Japan PM faces postal showdown, may call election
(Reuters)
Updated: 2005-08-08 11:02

Expectations were mounting that bills to privatise Japan's vast postal system would be defeated in parliament on Monday, prompting Prime Minister Junichiro Koizumi to call an election that his divided party could lose, reported Reuters.

Koizumi has repeatedly said that a rejection of the bills would be equivalent to a vote of no-confidence -- a threat to call an election for parliament's powerful lower house.

Financial markets were on edge ahead of the vote, set to take place in parliament's upper house from 1 p.m (0400 GMT).

Stocks finished the morning down one percent while the yen and Japanese government bond prices slipped on concerns that rejection of the bills could lead to political upheaval and stall efforts at economic reform.

Japanese Prime Minister Junichiro Koizumi waves as he arrives at his official residence in Tokyo August 8, 2005. [Reuters]

"Rejection seems almost certain. Even the LDP leadership seems to be thinking that way," said Takeo Okuhara, a senior economist at Daiwa Institute of Research, referring to the ruling Liberal Democratic Party.

"I think there will be political confusion of a scale we haven't seen for some time. The LDP could well fall from power."

Top government spokesman Hiroyuki Hosoda told reporters it was "unthinkable" that Koizumi would not dissolve parliament if the bills were rejected, and Kyodo news agency quoted an LDP lawmaker as saying the prime minister had told him he would immediately call an election in that case.

Chances of a victory for Koizumi looked increasingly unlikely after several LDP rebels came out against the legislation over the weekend.

"We believe we have done everything humanly possible," LDP upper house heavyweight Toranosuke Katayama told reporters.

"Now it is up to fate."

Koizumi had rejected a weekend plea by Yoshiro Mori, his predecessor as prime minister and leader of the party faction that backs him, not to call an election should the bills fail.

"This is my absolute conviction. I would even be ready to die for it," Mori quoted Koizumi as saying.

SCENARIOS FOR CHAOS

The six bills to privatise sprawling Japan Post, with more than $3 trillion in assets and including the world's biggest deposit-taking institution, are the core of a reform agenda Koizumi pledged to implement when he swept to power in 2001.

The legislation would privatise Japan Post in 2007 and sell off its saving and insurance arms over the next decade.

Koizumi, who leapt to power in 2001 promising reform and is now Japan's longest serving prime minister in two decades, says privatisation is vital to make investment flows more efficient and remove distortions from the financial system.

But many in the LDP fear privatisation will weaken their political machines, which have long relied on powerful rural postmasters to get out the vote and on the postal system's assets to fund popular but wasteful public works.

Japan Post has nearly 25,000 offices and 260,000 employees, and its insurance business equals that of Japan's four top private life insurers combined.

The bills were approved by the lower house by a mere five votes and can be rejected if 18 of the 114 LDP lawmakers in the 242-member upper chamber join all the opposition in voting against them. The LDP relies on coalition partner New Komeito's 24 members for a majority in the upper house.

As of Sunday, 19 LDP upper house members had voiced their intention to cast negative votes and two to abstain, while about 10 possible rebels had not disclosed their stance, Kyodo said.

Scenarios for political confusion abound, including the mirror image a 1993 drama in which pro-reform rebels bolted the LDP and the party lost an election and was ousted, albeit briefly. This time, though, the rebels are anti-reform.

Some politicians have said Koizumi, 63, might call a snap election even if the bills were approved in order to purge the party of anti-reformers.

No poll for the lower house is slated until late 2007, and LDP rebels insist Koizumi, whose term as party president runs until September 2006, should resign if the bills fail.

Analysts say the centrist main opposition Democratic Party has a shot at winning an election, but it would need help from other parties to get legislation through the upper house.

LDP anti-reformers have threatened to form a new party, though they might cooperate with the LDP, while New Komeito has hinted it might switch sides if the Democrats become the top party but lacked a majority.

Foreign investors generally see defeat of the bills as a setback to reforms, and could start selling Japanese assets.

"The foreign investors have been buying the Koizumi story, the reform story, and this is the linchpin of the reform story," said Kirby Daley, a strategist at Societe Generale Securities' Fimat division in Tokyo. "Without this ... there is no reform."

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