Aug. 31 (Bloomberg) -- The Democratic Party of Japan swept to power for the first time as the nation’s voters turned their backs on half a century of single-party government that failed to reverse economic stagnation and spiraling welfare costs.
The DPJ, led by 62-year-old Yukio Hatoyama, captured a record 308 of the 480 seats in the lower house of parliament. Prime Minister Taro Aso indicated he would resign as head of the Liberal Democratic Party, which lost almost two-thirds of its lawmakers in a complete reversal of the last election in 2005.
“This is a bloodless revolution, the first transfer of power from one party to another in postwar Japan,” said Tomoaki Iwai, a political science professor at Nihon University in Tokyo. “The DPJ now faces the tough task of delivering on its promises and showing the Japanese public it can change the system.”
Hatoyama, who quit the LDP in 1993, has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and curtailing the power of bureaucrats. His grandfather founded the LDP in 1955 and became the first of that party’s 22 prime ministers.
“This election has been all about changing the government,” Hatoyama said in a nationally televised press conference. “Everything starts now.”
The Democrats had 112 seats before the lower house was dissolved last month. The LDP, which has governed for all but 10 months since its founding, saw its parliamentary strength fall to 119 seats from 303. Aso, 68, said his party “must start afresh” in choosing a new leader.
White House Statement
U.S. President Barack Obama “looks forward to working closely with the new Japanese prime minister on a broad range of global, regional and bilateral issues,” White House Press Secretary Robert Gibbs said in an e-mailed statement.
DPJ leaders including Hatoyama have called for a less subordinate relationship with the U.S., which keeps about 50,000 troops in Japan as part of a security alliance that has served as the focus of Japanese foreign policy since World War II.
“We are confident that the strong U.S.-Japan alliance and the close partnership between our two countries will continue to flourish,” Gibbs said in his statement.
Hatoyama’s incoming government must address record unemployment and measures to prepare for an aging, declining population. Japan has the world’s highest proportion of people over 65 years old and the lowest ratio of those under 15. Welfare outlays already make up a quarter of this year’s 88.5 trillion-yen ($945 billion) budget.
‘Sense of Frustration’
“There’s a sense of frustration and we need to change something to improve society and the economy,” said Toshiaki Kato, 42, a Tokyo company employee who voted for the DPJ. “The DPJ is the only political party that can replace the LDP.”
Japan’s economy grew an annualized 3.7 percent in the three months ended June 30, the first growth in five quarters, after an 11.7 percent decline in the first quarter of the year.
Japanese stocks and bond yields may rise on prospects the DPJ will increase spending to boost growth. Ten-year government bond yields will probably rise to 1.7 percent from 1.31 percent by year-end, while the Nikkei 225 Stock Average will advance about 14 percent to as high as 12,000, said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo.
“It’s a landslide victory for the DPJ and the equity market will remain excited for a couple of days or even a couple of weeks,” said Sakurai, who helps manage about 800 billion yen in assets.
Yen May Benefit
The yen may also benefit from the DPJ’s pledge to give the Bank of Japan more autonomy, increasing the scope for it to raise interest rates. JPMorgan Chase & Co. overnight interest- rate swaps signal a 19 percent chance borrowing costs, currently close to zero, will be lifted by the end of July.
Japan’s currency rose today, driving down stocks on concern exporters like Honda Motor Co. will get hurt. The yen gained to 92.77 per dollar from 93.60 on Aug. 28 in New York. The Nikkei fell 0.4 percent to 10,497.19 as of the 11 a.m. break.
To finance an economic aid package that would total 16.8 trillion yen in 2013, the DPJ says it will eliminate 9.1 trillion yen in unnecessary spending, tap special accounts managed by the nation’s bureaucrats and abolish some tax deductions.
“We would like the DPJ to carry out discussions that transcend party lines and produce concrete results,” Fujio Mitarai, chairman of the Keidanren, the country’s biggest business lobby, said in an e-mailed statement. “It’s vital that a way out of the economic turmoil is found.”
LDP Heavyweights Fall
LDP heavyweights fell with their party. Former Prime Minister Toshiki Kaifu, 78, lost his seat, as did former Finance Ministers Shoichi Nakagawa and Koji Omi. Kaifu, who was first elected in 1960, would be the first former premier to lose his district since 1963.
“It’s about time for change,” said Yuichi Tauchi, 25, a project manager at a truck manufacturer in Tokyo after voting for the DPJ. “People have been losing faith in the LDP, and a change in politics will hopefully bring about optimism.”
Hatoyama is a scion of Japan’s most prominent political family. In addition to grandfather Ichiro, a great-grandfather was speaker of the lower house and Hatoyama’s father was foreign minister. His younger brother, Kunio, is a senior member of the LDP, and was re-elected yesterday.
Of the 308 DPJ legislators elected yesterday, 268 are male and 40 are female.
NHK estimated voter turnout at 69 percent of Japan’s 104 million voters, which would exceed the 67.5 percent that cast ballots in the last lower house election.
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