- "Ichiro Ozawa, former secretary-general of the Democratic Party of Japan (DPJ), last week declared that he would stand as a candidate in the party’s leadership election on 14 September. In the case of a victory for Ozawa, who is strongly backing full implementation of the party’s Lower House election manifesto, our rough estimates indicate that the fiscal deficit would increase by ¥3trn in FY11 and real GDP would be boosted by 0.3% compared with if Naoto Kan remained party leader and prime minister. With Ozawa also taking a more cautious stance than Kan on raising the consumption tax rate, it is only natural that the markets have become concerned that an Ozawa win would see fiscal discipline slip. However, given the very fluid political situation at present, including the possibility of political realignment, it is difficult to forecast just what impact the outcome of the leadership election will have on the direction of longer-term economic policy."
• DPJ adjusted thrust of economic policy with Upper House election manifesto: "It appears likely that the upcoming DPJ leadership election will be a two-horse race between Kan and Ozawa and the debate about economic and fiscal policy looks set to be characterized as a battle between the party’s manifestos for the Lower House and Upper House elections. Economic policy in the manifesto for the Lower House election in August last year was heavily influenced by Ozawa, while the Upper House election manifesto, created after Kan became prime minister, left some ambiguity but adjusted the thrust of economic policy in three main respects: (1) emphasis on simultaneous growth and fiscal rebuilding, (2) a greater focus on tax reform, with clear indications that corporation tax and the consumption tax would be reformed, and (3) cuts to childcare allowances and support for farmers’ incomes from the levels in the Lower House election manifesto."
• Differences on economic and fiscal policy: "We calculate that full implementation of the Lower House election manifesto would require an increase of ¥5.5trn in government spending in FY11. Kan’s stance is to control this spending by reviewing the commitments made in the manifesto. He is aiming to implement policy based on the assumption that budget request guidelines for the next fiscal year for roughly ¥24trn in government expenditure in the general account will be cut 10% across all ministries. He could use this savings of ¥2.4trn to increase spending in other areas. A victory for Ozawa, on the other hand, could see spending increase by ¥5.5trn to fulfill the commitments in the Lower House election manifesto, giving a difference of ¥3.1trn between the two candidates. We estimate that this would equate to a boost of roughly 0.3% to real GDP in FY11 and would see the fiscal deficit expand by the difference (¥3.1trn)."
• Direction of longer-term economic and fiscal policy is difficult to read: "Ozawa has also taken a more cautious stance than Kan on raising the consumption tax and it is only natural that the markets have become concerned that an Ozawa win would see fiscal discipline slip. However, given the very fluid political situation at present, including the possibility of political realignment, it is difficult to forecast just what impact the outcome of the DPJ leadership election will have on the direction of longerterm economic policy."
• Impact of outcome on financial markets: "We found no record of past comments by Ozawa on monetary policy. However, given that he appears to favor expansionary economic policy in the near term, from the perspective of fiscal discipline, we think that it could become difficult for the BOJ to implement aggressive measures such as increased purchases of long-term JGBs."
• DPJ adjusted thrust of economic policy with Upper House election manifesto: "It appears likely that the upcoming DPJ leadership election will be a two-horse race between Kan and Ozawa and the debate about economic and fiscal policy looks set to be characterized as a battle between the party’s manifestos for the Lower House and Upper House elections. Economic policy in the manifesto for the Lower House election in August last year was heavily influenced by Ozawa, while the Upper House election manifesto, created after Kan became prime minister, left some ambiguity but adjusted the thrust of economic policy in three main respects: (1) emphasis on simultaneous growth and fiscal rebuilding, (2) a greater focus on tax reform, with clear indications that corporation tax and the consumption tax would be reformed, and (3) cuts to childcare allowances and support for farmers’ incomes from the levels in the Lower House election manifesto."
• Differences on economic and fiscal policy: "We calculate that full implementation of the Lower House election manifesto would require an increase of ¥5.5trn in government spending in FY11. Kan’s stance is to control this spending by reviewing the commitments made in the manifesto. He is aiming to implement policy based on the assumption that budget request guidelines for the next fiscal year for roughly ¥24trn in government expenditure in the general account will be cut 10% across all ministries. He could use this savings of ¥2.4trn to increase spending in other areas. A victory for Ozawa, on the other hand, could see spending increase by ¥5.5trn to fulfill the commitments in the Lower House election manifesto, giving a difference of ¥3.1trn between the two candidates. We estimate that this would equate to a boost of roughly 0.3% to real GDP in FY11 and would see the fiscal deficit expand by the difference (¥3.1trn)."
• Direction of longer-term economic and fiscal policy is difficult to read: "Ozawa has also taken a more cautious stance than Kan on raising the consumption tax and it is only natural that the markets have become concerned that an Ozawa win would see fiscal discipline slip. However, given the very fluid political situation at present, including the possibility of political realignment, it is difficult to forecast just what impact the outcome of the DPJ leadership election will have on the direction of longerterm economic policy."
• Impact of outcome on financial markets: "We found no record of past comments by Ozawa on monetary policy. However, given that he appears to favor expansionary economic policy in the near term, from the perspective of fiscal discipline, we think that it could become difficult for the BOJ to implement aggressive measures such as increased purchases of long-term JGBs."
Nomura Japan Economic Overview 20100901
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