The finance minister’s surprise win came after an intense factional battle within the party, with Ichiro Ozawa, an influential former DPJ leader, throwing his weight behind industry minister Banri Kaieda for the top job. Mr. Ozawa and his supporters remain ardently anti-tax, while Mr. Noda is seen as more fiscally hawkish.

The election was seen as a chance for Mr. Ozawa, who has largely been excluded from the party’s decision-making process after his membership was suspended for his alleged involvement in a funding scandal—to regain some of his influence. Mr. Ozawa denies any wrongdoing in the scandal.

“I want to transcend the politics of grudge-holding,” Mr. Noda told DPJ lawmakers on Monday after his defeat of Mr. Kaieda by 215 to 177 votes.

On Tuesday, Mr. Noda appeared to offer an olive branch by selecting Azuma Koshiishi—an upper house lawmaker close to Mr. Ozawa—as secretary-general of the DPJ, according to local media. The job would make Mr. Koshiishi the top party official after the prime minister.

Akihiro Nojiri

Toru Tatsumi

Douglas Foote

Japan has one of the most stable political systems in the world….sort of.  It has a functioning, albeit lively, democratic system.  The government has legitimacy among the people and its processes are open and transparent.  Still….

Japan is about to have the sixth prime minister in six years.  That is impressive.  The current prime minister has clearly faced challenges.  In addition to the usual economic issues that confront politicians today, he’s got a parliament whose house are split between two parties and all the political turmoil such a situation presents.  But few politicians have to deal the level of disaster like the earthquake/tsunami that hit Japan this year.  He deserves our sympathy.

In anticipation of the vote on Monday for a new head of the Democratic Party of Japan (DPJ), I consulted with my colleagues in Fleishman Hillard’s Tokyo office.  They are Akihiro Nojiri, Toru Tatsumi and Douglas Foote.  The following is their collected wisdom in answer to a few questions I posed to them.

Q: Why will Kan resign?

A: Kan has been unable to successfully manage the divided power balance of the lower and upper Houses of the Diet.  For a variety of reasons, including his lack of leadership throughout post disaster relief efforts, he has lost trust and support within the ruling DPJ party.

Q: Who are the candidates to replace him?  Who’s the frontrunner?

A: While seven candidates are currently contemplating running for the DPJ party leadership, former Minister for Foreign Affairs, Seiji Maehara is currently the most likely candidate.

Q: What are the policy issues at center of leadership debate?

A:

• Fiscal policy, including tax reform
• Ability to establish bi-partisan / multi-partisan cooperation with the opposition parties and alleviate the division between both Houses of the Diet
• Energy policy – particularly with a focus on nuclear energy and alternative energy sources
• National growth strategy – encompassing initiatives such as the Trans-Pacific Partnership

Q: What does it mean for companies and organizations seeking to influence government policy?

A: Regardless of who becomes PM, the issue of a division between the two Houses of the Diet remains. The opposition party’s influence will as such play a key role in policy developments.  In anticipation of a potential snap election following selection of a new PM both the ruling and opposition parties are becoming increasingly sensitive to public opinion. In order for companies and organizations to effectively influence government policy they will need to ensure they align with a social pretext that resonates with the political targets. In short, public opinion and the role of the media will play a more prominent role over the coming months.

If Mr. Maehara, who has a high public approval rating, is elected DPJ party leader and thus PM the political mood is likely to shift into preparation for a potential snap national election.  Under these circumstances all non-essential or non-populist policy issues will likely cease being debated amidst the ensuing political positioning.

Late Update:

Report in from Akihiro Nojiri:

1:45 pm EDT

It has just been reported that Ichiro Owaza, who leads the biggest group within DPJ, announced his support for Banri Kaieda, Minister for Economy, Trade and Industry, for DPJ Presidency.

This decision has made the election a very close race between Maehara and Kaieda. The political games will get more and more heated over the weekend. The election will be held next Monday.

Okinowa

The seemingly harsh stance taken by the Obama administration on Japan in contrast to its lighter touch engagement policies toward some rogue states, in my view, are in fact proof of the mature trust that our two countries have built since WW II.  Friends who trust each other are more able to talk in a straight forward manner without fear of seriously harming the fundamental relationship.  Obama adopts engagement policies for Iran or DPRK because there is no mutual trust to start with.  The risk for US with hard talks against the Hatoyama administration on the Okinawa base issue is not in breaking the fundamental bilateral alliance, but more in destabilizing the newly born two party democracy.  The Washington Post editorial and your blog correctly point this out.  In the long term, any ruling party in Japan would not be able to completely deny the Japan-US Security Treaty, because the only way to become completely militarily independent in Japan’s geographical position is to go nuclear.  Sound citizens and policy makers in Japan and US all know that this option is unrealistic.  There is the underlying trust and understanding on both sides of the Pacific that, unlike Iran or DPRK, Japan would not go that far.  On the other hand, destabilization of DPJ which may lead to a fractured coalition or a complete reshuffling of political parties in the short term and a possible return to a rigid one party system in the long term would create a dysfunctional political system in Japan.

Monetary Policy

I am sure you are well aware of why some Japanese policy makers support a weaker yen while a stronger dollar is preferred in the US.  This is not a matter of political culture or difference in communications strategy.  Japan prefers cheap yen, at least in the short term, because it is an export-led economy.  Not so for the US.  The US is a big importer and in order to fund its aggressive consumption, needs countries like Japan to invest in US, which helps to maintain the price of US financial assets.  A weakening dollar means that any profit from investing in US may be offset by currency risks.  Thus the US needs the dollar to be stable, and fundamentally strong.  Another reason for US needing a strong dollar is to maintain its position as the world’s key currency.  If the dollar loses this position to currencies such as the euro, it is a fundamental loss of US hegemony over the global economy.  Japan has no such worries because its ambition for the yen to become a key currency at least in Asia is a long-lost dream.  So in conclusion, it is not strange that politicians from US and Japan speak differently about the currency.

Of course, that’s bad news.  The worse news is things are going to get worse when the demographic time bomb hits.  It’s projected that, by year 2040, 40% of the Japanese population will be over 65. 

Yikes.

In Japan, it appears to work differently.  The newly appointed finance minister is actively talking his currency down, even given specific levels that he is targeting.   The risk of this candor was noted in a New York Times article:

Some analysts say Mr. Kan may be less tolerant of a strong yen, though others questioned how the markets would interpret his comments.

The dollar has jumped by half a yen since his remarks.  Since I will be converting dollars to yen next week, I hope he keeps talking.

But the “Obama effect” remains powerful.  According to a story in Asahi.com, an English language Japanese news site:

The DPJ’s election campaign featured footage of U.S. President Barack Obama’s call for change during his presidential run. Even as Typhoon No. 11 approached eastern Japan on Sunday night, voters turned out in droves to show they were ready for a drastic change to help the slumping economy get back on the road to recovery.

At a time when there is grumbling in the U.S. as to whether Obama is bringing about sufficient change, his “brand” continues to drive politics throughout the world.