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Japan's Upper House Votes Against Sale of Japan Post (Update1)

*Don't forget Japan recently imposting a 15% tariff on U.S. steel #msg-7177662

Japan's Upper House Votes Against Sale of Japan Post

Aug. 8 (Bloomberg) -- Japan Prime Minister Junichiro Koizumi's plan to sell the state postal service was rejected by lawmakers, a defeat that may prompt him to call elections.

Koizumi, the longest serving prime minister since 1987, has staked his career on the sale, calling it the biggest ``reform'' in a century. He has said he would call an election if he fails in his bid to end bureaucrats' control of Japan Post's 350 trillion yen ($3.1 trillion) of assets, which make it the world's largest savings bank.

The defeat of the bill by dissidents within the Liberal Democratic Party highlights a rift that is blocking Koizumi's plans to further trim government spending and curb expansion of the world's largest public debt. An election may lead to a smaller majority for the LDP or rule by a coalition of opposition parties, weakening government as the economy emerges from its fourth recession since 1991.

``Foreign investors have bought into the story of reforming Japan that was created by the Koizumi administration,'' said Kirby Daley, a strategist at Societe Generale Securities' Fimat unit in Tokyo. ``There is a very strong possibility that the Liberal Democratic Party will not be part of the ruling coalition or in power.''

The bill was defeated in the upper house by a vote of 125 to 108. Those opposed have argued a sale would result in job losses and the closure of post offices in the rural areas where the LDP gets much of its support.

An election may split the ruling party as dissenting lawmakers defect, Japanese government spokesman Hiroyuki Hosoda said today. A rebellion would make it more difficult for Koizumi to be reelected.

LDP Split

Shizuka Kamei, a lower house LDP lawmaker, yesterday said forming a new party was ``one option.'' Kamei was among the 37 LDP lawmakers who dissented in the July 5 lower house vote on the bill, which narrowly was approved by 233 votes to 228.

An election would pit the LDP, which has ruled Japan for all but 10 months since 1955, against the Democratic Party of Japan. The DPJ, led by Katsuya Okada, has made inroads in the last two elections by tapping voter discontent over government plans to raise worker contributions to state pension funds.

The LDP's public approval rating slipped 2 percentage points to 38 percent last month from June, in a survey published by the Nihon Keizai newspaper on July 10. Support for the DPJ gained 4 percentage points to 24 percent, according to the same telephone poll, which didn't provide a margin of error.

Wasteful Spending

The DPJ, which has never held power, says it would do more to cut wasteful spending, unify public pension funds and raise the nation's 5 percent sales tax to fund rising health and social costs as Japan's population ages.

The DPJ in July last year handed the LDP its worst election defeat in 15 years when it won 50 seats in elections to pick 121 upper house lawmakers, one more than that garnered by Koizumi's party.

``Given the strong showing of the opposition Democratic Party in the last upper house election, the LDP would run a very real risk of losing office,'' Glenn Maguire, chief economist for Asia at Societe Generale in Hong Kong, said before today's vote.

In elections in November 2003 for the more powerful 480-seat lower house, the LDP lost eight seats while the DPJ, which has 176 lawmakers in the chamber against 249 for the LDP, returned 40 more members.

``We would welcome an election,'' Okada said yesterday on Fuji Television Network Inc.'s ``Hodo 2001'' program. ``It means we can take power earlier.''

Koizumi wanted to end bureaucrats' control of Japan Post's assets, which have been used for decades to finance roads and public works projects that have inflated the world's largest public debt. Japan Post is the largest holder of government bonds and holds about 140 trillion yen debt, about a fifth of the total.

Disgruntled lawmakers such as Kamei said the sale would have resulted in job losses and post office closures. Japan Post has 400,000 workers, of which 280,000 are full time.

To contact the reporter on this story:
Tim Kelly in Tokyo at at [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000101&sid=alb50jep82uw&refer=japan