Japan Funding Scandal, Economy Weigh Down Hatoyama

TOKYO -- Japanese Prime Minister Yukio Hatoyama unveiled a $1.015 trillion budget Friday that he hopes will shore up his three-month-old government's popularity as a political-donations scandal concerning two former aides threatens to drag it down.

Tokyo prosecutors indicted the prime minister's former secretary on Thursday on the charge of falsifying Mr. Hatoyama's funding reports beginning in 2000. The aide, Keiji Katsuba, couldn't be reached for comment.

Mr. Hatoyama has denied knowledge of the aide's alleged actions. He apologized and said he intends to stay in office.

"It would be wrong for me to resign now, as that would mean abandoning my responsibility to meet peoples' expectations of me to make new policy," he said Thursday. "I should respect it if calls for resignation rise to an overwhelming extent. But I will do my best not to let that happen by explaining fully."

Prosecutors in Tokyo accused Mr. Katsuba of padding income and listing dead people as donors on political-funding reports.

Mr. Hatoyama's lawyers said Mr. Katsuba did falsify the reports, doing so because he didn't want Mr. Hatoyama -- who was a senior official in the Democratic Party of Japan at the time -- to look like an unpopular politician who couldn't raise money from a broad number of people.

According to the prime minister's lawyers, Mr. Hatoyama's mother donated 15 million yen ($164,000) a month, from summer 2002 until June 2009, which was registered as coming from people who didn't exist. Mr. Hatoyama's mother was unaware of how the donations were being booked, the lawyers said. Mr. Hatoyama said he would pay any unpaid donation taxes, which could total 600 million yen.

A second former aide, Daisuke Haga, was accused of negligence Thursday for not noticing discrepancies in the funding reports, and ordered by a Tokyo court to pay a 300,000-yen fine. Mr. Haga couldn't be reached for comment.

Some political analysts say the episode adds to pressures on Mr. Hatoyama that include a weakened economy.

"The scandal in itself is not so serious, but it... tarnishes his reputation further and diminishes his power to be an effective prime minister," said Seiji Adachi, senior economist with Deutsche Bank. Mr. Adachi said he sees the potential for Mr. Hatoyama to resign next year if his public support doesn't improve.

Newspaper polls show the Hatoyama government's approval rating has fallen below 50%, from levels above 70% when it first took office in September.

The indictments are particularly painful for Mr. Hatoyama because they run contrary to his image as a reformer, political analysts say. The DPJ's predecessor in Tokyo, the Liberal Democratic Party, was tarred by a series of scandals in recent years that eroded its public support.

That means Mr. Hatoyama faces increased pressure to carry out his domestic agenda. His budget for the fiscal year beginning April 1 offers a slew of programs for the public but could raise worries about the nation's fiscal health.

The government hopes the budget's inclusion of steps such as allowances for families raising children and free public high-school education will help boost its popularity going into an upper-house election next summer. Mr. Hatoyama's DPJ campaigned on similar promises, contributing to its landslide election victory in August.

The budget reflects the DPJ-led government's focus on social spending over the type of big public-works projects that were a mainstay of previous administrations.

"I believe that we have delivered all we can without compromising fiscal discipline," Mr. Hatoyama said Friday. "Our country's economic and employment conditions are very severe. The most important thing for us is to protect the lives of the Japanese citizens."

Tokyo predicts Japan's economy will expand by 1.4% on a price-adjusted basis and 0.4% on a nominal basis.

The budget will require massive debt issuance that could add to concerns about the fiscal health of Japan, which has a debt level at 180% of gross domestic product, the highest among industrialized nations. Tokyo plans to issue 44.303 trillion yen in new government bonds, the highest yet for an initial Japanese budget plan. That was slightly above its goal of keeping the debt float at about 44 trillion yen.

"He can rely on a bedrock of public support to get him past next year's elections, but he has to deliver," said Peter Tasker, strategist at Arcus Research. "I would be surprised if he steps down, but if after another year he has not proved his worth, then it will be a different story."

Source: The Wall Street Journal By TAKASHI NAKAMICHI, ALISON TUDOR and TAKASHI MOCHIZUKI

Posted in: Daisuke Haga,Democratic Party of Japan,Economy Weigh Down,Funding Scandal,Hatoyama,Japan,Japanese Prime Minister Yukio Hatoyama,Keiji Katsuba,Liberal Democratic Party,Scandal,Tokyo