Japanese leader dissolves parliament and calls elections

Japan’s upper house of Parliament voted down legislation to split up and sell the country’s postal service today, prompting Prime Minister Junichiro Koizumi to follow through on a threat to call snap elections that could shake the ruling party’s grip on power.

Defections from Koizumi’s own Liberal Democratic Party helped defeat the reform package by a 125-108 vote, dealing a painful setback to the prime minister’s longtime quest to privatise the postal savings and insurance businesses and open their massive deposits to private investors.

Koizumi called an emergency Cabinet meeting, and ministers – with one dissenting vote – decided to dissolve the lower house of Parliament, Foreign Minister Nobutaka Machimura said. The order was later read before the lower house at a specially called session, after which the disbanded MPs filed out of the chamber.

“The upper house decided that postal privatisation is not needed. So I would like to ask the general public whether it supports or opposes it. That’s why I dissolved Parliament,” Koizumi told a group of reporters after the dissolution was announced. “I will do my best to win the elections so that I can continue the reforms.”

Media reports said the LDP and its coalition partner, the Komeito Party, had agreed to hold the ballot on September 11. Campaigning for the chamber’s 480 seats was to begin August 30.

The dissent over the package revealed deep divisions within the LDP, which has held onto power almost uninterruptedly since its founding in 1955. Reform was expected to be a major issue in the campaign, and some speculated that it could split the LDP into separate camps.

The legislative package would have created the world’s largest private bank, but opposition was strong among opposition and LDP MPs who said the measure would cut postal services to rural areas and lead to lay-offs.

Proponents were disheartened by the vote.

“These were the bills that put us at the crossroads, whether Japan can create a small government or it is headed toward creating a big government,” said Economy Minister Heizo Takenaka, the main architect of the reform. “The rejection is a major blow to Japan’s future and its economy.”

The opposition Democratic Party, meanwhile, started gearing up for an election fight, submitting a no-confidence measure against Koizumi’s government. That move was cut short by the lower house’s dissolution, but the Democratic Party has made strong gains in elections last year’s upper house elections and in the previous lower house ballot in 2003.

“We’ve been steadily making efforts for this day,” Democratic Party leader Katsuya Okada told his party members. “Now we have finally came to this opportunity to change the government.”

Shizuka Kamei, a leading LDP opponent of the reforms, suggested he regretted the divisions that the legislation had created within the ruling party. Top MPs had tried to convince Koizumi over the weekend not to go ahead with his election threat.

“The results shows the conscience of the upper house,” Kamei said. “The prime minister should come to his senses. It will be bad for Japan if we do something like this over and over.”

Proponents of the reform said it was needed to put the postal saving system’s massive deposits into the hand of private investors and provide a strong jump-start to the economy, which is only now emerging from a decade-long slowdown.

Privatising Japan Post would create the world’s largest bank.

Opponents, including some in his own party, argue that privatisation would reduce postal services in rural areas and lead to lay-offs among the 400,000 postal system workers. They also say the new, giant bank would drive private financial institutions out of business.

Some opponents also said they were tired of Koizumi’s heavy-handed attitude.

“It is extremely abnormal to tell MPs to vote for the bills or Parliament will be dissolved,” said Tatsuo Kawabata, secretary-general of the opposition Democratic party.

The vote could change the face of Japanese politics if, as some predict, the LDP splits in nationwide elections with members opposing the bills forming a new party.

The showdown was stirring memories of an eight-month period between 1993 and 1994 – the only time in the past 50 years that a non-LDP bloc controlled the government after groups of MPs broke with the LDP in the wake of a power struggle.

Analysts say a nationwide election could give the Democratic Party, the largest opposition bloc, a shot at improving its standing because LDP members who voted against the bill in the lower house wouldn’t receive party endorsements.

Parliament’s more powerful lower house approved the privatisation bill last month by a razor-thin margin. The package would have privatised Japan Post by 2017 and divided into private companies handling mail delivery, banking and insurance.