Japanese PM calls snap election

In the biggest gamble of his career, Japanese Prime Minister Junichiro Koizumi called a September 11 election for parliament's lower house yesterday in hopes of winning a new mandate for reform.

The decision to call a snap poll came after ruling party rebels in parliament's upper house joined the opposition to defeat bills to privatise Japan's vast postal system - the core of Mr Koizumi's agenda for change. Mr Koizumi is betting that a purge of those anti-reformers from the Liberal Democratic Party, which has ruled Japan for most of the past half-century, will allow him to forge ahead.

"I see the rejection of the postal privatisation bills as a rejection of the Koizumi cabinet and the Koizumi reforms," the prime minister told a news conference.

"I want to ask the Japanese people whether they say 'Yes' or 'No' to my reform agenda," he said.

But the bitter split means the LDP could lose to the opposition Democratic Party, a centrist party that argues it can succeed at reform where the LDP failed.

Mr Koizumi ruled out cooperating with those who oppose the privatisation bills and said he would step down if the LDP and its junior coalition partner, the New Komeito, failed to win a majority in the lower house. He said anti-reform lawmakers would not be approved as LDP candidates.

Mr Koizumi sees postal privatisation as crucial to his broader goal of weaning the LDP from the wasteful public spending that won votes but spawned scandals and inflated government debt.

Economics Minister Heizo Takenaka, who is in charge of postal reform, lamented the defeat of the bills to privatise Japan Post, which has $3 trillion in assets including the world's biggest deposit-taking institution and a huge life insurance business.

"Postal system privatisation represented an important crossroads in terms of whether Japan opts for a small government or a big government," he said. "In that sense, I feel the rejection was a big loss for Japan's future and economy."

Some financial market analysts said the defeat meant that the reforms Mr Koizumi had pledged to implement when he swept into power in 2001 would be stalled, but others were less pessimistic. "Koizumi tried to achieve reform within the LDP framework... But he couldn't do that, so that means reform is only possible if there is a change in government," said Yasunori Sone, a political science professor at Keio University.

The outcome of the vote ensures that the uncertainty that has hit Japan's markets in recent days will continue a while.

Mr Koizumi's Cabinet had 47.8 per cent support, according to a public opinion poll conducted last weekend and published in the online edition of the Yomiuri daily yesterday. That was up slightly from last month. The yen and Japanese share prices fell when the results of the vote became known. But the Japanese currency quickly recovered all of its losses, and the Nikkei share average closed higher after falling one per cent ahead of the vote.

The bills were rejected by a vote of 125 to 108. Media reported that more than 20 LDP upper house members had voted against the legislation.