Many thanks to Greg Noble for bringing up the question of why the Noda government is pushing for a consumption tax increase, and for laying out the substantive and political situation so well. Right now may be a historic juncture in Japanese politics in several respects and I am curious about what others are thinking.

I have a couple of comments but first, Greg notes that I made much of a blunder by the DPJ that is complicating things (in the forum last week). Actually the blunder wasn't about the shouhizei per se, it was the foolish disclosure of a guess about what the proposed pension reform would cost--way off in 2075.
The LDP has been carping about a coverup of the report ever since, along with its other endless complaints about procedures, but somewhat to my surprise Noda seems able to ignore all the noise from both the LDP and Ozawa and just plod ahead with his plan for introducing the combined tax and pension system reform.

On the politics, I think Noda has a winning hand because it puts the LDP in a very difficult position.
The key is not to have an election, unless he is forced to either by having the bill come to a vote and be turned down (in either house), or by losing a regular non-confidence vote if Ozawa could actually carry it off--quite doubtful I think. In either case, Noda would fight the election against both the LDP and Ozawa, for their petty politics at a time of national crisis. I bet the DPJ would do pretty well, but I don't think it will come to that. Here is my sense of the situation.

The DPJ wants the LDP and Komeito to consult about the reform before submission, and the opposition says the DPJ should spell out the details, submit a bill, and then discuss it in the Diet. A stalemate, but the DPJ is moving toward submitting a vague outline of the policy. I think that forces the opposition, before too long, into closed-door negotiations, rather than just letting the vague bill pass and give up having a voice in the details. That means the LDP (and especially the
Komeito) will have to collaborate on the reform and then vote for it. Big victory for Noda. He then could call an election, as he said he would (after passage), or find a good excuse and let the election go until next summer.

On the substance: as pure policy, I am against hiking taxes in a recession, particularly a regressive tax. But the argument that Japan really does have to do something about the fiscal situation pretty soon does have merit, and the economic impact could be mitigated if coupled with a short-run stimulative fiscal policy based on the recovery plus a real push for inflation on the monetary side. Here I think that combining pension and tax policy into a package makes real sense, with the increase called a "fukushi mokutekizei," since people are genuinely worried about the future of social security.

Most important, the policy/politics interface: the widespread impression that for five years or the government has been inept and unable to do anything is really corrosive. The big issues on the table right now are taxes, pensions, and the TPP, and the DPJ government will be in much better shape if it can succeed on all three. And I say that even though I don't like the TPP either on pure policy grounds (and I'm dubious about the pension reform too).

Let me note finally a good piece I just saw that supports some of my political observations, I think.
It is by Kevin Placek, Melbourne U, in East Asia Forum:

http://www.eastasiaforum.org/2012/02/11/japan-s-liberal
-democratic-party-life-in-opposition/

No doubt somebody is going to point out some error or misunderstanding on my part, but anyway, please comment.

John Campbell