The election, scheduled for September 11, will be a bruising struggle that could permanently alter the political terrain in Japan after 50 years of almost unbroken rule by the conservative Liberal Democratic Party (LDP).

If Junichiro Koizumi’s gamble pays off, he will purge the LDP of his reactionary opponents and recreate the party in his own image: as a radical populist force, intent on structural reform of Japan’s government and bureaucracy.

If he fails, he risks splitting his party, and handing power to an increasingly confident opposition, the liberal Democratic Party of Japan (DPJ).

When the results were announced, the DPJ MPs were on their feet punching the air and hugging one another. “We’ve been steadily making efforts for this day,” Katsuya Okada, the DPJ’s leader, told his jubilant MPs. “Now we finally have an opportunity to change the government.”

The LDP-led coalition Government had been expected to lose yesterday’s vote in the upper house of Japan’s diet, but the margin of defeat was greater than expected — 125 MPs opposed the postal privatisation Bills and 108 supported them, after 22 LDP members voted against their own party leader and eight either abstained or failed to vote.

Yesterday evening, as he had threatened to do for weeks, Mr Koizumi dissolved the lower house, insisting that party backing would be withdrawn from all those who defied him. “I will destroy the LDP,” he told his Cabinet ministers. “I am determined to create a new party which make its priority the welfare of the people.”

Attention will now focus on the rebel MPs, many of whom have sworn to stand for re-election against the new officially appointed pro-Koizumi candidates. They may decide to form a new party, which would put great strain on the unity of the LDP in its 50th year. In that time, it has only once been out of power, for eight months, after an election defeat in 1993.

Yesterday’s dramatic events were the culmination of weeks of mounting tension over a project which Mr Koizumi has made his central goal — the privatisation of Japan’s post office, one of the richest and most influential institutions in the country. Against ferocious opposition, his Cabinet has pushed through a set of Bills which would privatise mail delivery, life insurance, post offices services and, above all, the post office savings system to which Japanese entrust 340trillion yen (£1.7 trillion).

The money represents a source of funding for the lavish and often wasteful public spending that has been the life blood of Japanese politics. In rural Japan, postmasters are influential figures whose support underwrites many LDP politicians. Hence the bitter opposition to the Bills, which squeaked through the lower house a month ago by just five votes.

In a measure of the intensity of the feelings, Yoji Nagaoka, a member of an anti-Koizumi LDP faction, hanged himself last week after voting in favour of the postal legislation. Heizo Takenaka, the minister behind the reforms said: “The rejection is a major blow to Japan’s future and its economy.”

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