(Bloomberg) -- Japan’s potential kingmaker Yuichiro Tamaki faces a hazardous path as he looks to remain a power broker well beyond Monday’s vote to decide the fate of Prime Minister Shigeru Ishiba.
By quadrupling its support in the lower house election two weeks ago, Tamaki’s Democratic Party for the People has transformed itself from a political grouping on the fringes of parliament to the main prop ensuring Ishiba can win re-election and proceed with policy.
The need to rely on opposition help already puts Ishiba’s minority government on a rocky footing. The victory of Donald Trump in the US presidential election is set to further complicate the outlook.
Tamaki’s much improved performance in the latest Japanese elections was largely achieved by focusing on his pet-policy of raising the basic tax-free income allowance, a proposal that resonated with younger voters and people on lower pay struggling to deal with rising costs of living.
To remain in the spotlight and elevate his party’s prospects of becoming a major political force, Tamaki will need to play a wily game of helping the minority government function without losing his own leverage, a typical risk for smaller parties engineering power-sharing deals.
He’ll also want to avoid getting tarnished by association with an unpopular ruling coalition ahead of another national election next year.
“He’ll keep negotiating till the very last minute to get his economic policies through because he knows that once he’s played his compromise card, the game will be over,” said Hideo Kumano, an economist at Dai-Ichi Life Research Institute. “Ishiba will be considering the timing of a counterattack and how he can turn around the situation and gain momentum for the next election. He won’t be a pushover.”
The DPP has only 28 seats in the lower house of parliament, but that’s enough to prevent the ruling coalition or other opposition parties from securing a majority of 233. In the case of a runoff, Ishiba is likely to win as he only needs the most votes in the second round.
Tamaki is already showing a strategic approach designed to maximize his sway while maintaining distance from Ishiba’s Liberal Democratic Party. The DPP leader has repeatedly said he won’t join the ruling coalition, a decision that limits the need to toe the LDP’s line. That will leave Ishiba needing to discuss matters policy by policy, enabling the small party to maintain a bargaining position.
Tamaki has also said he will write his own name in the first round of votes and any runoff that follows. If the DPP spoils the likely runoff ballot in that manner, Tamaki will likely ensure the LDP leader stays on, given that Yoshihiko Noda, leader of the main opposition Constitutional Democratic Party, doesn’t have the numbers to surpass Ishiba without DPP backing.
During his campaign for the Oct. 27 election, Tamaki’s top priority was to raise the ceiling of tax-free incomes from ¥1.03 million ($6,700) to ¥1.78 million, a move that would benefit students and other part-time workers, but potentially all other working taxpayers as well. The government estimates the proposal would cost up to ¥8 trillion, a figure Tamaki says is overestimated and would largely be offset by higher spending.
“The most important thing for the government to do now is not to boost the national coffers, but to boost what’s in people’s wallets,” Tamaki said in an interview with Bloomberg on Nov. 1. “If people’s take-home pay increases, consumption will grow and the economy will be revitalized.”
Tamaki’s policies found a sweet spot among voters who were disgruntled over the scandal-ridden LDP but frustrated with the CDP’s relentless focus on attacking the LDP rather than presenting ideas, according to Yoshihiro Katayama, who served as internal affairs minister from 2010 to 2011.
“Until now, the big established political parties have tended to focus on policies for the elderly,” said Katayama. “There’s been no opportunity for young people to speak out, so I think it’s good their voices have been heard.”
Katayama was minister during the three-year administration of the Democratic Party of Japan, the party that split into the DPP and CDP.
Still, it seems unlikely the LDP will fully accept a proposal that risks the loss of around 10% of total tax revenue at a time when it needs to find more funding for ramped-up defense spending and faces fresh fiscal risks with the new US administration.
Trump may put additional pressure on Japan’s finances if his administration demands more money to help pay the costs of stationing US troops in Japan. His tariff proposals could undermine exporter profits and by extension corporate tax receipts.
On Friday, Tamaki acknowledged there could be impact from Trump’s pledged economic policies, which include raising tariffs and cutting taxes.
“The US economy is likely to overheat, boosting inflation, so US interest rates will be raised to curb this and the yen will likely weaken,” Tamaki said. Still, the Bank of Japan should not change its policy until it sees the results of wage negations for smaller firms next spring, he said.
Tamaki, 55, was first elected to parliament in 2009 as a DPJ member after an elite trajectory that saw him pass through the University of Tokyo, the Finance Ministry and Harvard Kennedy School. Tamaki, who represents his home rural prefecture, Kagawa, runs, cycles and lifts weights to balance his appetite for noodles. He plays piano and guitar to satisfy his creative muse.
“He was a funny young man who would crack jokes and make everyone laugh, even when everyone was exhausted by year-end budget work,” said Tsuguhiko Hoshino, former head of Japan’s Tax Agency who supervised Tamaki at the Finance Ministry.
On the wall in his office is a framed replica of calligraphy by Masayoshi Ohira, an LDP heavyweight from his home prefecture who was prime minister from 1978 to 1980. Its six characters mean: When you keep calm, heaven and earth will open up.
“When we founded the Democratic Party for the People four years ago, the media made fun of us and flagged the possibility of our disappearance after every election,” he said last month. “We’ve struggled and struggled, but we didn’t give in.”
--With assistance from Alastair Gale and Yuko Takeo.
(Updates with additional comments from Tamaki.)
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