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Obuchi Going It Alone

TOKYO -- Japanese politics are looking sillier than ever with the ongoing boycott of parliament by the opposition parties. The political uncertainty generated by this fracas, however, is not necessarily a bad thing for the economy, which is still trying to find its footing after a "lost decade" of stuttering growth and badly needs prompt passage of the fiscal 2000 budget.

Furious with Prime Minister Keizo Obuchi's successful effort last week to ram through a bill that reduces by 20 the number of lower house seats, the opposition parties have been boycotting all parliamentary proceedings -- including deliberations over the budget, which began three days ago.

Before returning to parliament, the opposition says it wants Obuchi to apologize for his "disloyalty to democracy" and to agree to an early lower house election, which must be held before Oct. 20. In response, the prime minister has told the opposition parties to get stuffed and that parliament will stay open for business, with or without them in attendance.

The most immediate concern for the markets is timely passage of the annual budget, which is loaded with public-works spending intended to keep the floor under this economy until consumer demand begins kicking in again. Why should investors care? Because any delay could drain investor confidence, which has helped push the benchmark Nikkei average to a 2 1/2-year high and helped make Japanese mutual funds stellar performers for Americans with the temerity to look past the U.S. bull market.

The boycott could delay budget approval in two ways, by deadlocking parliament or by precipitating an election in the next two months. But because the ruling coalition has solid majorities in both houses of parliament, Obuchi can keep budget deliberations going. He can also hold off a snap poll, which he desperately wants to avoid until his flagging popularity improves. In fact, if the opposition stays out of parliament, it won't be able to throw wrenches into formal deliberations. That means the prime minister might get his beefy spending package approved in early March, even sooner than last year's budget passage, which was a postwar record.

To be sure, Obuchi's brazen abandonment of consensus-style politics has not gone down well with the public. But he has time on his side. The opposition is already getting hit with charges of cry-baby obstructionism in the mainstream press. Moreover, Obuchi knows that most Japanese don't really give a hoot about the seat-reduction bill and are puzzled by the opposition going to the mat over it. Obuchi is calculating, probably correctly, that public sentiment will eventually turn against the opposition and compel it to back down.

Even if the opposition does force an early election with the boycott, that could have a positive knock-on effect for the economy -- as long as a poll doesn't come too soon.

Here's why. In recent months, ruling coalition lawmakers have been attempting to roll back reforms in a shameless vote-getting maneuver to win support from sectors in this economy that have been particularly hard hit by restructuring. That's one of the main reasons the government delayed implementation of limited deposit insurance for the banks. Japan's tiny credit co-ops, which fear a run on their deposits when limited coverage goes on line, just loved this. And that's largely why 140-plus Liberal Democratic Party (the LDP dominates the ruling coalition) members have formed a league to reconsider the harmful effects of deregulation on small firms.

The political instability created by the boycott has generated increased speculation that Obuchi may have to call an election in April, after the budget wins passage. Even Foreign Minister Yohei Kono said last Tuesday that the next election could be held before the Group of Eight summit scheduled for late July in Okinawa. (Hoping to bask in his own glory as a global statesman, Obuchi wants to hold it after the leadership meeting.)

If an April poll does in fact occur, it will remove the electoral incentives driving the anti-reformers. And that would be good news for the economy and suggest a faster return to sustainable recovery. Don't get too excited about this prospect, however. There's an upper house election in the summer of 2001. The anti-reformers wouldn't be cooling their jets for long.

One other positive development for the economy that could result from this boycott: the neutralization of Obuchi's LDP rivals, who have been highly critical of his spendthrift ways. Faction leader Koichi Kato, for example, has been lambasting the prime minister with harsh warnings that Japan's ballooning budget deficit demands a return to fiscal consolidation policies.

Yet the boycott is driving the LDP to close ranks, making Kato and his supporters look like traitors when they criticize Obuchi in the face of the political onslaught. For those who believe it's still too early to turn off the public spigot, this should be a welcome development.

Finally, as this commentary goes up on TSC today, Osaka will be electing a new governor and Kyoto a new mayor. There's talk that if the LDP-backed candidates (which are also supported by all the other big non-Communist opposition parties) go down in defeat, Obuchi will be embarrassed into cutting a quick deal to end the boycott.

Think again. If Communists win those races, their party would be well-positioned to lead opposition negotiations with Obuchi. Problem is, the Communists are big-time hardliners and will lean heavily on the other opposition parties not to back away from demanding an early election and an apology for the seat-reduction bill. That would inevitably prolong this crazy boycott.

Don't fret: Obuchi will get his budget passed before the end of the fiscal year on March 31 and he won't muck things up with an election until April at the earliest, boycott or no boycott.

John F. Neuffer, a longtime observer of Japanese politics, is an analyst at Mitsui Kaijyo Research Institute (MKR). He writes biweekly commentary for TSC and publishes an in-depth roundup of Japanese politics on his Web site, behindthescreen.com. The views expressed above are those of Neuffer and not necessarily those of MKR. This column is exclusive to TheStreet.com.

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