Fight Over Budget, Opposition Balks at Financing, but Not US

The government submits a budget. Their majority in one house allows it to be passed there. The opposition is trying to obstruct it and it is raising concern about the world's largest public debt. This is not the US but Japan.

Earlier today the lower house of parliament approved the record JPY92.4 trillion budget for the new fiscal year that begins April 1. It does not need the upper house's approval.

However, where the upper house is needed is in the financing of the budget. The budget is predicated on JPY44.3 trillion of new bond issuance.

Prime Minister Kan is facing an uphill fight. Not only is the opposition obstructionist, but there is a faction within the DPJ that is in open rebellion, ultimately over the treatment of the party's former leader Ozawa. This faction is 16-strong and was initially and ostensibly formed around the opposition to Kan's efforts to boost the sales tax.

Kan popular support has waned and several surveys show it to the be lowest since he took office in the middle of last year (e.g. Asahi poll put him at 20%). Nearly half of those surveyed in the Asahi poll thought Kan ought to resign.

Some local observers are warning that Kan will resign or chose to dissolve the lower house for elections in May/June. It is difficult to know whether this is the threat of elections is a ploy that the DPJ is using to scare the dissidents into towing the party line.

In terms of credit ratings Moody's cut Japan's outlook on precisely this concern that the political paralysis will deter strong action on fiscal policy. Last month S&P cut Japan's rating on the high debt (~200% of GDP) and risk that the financing bill is not passed.