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Japan to keep slogging along: analysts

Prime Minister Junichiro Koizumi's reform program, which he sees as the key to Japan's economic revival, will proceed largely as promised after the ruling coalition retained power in the weekend general election, according to analysts.

"I want to nurture the bud of reform into a big tree," Koizumi told a nationally televised news conference yesterday, adding that he would retain his youthful and reform-oriented lower cabinet lineup.

In Sunday's election, the ruling three-party coalition was returned to power with a majority reduced by 12 to 275 seats in the 480-seat House of Representatives, the lower house of parliament.

Koizumi's Liberal Democratic Party (LDP) won 237 seats, down from the 247 it held before the poll, according to returns from each constituency compiled by Japanese media.

Three successful independent legislators announced they would be joining the LDP yesterday, taking the party's parliamentary strength to 240.

"Some worry about the possibility Koizumi may lose some power to control the LDP and may backtrack on reform as a result of the smaller number of seats the LDP holds in the lower house," said Akio Yoshino, head of research at SG Yamaichi Asset Management.

"I would say that is not going to happen," he said.

Takeshi Makita, senior economist at Japan Research Institute, agreed.

"The basic government policy will remain unchanged because the ruling coalition holds a stable majority," Makita said.

Koizumi is unlikely to drop his slogan -- "no gains without painful reforms" -- even though some voters have expressed frustration that their take-home pay has not improved or has even deteriorated during his term in the past two years, Makita said.

Consumer prices have been falling from year-earlier levels for four years in a row now, squeezing corporate profit margins and prompting lay-offs.

Japan's experience since the early 1990s has shown that billions of dollars of pump-priming spending on infrastructure is not reviving the economy while deep-rooted ills, such as commercial banks' huge burden of non-performing loans, are unresolved, economists said.

"Private companies, big or small, are beginning to help themselves by concentrating in profit-yielding fields without waiting until the government comes to their rescue," Makita said.

Koizumi has pledged to reform a public pension system that risks collapse in the face of a falling birthrate and ageing society unless premiums are raised and payout amounts are reduced drastically.

Koizumi's pet subject is privatizing the country's huge post office network which includes banking and insurance services, by April 2007.

His theory holds that the economy should receive a boost from opening up this and other government services, such as toll-road construction and maintenance, to private enterprise.

The wind may still be blowing in Koizumi's favor, despite the coalition's trimmed majority, analysts said.

The fact that the Democratic Party of Japan (DPJ) -- the largest opposition party -- gained many seats should actually help accelerate the reform in Japan, said Yoshino of SG Yamaichi.

The DPJ, which is also keen on reforms, grabbed 177 seats, up from 137.

"Even if some conservatives within the LDP oppose the reform policies of Koizumi, he can take advantage of the increased power of the DPJ to push ahead with his own reform agenda," Yoshino predicted.

Yukari Sato, senior economist JP Morgan, said the prospect of the LDP being judged again at the polls next summer would force it to deliver reforms.

"There will be heightened tension between the LDP and the DPJ, which would force the LDP to expedite its reform process before the upper house election next July," she said.
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