TOKYO (Reuters) - Japan’s ruling Liberal Democratic Party picked former foreign minister Taro Aso, an outspoken nationalist and advocate of government spending and tax cuts to bolster the faltering economic, to be the next prime minister.
Aso, whose victory was widely expected, is assured the premiership in a September 24 parliamentary vote because of the LDP’s majority in the powerful lower house.
— Attention is focused on whether Aso will call a snap election for the lower chamber to take advantage of a hoped-for bounce in public support rates. Japanese media say an election could be called for as early as October 26.
— The new prime minister will have trouble getting laws passed in parliament as the main opposition Democratic Party and smaller allies control the upper house and can stall legislation.
JUN IIO, PROFESSOR, NATIONAL GRADUATE INSTITUTE FOR POLICY
“I wonder if it will be good to call a snap election soon because it will look like the election was rushed, although there are views within the LDP that a vote should be called soon because things won’t get better.
“It would be a bit of a problem if the election were to be called before the ruling and opposition parties make their policies clear and start debating with each other.
“The next election will be about whether there should be a change in government and also about how parties will deal with the issues. The Democratic Party will be pushing for a change in power, while the LDP will argue that this is risky and call for continuity. It will be a question of who will be able to implement policies.”
“It will be only a matter of weeks before there is an election, so whether Mr Aso will be prime minister for more than several weeks is a question. His term will end with the election if the (opposition) Democratic Party wins.
“It’s going to be a weak government and there is going to be an election and there will probably be a weak government as a result of the election. Japan will not be in a position to play a more dynamic role in world affairs. It will be more and more inward-looking and try to resolve its political mess.
“He says he wants to pass the supplemental budget before an election, but there’s not really all that much in it in terms of new spending. It won’t have much economic impact, but he’s hoping it will have a political impact.
“Aso has a reputation of being in favor of an ‘arc of peace and prosperity’ that involves democratic countries on China’s borders, so in terms of rhetoric up until now, (opposition Democratic Party leader Ichiro) Ozawa is more pro-China and Aso is more of the ‘China threat’ school. But the reality is that he will be pragmatic. As long as China and the United States are trying to have a good relationship, there is no incentive for Japan to try to create trouble.”
HIDEO KUMANO, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE
“The key question is who will hold key posts in the cabinet and the party leadership and how much they can restrain Aso’s penchant for fiscal spending.
“Unless Aso includes those who support fiscal discipline, Japanese people will have no real choice in an upcoming election in terms of economic policies, with both the LDP and Democrats in favor of spending in rural areas. Few economists think such measures will help the economy.
“Restoring fiscal balance will need a stable government. And perhaps we won’t get one in the next three years.”
“What Aso has been saying about reviving the economy is well received by the public as the economy deteriorates and worries about the outlook remain in the face of U.S. financial sector troubles. But I wonder if Japan’s economy is really in crisis as he suggests. I think it is only in a cyclical downturn.
“As the economy worsens, tax revenues will shrink further, so we need some sort of a medium-term fiscal consolidation target. He does not have to necessarily stick to the current goal of getting the primary balance into the black by 2012, but if he wants to put that off, he should have a new fiscal reform goal. Even if a rise in the consumption tax is not an imminent step, the issue should be discussed fully.
“But Aso’s proposals are mainly for winning votes at an election. So I think his government will have a more balanced policy. If (Economics Minister Kaoru) Yosano stays in his cabinet, the government won’t ignore fiscal reform efforts. At least that’s what I am hoping to see.”
KOICHI OGAWA, CHIEF PORTFOLIO MANAGER AT DAIWA SB INVESTMENTS
“The result was exactly as expected. The market has already factored that in and I expect very little impact.
“The question is whether they can win the general election.
“Someone like Aso who advocates government spending may appear more convincing now, though, in light of deteriorating markets led by the U.S. and worsening financial problems.”
— Aso is set to replace Prime Minister Yasuo Fukuda, who quit this month over a deadlocked parliament, the second leader to abruptly resign in less than a year.
— The new leader must try to revive the world’s No.2 economy despite the constraints of its huge public debt. Aso has said Japan’s goal of balancing its budget by 2012 could be put off, a stance that has alarmed fiscal reformers in his party.
— Of the five candidates in Monday’s contest, only Economics Minister Kaoru Yosano, a fiscal conservative, clearly stated the need to raise Japan’s 5 percent consumption tax to help fix its tattered finances and even he said an initial hike would be a few years away.
— Aso would likely stick to Fukuda’s line on foreign policy, solidifying Japan’s tight security alliance with the United States and improving relations with China, which have warmed lately after years of strains due to disputes stemming from wartime history.
Reporting by Tokyo Newsroom