Tue Apr 20, 2010 11:46am IST
By Linda Sieg
TOKYO (Reuters) - Fading prospects that Japanese Prime Minister Yukio Hatoyama can resolve a diplomatic row over a U.S. airbase are fanning speculation he will resign, or even call a general election at the time of a mid-year upper house poll.
Hatoyama's Democratic Party of Japan (DPJ), which swept to power last year pledging to give consumers more cash to boost the economy, needs to win a majority in the election for the upper chamber, which can delay bills, to smooth policymaking.
But support for Hatoyama's government has slid sharply since it took office seven months ago, ending a half-century of almost unbroken rule by the pro-business Liberal Democratic Party (LDP).
Below are scenarios for how Japan's political saga will play out and implications for policy as the country struggles to keep an economic recovery on track and rein in a bulging debt.
HATOYAMA STAYS, LIMPS INTO UPPER HOUSE ELECTION
Prospects: Likely
Hatoyama has promised to resolve the dispute over where to relocate the U.S. Marines' Futenma airbase on Japan's southern island of Okinawa by a self-imposed end-May deadline, and even some in his own party say be may have to resign if he cannot.
Many analysts, however, say Hatoyama will probably cling to his post, not least because the Democrats were harshly critical when two recent LDP premiers suddenly threw in the towel. Hatoyama is Japan's fourth prime minister in four years.
With public backing for the DPJ slipping and a clutch of new smaller parties likely to take votes from both the Democrats and the LDP, chances are evaporating that the DPJ will win the outright majority needed to pass bills smoothly.
Some analysts say the DPJ and its two small partners, the conservative People's New Party and the Social Democrats, still have a shot at keeping their joint majority in the upper house.
Others say the Democrats will probably have to either revamp the coalition or seek added help, most likely from the New Komeito party, the LDP's ex-partner, and/or from one or more of the small conservative parties now being formed by LDP defectors as well as a band of current and former local government heads.
At best, policymaking would remain confusing due to the make-up of the current coalition, in which banking minister Shizuka Kamei is an outspoken advocate of big spending and wants the central bank to underwrite JGBs to fund economic stimulus.
Kamei rarely gets all he demands, but his presence snarls decision-making and pushes towards bigger spending at the edges.
At worst, an expanded coalition would further complicate decision-making, giving smaller parties clout in excess of their actual number of seats and increasing pressure to spend.
HATOYAMA QUITS, BUT NO ELECTION BOUNCE
Prospects: Possible
No DPJ heavyweights have suggested that Hatoyama should step down, but analysts say the possibility cannot be ruled out.
One wildcard is a judicial panel review of a prosecutors' decision not to charge Hatoyama over suspected falsification of political funding reports. A court ruling in that case against his former aide is expected this week, while Japanese media say the lay panel will hand down a decision on Hatoyama this month.
The panel can force an indictment by ruling twice that the prosecutors should have pressed charges, an outcome that would add pressure on Hatoyama to resign. The DPJ's powerful No.2 executive Ichiro Ozawa faces a similar review over a separate funding scandal.
If Hatoyama quits, his most likely successor is Finance Minister Naoto Kan, a quick-tempered former health minister who has pressed the central bank to do more to fight deflation.
Kan has also been more positive about raising the 5 percent sales tax in the future to fund bulging social welfare costs.
Analysts say, however, that replacing Hatoyama would probably not be a game changer for the election, although dumping both the prime minister and Ozawa -- whose image as an old-style fixer is a liability -- might win back some independent voters.
That means the outlook for post-election policy confusion would be much the same as if Hatoyama stays on.
"DOUBLE ELECTION" GAMBIT
Prospects: Unlikely
Most analysts say the Democrats are highly unlikely to risk losing their huge majority in parliament's powerful lower house by calling an election, which need not be held until 2013.
The Democrats and allied independents have 310 seats and together with their two tiny partners, have a two-thirds majority in the 480-seat chamber. The loss of that two-thirds majority would mean the ruling bloc could no longer enact bills rejected by the upper house, threatening policy stalemate.
The DPJ could even lose its majority altogether, sparking confusion as parties split and regrouped.
Independent political commentator Minoru Morita, however, said election mastermind Ozawa could decide that it was worth gambling on a lower house poll to seek a fresh mandate for the Democrats and keep his own grip on power within the party.
(Editing by Alex Richardson)
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