JEI's Spin on the News

To Deal Or Not To Deal

Thursday, September 3, 1998

Japan's emboldened opposition faces a tough decision as it maps strategy for the current session of the Diet, where legislation is pending that will set strategy for dealing with Japan's beleaguered financial institutions. If it fights hard for significant changes to the ruling party proposals, it risks being seen as obstructionist and even threatening the already shaky financial system. If it caves in, it may be seen as little more than a warmed-over version of the ruling Liberal Democratic Party, which suffered big unexpected losses in the upper house election earlier this year.

The predictable result is that it is staking out a position of opposition, but will move to compromise within the next couple weeks. While Western analysts sometimes assume that Japanese opposition party leaders subscribe uncritically to market-oriented principles that flourished most visibly during the Reagan administration, in fact neither opposition leaders nor the Japanese public sees much virtue in the failure of financial or nonfinancial firms that strict adherence to such principles imply. The opposition's argument with the LDP is not so much about permitting failure of banks as it is extracting a pound of flesh from bankers who got Japan into this predicament. Expect the resultant legislation to be a little more punitive and perhaps with less relief for core LDP support groups (such as construction companies that are heavy borrowers from struggling banks) than otherwise, but to be pretty much what would have passed without the opposition's input. The opposition may even get included in the legislation initiatives that would raise the eyebrows of a true Reaganite, such as temporary nationalization of some banks.

"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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