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Japan elects new PM, may be ruling party's last chance

Japan's Finance Minister Noda speaks during news conference in Tokyo
Japan's Finance Minister Noda speaks during news conference in Tokyo

By Linda Sieg and Rie Ishiguro

TOKYO (Reuters) - Japan's parliament on Tuesday voted in a new prime minister who represents perhaps the last, best chance for the ruling Democratic Party to begin pulling the country out of decades of stagnation.

Yoshihiko Noda, a 54-year-old former finance minister who wants to curb Japan's huge public debt, is the country's sixth prime minister in five years.

While tackling myriad ills dogging the world's third-biggest economy, he must unify warring factions in his own party and win over the opposition, which can block bills in parliament.

The hurdles to governing are high and the policy problems legion, but some optimists suggest that the low-key Noda just might succeed where his combative predecessor Naoto Kan failed.

"In Japanese tradition, the less lustrous politicians have tended to be more effective," said Andrew Horvat, director of the Stanford Japan Center in Kyoto, comparing Noda to the late Keizo Obuchi, who was dubbed "cold pizza" when he took office in 1998 but used his "Everyman" image to win voter support.

"This is not a time for big talk and inappropriate action."

Noda's unassuming image contrasts with that of the famously irascible Kan, while his humble origins -- his parents were both from poor farming families -- set him off from the Democrats' first prime minister, the aristocratic Yukio Hatoyama.

But other analysts warn the compromises Noda needs to win over opponents in the party -- he was one of five candidates for PM -- could dilute his fiscal reform agenda. He placed second in the first round of party voting and only won in the run-off.

The novice Democratic Party of Japan (DPJ) swept to power just two years ago promising to change how Japan is governed but quickly faltered due to diplomatic missteps, policy flip flops, internal bickering -- and the sheer scale of Japan's problems.

Now, as its third prime minister takes power, the DPJ's support rates lag behind those of its main rival, the long-dominant Liberal Democratic Party (LDP). If Noda fails, his party would probably lose the next general election, which must be held by late 2013.

Noda confronts a mountain of challenges: coping with a strong yen that threatens to hit exports, forging a new energy policy while ending a crisis at a crippled nuclear plant, rebuilding Japan's tsunami-devastated northeast and finding funds to pay for that and vast social security costs of the aging society.

He acknowledged on Tuesday that the economy faces risks, but repeated his call for "prudent fiscal management."

Media said he was considering appointing DPJ Secretary General Katsuya Okada or ex-chief cabinet secretary Yoshito Sengoku, both fiscal conservatives, as finance minister.

REACHING OUT TO RIVALS

Noda also told his last news conference as finance chief that he wanted to consult opposition parties, who control parliament's upper house and can block bills, on legislation to double the 5 percent sales tax by mid-decade as well as on funding for reconstruction. He has previously floated the idea of a coalition with the two biggest opposition groups.

Noda's party rivals in the race for PM were opposed to raising taxes to pay for reconstruction. They agreed on the need to raise the sales tax but were more cautious about the timing.

Opposition parties are also against a reconstruction tax, but the biggest opposition group, the LDP, is on the same page as Noda on a sales tax hike.

"... there is quite a lot of consensus both within the factions of the DPJ and between the DPJ and the opposition the LDP on the need for fiscal consolidation and the type of measures that need to be done," said Andrew Colquhoun, head of Asia-Pacific Sovereign Ratings for Fitch Ratings.

"However, the political calculations, the factional conflict and the partisan bickering between the LDP and DPJ have got in the way until now, and it will be interesting to see if Mr. Noda has any way of breaking through that jam," Colquhoun told Reuters Insider Television.

Noda was not the most publicly popular of contenders in the party leadership race, nor did he have the strongest support base inside the party. But he has been opposed to party strongman Ichiro Ozawa and critics of the strongman rallied around Noda in the second round to vault him to victory.

Noda now appears ready to reach out to Ozawa's backers.

Japanese media said Azuma Koshiishi, an upper house lawmaker close to Ozawa, has agreed to take on the key post of DPJ secretary-general, the party's No.2 position.

But despite hopes that Noda might fare better than his past five predecessors, none of whom have lasted much more than a year, many pundits are already predicting his political demise.

"The difficult structural problems remain -- a divided party, hostile opposition parties that deprive the government of a majority in the upper house and mountains of difficult and divisive problems facing the country," said Sophia University professor Koichi Nakano.

"These present a very high hurdle for anyone who wants to stay in office. Noda is rather more likeable and less tainted ... but how long he will last, I don't know."

(Additional reporting by Shinichi Saoshiro and Tetsushi Kajimoto in Tokyo and Lucy Hornby in Beijing; Editing by Raju Gopalakrishnan)

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