It's all because of luck? [ trya123 ] 于:2005-09-12 14:45:44
My apologies for not using Chinese here. As always, kudos to 冰冷雨天's insights!

However, with all the respect, I just have a little doubt: Is Koizumi's victory nothing but good luck?

Luck plays a big role in any success. But you have to give this guy some credit. Maybe it's because he did a good job in the election campaign?

Well, it's more important to see what may lie ahead in the wake of the recent election. I'm attaching a report I just read for your reading.

Japan: Stunning Beyond Belief - Victory to Speed Reform

Robert Alan Feldman (Tokyo)




Stunning Victory

All three conditions for successful passage of the postal bills in the Upper House were fulfilled by the election results. The scale of the LDP victory was large. The survival rate of the anti-reform candidates was low. And voter turnout rose significantly.

The LDP alone received 296 seats, far above the 212 held at dissolution. Their coalition partner, the Komeito, managed to retain 31 of 34 seats. Meanwhile, the big loser was the Democratic Party of Japan (DPJ), whose Diet strength collapsed from 175 at dissolution to 113. The new micro-parties showed mixed results. Of the 35 hotly contested districts, the anti-reformers won 15. The LDP candidates took 15 seats too, while the DPJ took only 5. In addition, the estimated voter turnout ratio rose to 67%, a rise of 7%-ppts from the November 2003 election.

Policy Content

With such a stunning result, passage of the postal reform bills is virtually assured. The no-voters in the Upper House will have a difficult time justifying a no vote after such an outcome. In addition, any no-votes would be doomed to futility:  Even if the bills were rejected in the Upper House, the 2/3+ majority of the LDP/Komeito coalition suffices to override an Upper House defeat.

The next question is the post-Postal Reform agenda. The LDP’s manifesto is the latest statement of priorities. Given the combinations of urgency and public focus on each issue, the most likely agenda items are medical reform, civil service reform, public sector outsourcing, and government financial institution reform. (For details, see Japan: After the Election, Global Economic Forum, Morgan Stanley, September 8, 2005).

The Speed of Reform

A common refrain among political pundits is that PM Koizumi will be a lame duck after postal bills have passed. I believe the opposite. The victory will not only put wind in the sails of PM Koizumi’s own reforms but also ensure that his successors pick up where he leaves off.

The argument for acceleration is simple. The voters have rewarded reform and audacity. Hearing this signal, most LDP members will be eager to nail their own political flags to this post. Moreover, they know that their chances for promotion inside the LDP ranks depend on fidelity to this cause.

The argument for continuity is harder. Part of PM Koizumi’s extraordinary success has been his personal appeal. Since there are few other politicians like him, it is reasonable to question the sustainability of reforms. However, for politicians, the most important thing in life is to win elections. PM Koizumi has done that by focusing on policy and on communication with the public. Since people have rewarded this approach at the ballot box, other politicians are likely to follow.

This observation has important implications for the LDP succession. The next LDP leader must have a combination of skills that are similar to those of PM Koizumi. In my view, there are few candidates with such attributes in the “mezzanine” group -- those already in their 60s and hoping to be PM. The election results raise the likelihood that the LDP will skip a generation, and select a leader in his/her 50s.

Democracy without Opposition?

A key worry for at least a few months will be the lack of effective opposition to the LDP in the Diet. Indeed, even PM Koizumi had hopes that the DPJ would be a constructive opposition, helping to hone reform ideas and to contain the anti-reformers in his own party. The prime reason for the miserable showing of the DPJ in this election was its inability drop the old Socialist Party tactic of obstruction. After such horrible losses, it will take much soul searching and effort to redefine the party. During this time, there will be no effective opposition from the DPJ.

Nor will the micro-parties provide effective opposition. None is large enough to constitute a real threat to the LDP. Moreover, the micro parties are so different in philosophy that coalitions are nearly impossible.

The lack of effective opposition poses two risks for the LDP. One is that the LDP could revert to infighting. This is exactly what happened after the huge victory in 1986, when PM Nakasone won 300 seats. However, the likelihood of infighting is much lower today, because some key elements of the LDP have changed. In particular, the faction structure of the party has been eroded by centralization of campaign finance. Moreover, local organizations are much weaker than before. It is harder for factions to fall into infighting and to survive.



The other risk is complacency. With such a large majority, the LDP may not feel the need to listen to voters so closely. If this is the case, then policy could revert to the bureaucratic-led model of the past. Again, I doubt that this risk is high. Having just listened to the voters and done very well, the LDP is not likely to forget the lesson soon.

Market Implications

The old adage to “buy on the rumor and sell on the news” does not apply when the news is so much better than the rumor. The actual result of 327 is far better than anyone imagined, even remotely. My own forecast of 264 seats for the LDP/Komeito coalition was fully 63 seats too low. Even the most optimistic scenario that I had imagined, 291 seats, was still 36 too low. The most optimistic polls showed “about 300.”

The equity market was already anticipating a good outcome for Koizumi, but the actual result was much better. In light of the results, and their implications for accelerated structural reform, a further rise of the equity market would be wholly reasonable.

For the bond market, the implications are more complex. On one hand, an accelerated, intensified reform program means earlier and larger cuts of the fiscal deficit. This trend is likely to support the bond market. On the other hand, the same reform policies will lead to an earlier and more vigorous rebound of the economy, which will add to funds demand. If tax revenue were highly buoyant, then the reduction of deficits would exceed the demand-led increase of funds demand by the private sector, and bond yields would be stable. However, tax revenue in recent years has not been so buoyant. Thus, a net increase of funds demand from the private sector is likely, and bond yields will feel upward pressure. My view is that a latter influence will dominate, and bring a faster normalization of bond yields. The likelihood of a fiscal explosion, however, is lower.

For the forex market, there are similar complexities. On one hand, foreign investors will likely see the Koizumi victory as confirming their view that Japan has changed. Hence, further inflows to both equity and bond markets are likely. This is particularly true in light of the poor prospects for fiscal deficit reduction and structural reform in both the US and Europe. Thus, foreigner investors will put more upward pressure on the yen. On the other hand, Japanese investors will feel more confident about their own future, and become less risk averse. Hence, increased outflows to foreign assets are likely. This is particularly true in light of the vast improvement of balance sheets in both the corporate and financial sectors. Thus, domestic investors will put more downward pressure on the yen. There is no decisive evidence on which influence will dominate.