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Japan opposition set for win, faces economic woes
Fri Aug 28, 2009 2:59am EDT
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By Yoko Kubota
TOKYO (Reuters) - Frustrated Japanese voters look set to sweep the opposition to victory in Sunday's election, but the novice Democratic Party will quickly face the challenge of an economy suffering from record jobless rates and deflation.
A clear Democratic Party win would end more than half a century of almost unbroken rule by the conservative Liberal Democratic Party (LDP) and break a deadlock in parliament, where the opposition and its allies control the less powerful upper chamber and can delay bills.
Yukio Hatoyama's Democrats have promised to focus spending on households, cut waste and wrest control of policy from the hands of bureaucrats. They also want to forge a diplomatic stance more independent of close security ally the United States.
The world's second-biggest economy is struggling to emerge from its worst recession in 60 years, with the jobless rate hitting a record high of 5.7 percent in July.
"The rise to a record high in the jobless rate was well expected, but the worsening job and income situation highlights worries about the Japanese economy heading into a double dip (recession) as government stimulus runs out," said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance.
Financial markets would welcome an end to the political deadlock, but the Democrats' spending plans and vow to keep the sales tax at 5 percent for the next four years has raised concerns that Japan's already huge public debt will grow further.
"Just having the election over will remove one big uncertainty for the market, and then attention will shift to policies," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
The Mainichi newspaper, based on a detailed survey, said the Democrats were likely to win a two-thirds majority in the 480-member lower house, a forecast in line with other polls.
A big victory would mean the Democrats would have to pay less heed to their small allies on the left and the right, making policy formation easier.
A win of 269 seats or more would give the Democrats control of all standing committees in the lower house, while a two-thirds majority would help them to push through laws even if they lose an upper house poll set for mid-2010.
ROCKY RECOVERY
The Democrats argue their shift in spending priorities toward households and away from companies will stimulate growth by boosting demand at home while they tackle the longer-term problems of a fast-aging, shrinking population.
Japan is aging more quickly than any other developed country, inflating social security costs. More than a quarter of Japanese are set to be 65 or over by 2015.
"Wage growth has been plunging, and the Democrat's policies will go some way to making up for this," said Simon Wong, regional economist at Standard Chartered in Hong Kong.
"The Democrats should take the first step and implement what they've promised. This should be more effective than another stimulus package," Wong added. Continued...
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