Volatility in Japanese Politics Intensifies following fundraising Scandal

Ichiro Ozawa, leader of the opposition Democratic Party of Japan and projected to be the man most likely to become Japan’s next prime minister, has become dangerously entangled in an illegal political funds investigation. The resulting damage to the DPJ appears to be severe. It was believed to have had a strong chance to win the coming general elections, scheduled anytime before September 2009. The scandal has injected a new dimension to the already volatile political situation that has evolved in Japan since 1992, when the Liberal Democratic Party lost power for the first time.

Takanori Okubo, 47, secretary to Ozawa and chief accountant of his fund-raising organization Rikuzankai, was arrested on March 2, 2009 on suspicion of accepting illegal political donations from Nishimatsu Construction Co. for Rikuzankai. Though Okubo denied the allegations, he stands accused of violating the Political Funds Control Law, which prohibits companies from making donations except for political parties and their political funds management organizations. It also bans political donations in the name of others. Although investigations are on to determine whether Okubo deserves indictment, regrettably his arrest has further deepened people’s distrust of politics at a time when the nation is experiencing an economic crisis and people’s support for Prime Minister Taro Aso’s Cabinet has dropped to an extremely low level.

Okubo is suspected to have received 1 million yen in donations for Rikuzankai sometime in October 2006 from a political organization established by former Nishimatsu employees, although the money itself was from the construction company. He is supposed to have reported to the authorities that Rikuzankai received 2 million yen in donations between 2003 and 2006 from the Nishimatsu-related political organization and another similar Nishimatsu-related political organization, though the money was from Nishimatsu itself. It is believed that the two political organizations headed by Nishimatsu retirees – Shin-Seiji Kenkyu-kai and Mirai Sangyo Kenkyu-kai, both of which were disbanded in 2006, ostensibly made donations out of membership fees paid by Nishimatsu employees. In reality, the company added the membership fees to the bonuses for employees and the two bodies served as dummies to provide political donations to politicians. It is believed that the company decided on the destinations of donations.

The question that arises is: did Okubo know that the donations were from Nishimatsu? Ozawa defends Okubo by saying that his secretary was ignorant that the donations were from Nishimatsu and that Okubo perceived that the donations were from the two political organizations and he properly reported this as required by the Political Funds Control Law. Ozawa said that had Okubo known that the donations were from Nishimatsu, he would have made a DPJ branch receive them, which is legal. Though Ozawa claimed that Okubo did not ask the people or organizations making donations where their money came from out of courtesy, it is difficult for people to believe such a claim since the money involved was large and for an extended period of time.

The timing of Okubo’s arrest has raised some tricky questions. The arrest came the day before the Opposition-controlled Upper House voted down a bill to finance the second fiscal 2008 supplementary budget – which included the controversial 2 trillion cash handouts for all households – and the Lower House enacted it with the support of a two-third majority held by ruling forces.

It is reported that Nishimatsu created a slush fund of more than 2 billion yen and that the two Nishimatsu-related political organizations spent about 480 million yen to donate to, and buy fund-raising party tickets for, both ruling and opposition politicians. It is, therefore, necessary that the public prosecutors carry out the investigations in a fair and strict manner. For its part, the DPJ has to wake up to the possibility of Okubo’s indictment and employ every possible means, including a strict internal probe by Ozawa, to clear the suspicions. It is believed that Nishimatsu Construction Co. provided Ozawa’s office with about 25 million yen in donations a year since around 1995 for a total of about 300 million over more than 10 years. It is also reported that two ex-Nishimatsu officials who were arrested along with Okubo told investigators that the contractor made the donations to Ozawa’s office in an attempt to win contracts for public works projects in the Tohoku region, Ozawa’s political base and stronghold. Besides Okubo, former Nishimatsu President Mikio Kunisawa and former senior Nishimatsu official Akifumi Okazaki were also questioned. Kunisawa was arrested for allegedly organizing slush funds used for bribing Thai officials and for Japanese political donations. In this case, it is believed that Kunisawa took the leading role in deciding on the amount of donations and where they were made.

It is common knowledge that there are some companies known to be scandal-tainted and that they fund political parties through dubious channels to buy business favours. The two bodies in question headed by ex-officials of Nishimatsu were said to be dummy groups created by the firm to funnel donations to politicians, possibly in exchange for political favours. As noted earlier, under the law, a company can make donations only to political parties, not to individual politicians or their fund-raising organizations.

Politicians who have accepted donations from the two political organizations linked to the scandal-hit Nishimatsu Construction Co. are at a loss about how to return the money as both bodies have already disbanded. According to Internal Affairs and Communication Ministry, these politicians are legally allowed to return the money to Nishimatsu. However, this would mean admitting to receiving the donations from the general contractor, rather than the two organizations. Though the law prohibits individual politicians and their fund-raising organizations from accepting political donations from companies, there is no provision on how exactly political donations should be returned to their donors. They are commonly entered as refunds in the “miscellaneous expenses” section of their political fund reports. Since the two bodies were already disbanded at the end of 2006, politicians have no choice but to return the funds to Nishimatsu. However, the company is unlikely to accept the money. The money cannot be put into government coffers either as the law does not allow such a practice.

Ozawa defended Okubo, saying that his secretary dealt with the funds in accordance with law and expected his secretary to be exonerated. He blasted the criminal probe into his political donations as an “unfair exercise of investigative power, politically and legally”, in the run-up to the general election. In fact, illegal funding allegations against the Ozawa machine – and apparently against members of the governing LDP – appear to have arisen from a criminal investigation into Nishimatsu’s alleged bribery of Thai officials in 2003 to win a Bangkok city government contract.

Ozawa’s assertion that the probe is politically motivated drew angry responses from the ruling Liberal Democratic Party. LDP parliamentary affairs chief Tadamori Oshima said that “The investigation has the approval of the court. Ozawa’s remarks are extremely regrettable as they deny the rules of democracy.” Prime Minister Aso expressed concern that this might lead to public mistrust in politics.

Some elements of the DPJ are alleged to have been pressing for Ozawa’s resignation. But DPJ general secretary Yukio Hatoyama claimed that Ozawa had demonstrated his accountability and the absence of illegality. It may be remembered that Ozawa led the DPJ to the verge of power by unexpectedly winning control of the Upper House from the LDP in July 2007 and has been using that leverage to test the government and blocking its legislation at every opportunity. The DPJ now routinely outpolls the LDP as the preferred party to govern.

Despite Ozawa’s strong political posturing, his political fortune seems to be nose-diving. In an opinion poll conducted by Kyodo News after the fundraising scandal surfaced, more than 50 per cent of survey respondents said that Ozawa should step down. The Asahi Shimbun said 57 per cent of those surveyed in its weekend opinion poll called for Ozawa’s resignation, with 77 per cent calling Ozawa’s explanations about the incident unconvincing. The Yomiuri Shimbun said 53 per cent of the respondents in its weekend survey also preferred that Ozawa step down, with 81 per cent saying Ozawa’s explanations are unacceptable. Asked how they would vote if a general election were held now, only 36 per cent of the respondents to the Asahi poll said they would vote for DPJ candidates for lower house proportional representation seats, down from 42 per cent in a February 2009 poll. In the Yomiuri survey, only 35 per cent said Ozawa is appropriate to lead Japan, down from 40 per cent in the previous poll, and 26 per cent said they prefer Prime Minister Taro Aso, up from 24 per cent, while 38 per cent said they find neither appropriate for the duty. Ozawa has refused to resign.

Japan seems to be passing through a period of political turmoil. Despite the slight upswing in Aso’s popularity rating following the fund-raising scandal involving Okubo, the approval rating for Aso’s Cabinet is hovering at as low as 11 per cent. The ruling coalition politicians’ focus has shifted to whether Aso should stay in power, and the political confusion is contributing to the economic crisis. Manoeuvring within the LDP is intensifying. Some politicians in the party are trying to pressure Aso to step down, while others are urging him to reshuffle his flagging Cabinet in order to try and prolong its life. If Aso decides to carry on managing the government through simple inertia, it will only prolong what is widely regarded as the current political vacuum. The only way to cope with the political crisis is to dissolve the Lower House. Both the LDP-New Komeito coalition and the DPJ are engaged in mud-slinging tactics as the next Lower House elections draw nearer and there has not been much in the way of substantial policy debate. The administration has shown signs of self-destruction. There is confusion over Aso’s remarks on a possible review of postal privatization. The disgraceful behaviour of his former finance minister Shoichi Nakagawa, leading to his resignation triggered by his famously “groggy” news conference has further led to the erosion of public confidence in the Aso government.

If Aso succeeds in passing the bill to implement the 2 trillion yen cash handout program into law, dissent within the LDP clamouring for dissolution of the Lower House may be muted. Nevertheless, calls are intensifying within the LDP for the prime minister to be replaced sometime between the approval of the budget and the general election. Others are calling for a Cabinet reshuffle, allowing Aso to stay in power. Election of a fourth prime minister without a general election would obviously invite bitter criticism from the public. Aso has rejected the idea of dissolving the Lower House as he wants to focus on boosting the economy and improving the difficult employment situation. The fiscal 2009 budget is now expected to be enacted in late March 2009 and related bills to be passed sometime in late April. Political pundits speculate that Aso may dissolve the Lower House around May. With DPJ’s popularity trajectory moving downward following the fundraising scandal, Aso may demonstrate his political maturity and take political advantage of the situation by dissolving the Lower House and advance general elections, which are otherwise due only in September 2009. But given Aso’s style of politics that seems unlikely. One could probably see another India-Japan Prime Ministerial summit taking place around August 2009 before Aso goes for polls.