World Crisis Online

By Sachiko Sakamaki and Takashi Hirokawa

(Adds Kan’s remark on staying in office in sixth paragraph.)

March 7 (Bloomberg) — Prime Minister Naoto Kan’s battle to fund Japan’s budget and avoid early elections suffered another blow as his foreign minister quit over an illegal donation and a poll showed fewer than one voter in four supports him.

Foreign Minister Seiji Maehara, 48, resigned late yesterday after admitting he had received 250,000 yen ($3,038) since 2005 from a South Korean woman in Japan he has known since childhood. The ruling party was already hit by former leader Ichiro Ozawa’s indictment on unrelated charges of violating campaign financing laws, which also ban foreign contributions.

Kan has failed to persuade the opposition to authorize 44.3 trillion yen in government bonds to finance the budget and faces dissent in his Democratic Party over a push to raise the sales tax to cope with soaring debt costs. The stalemate has increased the possibility Kan will have to step down, becoming the fifth straight premier to last no more than a year.

“The Kan administration is facing an enormous crisis,” said Minoru Morita, a Tokyo-based independent political analyst. “He’ll have to quickly appoint Maehara’s successor and work on budget-related bills to postpone the timing of resignation or election.”

Kan reiterated that he has no intention of stepping down.

‘Fulfill My Duty’

“I believe the people should judge whether to change the government after the lower house completes its full four-year term” in the second half of 2013, he said today in parliament. “I intend to fulfill my duty until then.”

Stocks fell partly on concern increased political gridlock will hamper efforts to reign in debt that is set to exceed twice the size of Japan’s gross domestic product this year.

The Nikkei 225 Stock Average fell 1.8 percent to close at 10,505.02. The broader Topix index lost 1.5 percent to 941.63. Bonds rose, with the yield on the 1.3 percent bond due March 2021 falling 2.5 basis points to 1.27 percent.

Chief Cabinet Secretary Yukio Edano will take on Maehara’s portfolio temporarily, Kan said today in parliament. Maehara lasted less than six months as foreign minister, helping to smooth frayed ties with China and defending Japan’s claims in a territorial dispute with Russia. Before that, he spent a year as transportation minister.

Opposition lawmakers had called for Maehara to step down for accepting money from a foreign national. Thousands of ethnic Koreans who have lived in Japan their entire lives do not hold Japanese citizenship. Maehara said the woman, whom he didn’t identify, ran a barbecue restaurant in his hometown of Kyoto.

DPJ Scandals

The DPJ in September 2009 unseated the Liberal Democratic Party from more than half a century of almost unbroken power, pledging to avoid the corruption that tainted several LDP governments. Nine months later, Kan’s predecessor Yukio Hatoyama was forced to step down partly due to a finance scandal. In January, Ozawa was indicted in a case that has led to the trial of three of his former aides.

“By any measure, Maehara’s resignation is overblown, but he brought it on himself by the overstated claims and ambitions of the DPJ,” said Koichi Nakano, a political science professor at Sophia University in Tokyo. “Now it’s going to be doubly hard for Kan to survive.”

Japan’s lower house of parliament passed Kan’s record 92.4 trillion yen budget on March 1. Kan, though, has failed to convince the opposition to support the financing bills, which require approval of either the opposition-controlled Upper House or a two-thirds majority in the Lower House, which the DPJ lacks.

Impasse

The impasse may force Kan to either resign or dissolve the Diet and call a snap election. Maehara, a former DPJ leader, was a likely candidate to replace Kan.

Moody’s Investors Service on Feb. 22 lowered Japan’s debt rating outlook on concern over the stalemate. Standard & Poor’s cut Japan’s debt rating in January, citing the stalemate and the possibility the financing bills won’t be passed. Failure to pass the legislation could cause bond yields to rise, damaging an economy already hampered by social security costs that have increased by more than 60 percent since 2000.

“Yields are low so the problem doesn’t feel that immediate, but further political turmoil could lead to more rating downgrades, and that would obviously reduce the value of Japan’s debt,” said Azusa Kato, an economist at BNP Paribas in Tokyo.

Maehara, in resigning last night, said he “cannot allow a delay on parliament’s budget debates because of my political donation problem.”

Party Rebellion

Kan’s efforts have been complicated by an intra-party rebellion. Sixteen DPJ lawmakers, who last month announced their opposition to his push to raise the sales tax, abstained from voting on the budget. The group is loyal to Ozawa, whose suspension from the party during his trial for violating campaign funding laws provoked a backlash.

Maehara was the most favored person to become prime minister in a Sankei newspaper survey published March 1, preferred by 10.2 percent of those polled. He was followed by DPJ Secretary General Katsuya Okada with 8.1 percent.

Kan’s approval rating dropped to 24 percent, the worst since he took office in June, from 27 percent last month, the Yomiuri newspaper said today. The nationwide telephone survey of 1,052 voters was taken between March 4 and March 6, the report said, without providing a margin of error.

–With assistance from Aki Ito, Maki Shiraki, Jason Clenfield and John Brinsley in Tokyo. Editors: John Brinsley, Patrick Harrington