Japan Election Result Doesn't Change The Economic Malaise

  There can be nothing more daunting for a new government coming to power than to know that the cupboard is bare.The DPJ, led by 62-year-old Yukio Hatoyama , won at least 306 of 480 lower-house seats, according to media reports at the end of counting early today..Prime Minister Tari Aso & #160;indicated he would resign as head of the Liberal & #160;Democratic Party, which lost almost two-thirds of its lawmakers in a complete reversal of the 2005 poll.In the old Parliament, the LDP had 303 lower house or Diet seats, the DPJ, 112.For the new Government of Japan, the size of the task has been made much larger by the fact of the historic nature of the election result.The first decisive loss for the Liberal Democratic Party in 54 years (there was a brief loss for 10 months in 1993-94, but that was quickly 'corrected').This time the result is overwhelming, but essentially a poisoned chalice.Without the financial resources, or the flexibility in policy and leadership, the new Democratic Party of Japan (DPJ) Government is powerless and bound to stumble down the same do little route of the LDP.That's unless it breaks free of the tug of Japanese conservatism, and starts to move fast and decisively on changing & #160;business, social and foreign policies.But that won't happen given the state of the economy.Japan's long policy of exports first, business first, consumption and consumers second third and last, has been placed under enormous pressure by the credit crunch and recession.The key question to be answered is whether the new government has the ability and the policies to change that approach without weakening Japan's strength, while curbing its huge debt burden.In the end it is a question of imbalance & quot; huge foreign reserves of over & #36;US1 trillion and huge domestic debt of probably the same amount.Deflation, unemployment, lacklustre consumption are all part of the make up of the economic picture at the moment.Friday saw news that Japan's & #160;unemployment rate hit & #160;a record high of 5.7% in July, & #160;up from 5.4%.More than one million people lost their jobs over the & #160;year to July, lifting the unemployment total to 3.59 million.Rising job insecurity hit private spending and & #160;Japanese household spending fell 1.3% compared with June on a seasonally adjusted basis.Household spending was down 2% from July, 2008, & #160;reversing a 0.2% rise in June.Core consumer prices, excluding fresh food, fell 2.2% from a year ago, compared with a drop of 1.7% in June. The fall was the worst since records began in the early 1970s and was put down to the influence of lower energy prices.But that was exposed by the & #160;so-called & quot;core-core & quot; consumer prices, excluding food and energy, which fell & #160;0.9% from a year ago.That is bad news because many economists are confident that inflation will start rising towards the end of the year as the basis for the comparison in 2008 becomes more favourable when & #160;oil prices weakened.The Nikkei closed at 10,534.14 on Friday, having risen50% from the lows of & #160;early March, and finished just under a 10-month high of 10,668.74 hit on Wednesday.The dollar stood around 93.60 yen in late US trading on Friday night, our time, hovering near a one-month low of 93.20 yen hit on ThursdayThe downward pressure in the domestic economy on prices is not relenting. producer prices are off an annual 7% or more for some industries.Official figures near two weeks ago & #160;showed the world's second largest economy returned to positive growth for the first time in five quarters, limping out of recession, with quarter on quarter growth of 0.9% (3.7% annualised).But that was boosted by heavy government spending (and help from exports).Government help for the economy remains the only lifeline for many sectors and for consumers.China's recovery is helping, but at the margins at the moment.That makes for a tough couple of years for the new Government.But it does control both houses of the Japanese Parliament (The & #160;Upper House with the help of other parties).That could be its saving grace and the basis for some radical policies changes, over time, of course, it being Japan. & #160;  

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