Abe Vows to Stay After Losing Japan's Upper House

Abe Vows to Stay After Losing Japan's Upper House

http://www.bloomberg.com/apps/news?pid=20601101&sid=a6yuNZwt1YjY&refer=japan

By Sachiko Sakamaki and Toru Fujioka


July 30 (Bloomberg) -- Japan's Prime Minister Shinzo Abe said he won't resign after voters angered by a botched pension system and government scandals handed his ruling coalition an overwhelming defeat in upper house elections yesterday.

``From now on managing the political situation will be difficult,'' Abe said at the Liberal Democratic Party headquarters last night. ``But it's my responsibility to continue reform.'' He will hold a press conference at 2 p.m. in Tokyo today.

An opposition-controlled upper house may force Abe, 52, to slow the pace of market-oriented policies of his predecessor, Junichiro Koizumi. While Abe and the main opposition Democratic Party of Japan said last night they would cooperate on legislation, DPJ leader Ichiro Ozawa has vowed to push for a general election to win control of the more powerful lower house.

``Abe is staying on because nobody wants to lead the LDP after this heavy defeat,'' said Tsuneo Watanabe, senior fellow at the Mitsui Global Strategic Studies Institute in Tokyo. ``He will be a lame duck.''

The Asahi newspaper today said Abe should resign, citing 56 percent of respondents saying so in its exit poll. The Mainichi newspaper said Abe should quit and call a general election. LDP secretary general Hidenao Nakagawa said this morning he will resign to accept responsibility for the ``heavy defeat.''

Longest Losing Streak

The Nikkei 225 Stock Average slumped 172.64, or 1 percent, to 17,111.17 at the 11 a.m. break in Tokyo, its lowest since April 2. The broader Topix index dropped 12.32, or 0.7 percent, to 1,687.39. Both indexes fell for a fourth day amid concern the U.S. economy may slow as subprime mortgage defaults spread.

``Obviously this is not a very happy scenario for the LDP,'' said Yuuki Sakurai, who helps manage $32 billion at Fukoku Mutual Life Insurance Co. in Tokyo. ``It's difficult to say what part of the drop today is influenced by the election and what part by the subprime issue. For the next couple of weeks we are going to see people buying bonds instead of equities because of subprime concerns.''

Public anger over missing pension records that could result in millions of dollars in unpaid benefits and scandals that led to the suicide of one minister and the resignations of two others, dragged Abe's approval rating to a record low of 31 percent according to a Mainichi newspaper survey on July 27.

Toshikatsu Matsuoka, the farm minister who killed himself, was under investigation for accepting contributions from contractors accused of rigging bids on forestry contracts.

Abe's LDP lost heavily in rural areas, the party's traditional stronghold. In Okayama, in western Japan, Toranosuke Katayama, secretary-general of the LDP group of Upper House members, lost to Yumiko Himei, a Democrat.

``We don't know how the DPJ will use their victory,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``This political uncertainty could drag on Japan's stock market, especially with the continuing uncertainties over U.S. subprime losses.''

Seat Projections

The LDP and its coalition partner New Komeito had won 46 seats as of 6:40 a.m., Japan time, public broadcaster NHK reported, less than the 64 needed to keep their majority. The DPJ had won 60 seats, NHK said. Final results are expected later today.

New Komeito head Akihiro Ohta said today Abe should stay as prime minister, saying the vote wasn't a rejection of the government's policies.

DPJ leader Ozawa, 65, who was once an LDP member, said he wants a two-party political system in Japan to end the dominance of the LDP, which has governed for all but 10 months since 1955. The LDP controls the lower house with a two-thirds majority.

Half of the chamber's 242 seats were contested in the election yesterday.

Kyodo News predicted the Democratic Party of Japan garnered 60 seats, giving it control and surpassing the 37 seats that Abe's LDP won. That would be the second-worst showing in the upper house for the LDP since the legislature was established in 1955, the report said.

Possible Successors

Should Abe step down, likely candidates to replace him include Foreign Minister Taro Aso and former Finance Minister Sadakazu Tanigaki.

Both men ran against Abe in party elections in September, with Aso coming second. Aso recently set up his own faction within the LDP and released a book of his speeches.

An early general election -- which doesn't have to be called until September 2009 -- would be risky for the LDP, which won its biggest majority in more than three decades in 2005.

Abe, who took office as Japan's youngest prime minister in 65 years, returned to courting party factions with cabinet positions. He also readmitted a dozen legislators Koizumi kicked out of the LDP for voting against his bill to privatize the postal savings system. Abe's approval ratings have been in free- fall since.

``Abe is a leader who wasn't ready for prime time,'' said Gerald Curtis, professor of political science at Columbia University in New York. ``Whether he stays or goes, nothing will get done on the policy front until general elections are called.''