The DPJ Should Deal Firmly with the Rebels in Its Ranks

Shiraishi Takashi [Profile]

[2012.07.19] Read in: 日本語 | 简体字 | 繁體字 | FRANÇAIS | ESPAÑOL |

Consumption Tax Hike Causes the Ruling Party to Split

On June 26 the government’s bill to hike the consumption tax was passed by the House of Representatives, along with seven pieces of related legislation. Even though the Democratic Party of Japan and its partners in the ruling coalition enjoyed a comfortable majority (292 out of 479) in the lower house, it took months to secure passage of this measure, raising the present rate of 5% to 8% in April 2014 and 10% in October 2015. (The bills are now subject to consideration by the House of Councillors, the upper house of the National Diet, which is expected to approve them.) A major factor behind the delay was the strong resistance to the hike from many legislators within the DPJ, including former Prime Minister Hatoyama Yukio and former party head Ozawa Ichirō. When the June 26 vote was taken, 57 DPJ members cast negative ballots, and another 16 abstained or absented themselves.

On July 2 a senior member of the Ozawa camp went to DPJ headquarters and delivered resignation papers for Ozawa and 37 other lower house members who voted against the government bill and for 12 members of the upper house. At a meeting of the DPJ’s senior officers, including Prime Minister Noda Yoshihiko, it was confirmed that the party would not ask Ozawa and the others to reconsider; it is expected that they will be ousted from the party.

The media has been full of comments about the damage to the Noda administration’s foundations from the loss of Ozawa and his followers. That is certainly a consideration. But given the terrible state of Japan’s public finances, further delay in enacting a consumption tax hike for the sake of harmony within the DPJ was not a realistic option.

Up to now the DPJ has been split on a number of crucial issues, including participation in the Trans-Pacific Strategic Economic Partnership (TPP) negotiations, the consumption tax hike, and the reactivation of idled reactors at nuclear power plants. The discord has posed a major obstacle to the process of making policy and governing the nation. Underlying the division is a fundamental difference of thinking between those who focus on the enhancement of productivity as the basic principle for policymaking, including Noda and his allies, and those whose focus is on redistribution of income, including Ozawa, Hatoyama, and their followers. If the departure of the Ozawa group makes it easier for the productivity-oriented camp to make and implement policy decisions, it will be a highly welcome development. I hope that the administration and DPJ leadership will now work with the Liberal Democratic Party and New Kōmeitō (the two main opposition parties) to tackle the other urgent issues requiring policy decisions, including participation in the TPP, redistricting of the lower house (to correct the major disparities in the value of votes), drafting of a supplementary budget for this year, setting of guidelines for next year’s budget, and sweeping reform of the social security system.

Another point of concern is how the DPJ will discipline the 17 lower house members who voted against the consumption tax hike but have not quit the party, including Hatoyama and former agriculture minister Yamada Masahiko. A report in the Yomiuri Shimbun on July 3 suggested that those who submitted resignation papers would be expelled, while those who voted against the hike but did not submit resignations would have their memberships suspended, and those who abstained or absented themselves from the vote would receive even lighter disciplinary measures. But Noda has repeatedly stated that he is “staking his political life” on the passage of this hike. Voting against it or abstaining from the vote is tantamount to a vote of no confidence in the prime minister. If the DPJ decides to let off the members who did so with a mere slap on the wrist, it will be calling its very survival into question.

Nomura Securities Betrays Investor Trust

On June 29 Nomura Holdings Inc. released the report of an investigation into three cases of insider trading at its subsidiary Nomura Securities Co. The investigatory panel, which was made up of outside attorneys, reported that Nomura Securities’ Institutional Equity Sales Department I had leaked inside information gleaned from the company’s Syndicate Department. The panel’s report noted that parts of this sales department seemed to have a work environment in which employees were ready to do anything to meet targets, and one panel member declared, “The department as a whole was involved.” And Nomura Holdings CEO Watanabe Ken’ichi acknowledged that the firewall that was supposed to block the flow of information between the institutional sales and investment banking departments had in part failed to function properly.

Nomura Securities has announced the establishment of a new Equity Administration Department to oversee sales to institutional investors, along with a rule requiring use of mobile phones that record conversations and the strengthening of its employee training program. Parent organization Nomura Holdings, meanwhile, announced a 50% cut in the CEO’s compensation for half a year and a five-day suspension of operations at the institutional sales department.

Everybody knows that Japan’s stock market has been in the doldrums for a long time. This is probably one reason some brokerages have been gathering signatures to petition for a further extension of the withholding tax discount on income from securities (dividends and capital gains earned from investments in listed stocks are currently subject to withholding of only 10%, half the ordinary rate).  Unfortunately the violations that came to light at Nomura are not the exception; similar cases have occurred frequently at other securities companies too. The stock market cannot flourish without the trust of domestic and international investors. The repeated occurrence of activities violating investors’ trust in the pursuit of short-term performance gains indicates the existence of serious problems in securities companies’ governance. And if Nomura thinks that the CEO’s pay cut and five-day suspension of sales operations are sufficient “expiation” for the misdeeds, then the problem is grave indeed.

Reactivation of the Ōi Nuclear Power Plant

On July 1 the Kansai Electric Power Company reactivated one of the reactors at its Ōi Nuclear Power Plant in Fukui Prefecture. It was the first time since the March 2011 nuclear plant disaster in Fukushima for a reactor at a Japanese nuclear plant to be put back into operation after completion of a regularly scheduled inspection. According to KEPCO, the resumption of the supply of electricity from the Ōi plant will allow it to reduce this summer’s power-saving target from 15% to 10%. This is certainly good news.

I hope people will remember the vehement opposition to this move on safety grounds from the governors of Kyoto, Shiga, and Osaka prefectures and Osaka Mayor Hashimoto Tōru. Depending on the severity of this summer’s heat, it may still be necessary to implement planned blackouts, but the chances of this being required will be far lower thanks to the resumption of generation at the Ōi plant. Even with advance notice, power outages have a serious impact on business operations and ordinary people’s lives. Obviously it is better if the chances of such disruption are reduced.

Power outages of course mean no air conditioning. This is bound to increase the number of cases of heat stroke. Home refrigerators go off, making it hard to preserve fresh foods safely; this is liable to lead to more cases of food poisoning. Restaurants that cannot use refrigerators or freezers are unable to prepare food in advance. Some businesses may even go bankrupt. I wonder just how seriously Mayor Hashimoto and the three prefectural governors considered these very concrete risks. If their opposition was based on nothing more than the vague unease of local residents concerning the safety of nuclear power plants, then it seems fair to criticize them for pandering.

(Originally written in Japanese on July 3, 2012.)

  • [2012.07.19]

Received his PhD in history from Cornell University. Is now president of the National Graduate Institute for Policy Studies and president of the Institute of Developing Economies, Japan External Trade Organization. He was an executive member of the Cabinet Office's Council for Science and Technology Policy from January 2009 to January 2013. His works include Teikoku to sono genkai (Empire and Its Limits) and Beyond Japan: The Dynamics of East Asian Regionalism (coeditor). Former editor in chief and currently senior editor of

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