Inside Japan's political tumult, a new 'Destroyer'

Scott Seaman and Ross Schaap

The fight to increase Japan's consumption tax may yet spark significant party system realignment -- something the country needs in order to secure a government that can more effectively address Japan's fiscal challenges and increase economic competition, especially through trade. Any move toward such change is now tied to the next Lower House election, with its timing depending largely on the behavior of former prime minister Yukio Hatoyama.

Hatoyama has returned to the limelight after Prime Minister Yoshihiko Noda managed to secure Lower House approval on June 26 of legislation that will increase the consumption tax. That process prompted a split of the ruling Democratic Party of Japan (DPJ) when Ichiro Ozawa and a group of his followers defected on the vote and formed a new party. Despite fears that Ozawa (nicknamed the "Destroyer" for his habit of creating and then wrecking political parties) would bring down Noda's government by leaving the DPJ with a large contingent of disaffected backbenchers, the DPJ has retained its Lower House majority. But the risk of a no-confidence motion has increased, and Hatoyama may yet snatch away Ozawa's moniker if he decides to defect as well.

Hatoyama is a DPJ stalwart, having helped found this party and lead it to victory in the 2009 general election. But as a backbencher he voted against the consumption tax hike and continues to criticize Noda's decision to pursue it. If Hatoyama were to defect along with 13 or more other Lower House members, Noda would not survive a no-confidence motion backed by a united opposition.

Despite stressing that he doesn't want to leave the DPJ, Hatoyama continues to speak out against Noda and has hinted that he may intensify efforts to challenge the party leadership if the Upper House fails to dilute the tax hike legislation (though he isn't clear about what he actually wants). Hatoyama will probably stay put when the Upper House passes the hike into law, likely in August without any major changes. If he defects and brings Noda's government down, Hatoyama could lose in the subsequent election. (The opposition Liberal Democratic Party is preparing to run a popular Olympic speed skater against him.)

If Hatoyama remains in place, Noda is likely to weather the current political storm and work to delay any snap election until after he secures reelection as the DPJ president in September. Such an outcome would slow any move toward restructuring of Japan's party system, which will likely advance fastest if elections occur that shake up representation in the Diet. There are other scenarios that could result in early elections, including other defections from the DPJ or an opposition refusal to help approve legislation to issue bonds to fund the budget, but they are less likely.

As a result, the odds are increasing that an election (and any resulting political party realignment) will not occur until mid-fall or later -- perhaps even next summer. A later election would allow Noda more time to position the DPJ and canvass potential allies and prepare the way for mergers or the formation of a formal coalition with reform-minded elements of the LDP and other parties. But if Hatoyama is appeased or cowed and the tax hike row dies down, pressure for an election will wane and Japan's gridlock would likely persist.

Ironically then, any hope for more rapid reforms in Japan would be best served at this point by Hatoyama jumping ship after the Upper House passes the tax hike, likely forcing Noda to call an election and potentially setting a broader realignment process in motion. For Hatoyama, replacing Ozawa as Japan's "Destroyer" by helping to dissolve the DPJ could end up being his most lasting contribution to Japanese politics.

Scott Seaman is an analyst with Eurasia Group's Asia practice; Ross Schaap is the director of the Eurasia Group's Comparative Analytics practice.