that most of the LDP Upper House members won their elections by riding on the crest of Mr. Koizumi’s reform “waves.”

One of the reasons for the confusion concerning the postal reform bills, according to politicians who opposed the bills, is that the government and the LDP leadership have failed to sufficiently enlighten the public about the bills’ importance. Although Mr. Koizumi attached tremendous importance to the bills, the public did not seem to share his enthusiasm, and Diet deliberations were held under such a mood. It was symbolic that during the Diet deliberations, opponents asked why the privatization was necessary to begin with, and why at this stage, especially when Japan Post’s performance seemed satisfactory.

The main purpose of the bills was to choke off the flow of money from Japan Post’s savings and insurance services components — which total 340 trillion yen — to the government’s budget and loans and investments program by privatizing and dividing Japan Post in April 2007 into four companies: mail, savings, insurance and network operation. Money held by the savings and insurance-services components has been used to buy bonds issued by the government. In view of the fact that the balance of debt held by the central and local governments has reached 700 trillion, yen or 1.6 times the nation’s gross domestic product, a choking off of the money flow was considered an important step to reduce the government’s tendency to rely on borrowed money and to bring self-restraint to the government’s financial behavior.

Another purpose of the privatization was to streamline the operation of Japan Post, whose sales and profits are expected to decrease over time. Many of the opponents of the bills expressed a fear that the privatization would lead to the destruction of the “universal services” currently offered by post offices.

Under pressure from the opponents of privatization, the government and the LDP leadership watered down the bills. For example, the holding company, under which the four privatized companies would operate, would have been allowed to buy back shares in the savings and insurance companies after it disposed of them. It would also have been allowed to continuously have the right to vote as a shareholder in the two companies. These measures would have maintained government control of the new companies.

It was unfortunate that, facing opposition from within the LDP, Mr. Koizumi and the party leadership had to rely on forceful tactics, including ramming the bills through the LDP’s Executive Council, the party’s highest decision-making body. As a last resort, Mr. Koizumi started warning that he would dissolve the Lower House if the Upper House failed to pass the bills. Mr. Koizumi’s move was interpreted by many Upper House members as meddling in the independence of the Upper House. At this stage, opposition to the bills also became an opposition to Mr. Koizumi’s “autocratic” leadership style.

The coming snap elections will decide the directions of reform for creating efficient government, reform of the social security system, including pensions, and Japan’s relations with neighboring countries. It will most likely usher in a more definitive two-party system in Japan.

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