No. 41 — November 1, 1996


Feature Article


Barbara Wanner


When Japanese voters in July 1993 ended the Liberal Democratic Party's uninterrupted 38-year rule many political pundits heralded what they saw as a new era characterized by greater openness in politics and policymaking. The enactment six months later of legislation aimed at overhauling the lower house electoral system and tightening campaign financing laws was expected to ensure further political evolution. Political reform proponents claimed that the first election for the House of Representatives under the new system — which replaced multiseat districts with an arrangement combining single-seat races and proportional representation — would precipitate a fundamental restructuring of the Japanese political scene, allowing leadership options among two or possibly three parties, similar to the U.S. system.

The outcome of the much-anticipated late October polls under the new lower house electoral plan most likely disheartened advocates for political change. The very voters who three years ago sought to shake up the ruling order instead opted for stability and conservative policies by awarding Liberal Democratic candidates a plurality, or 239 seats, of the new 500-member lower chamber. Since the party or parties in control of the lower house basically govern Japan, the LDP will not be able to take the helm without either forming what would be the fifth coalition government in three years or expanding its ranks by wooing defectors from other parties. In any event, experts say, even the inclusion of reformist elements in a new LDP-led government is unlikely to alter dramatically the largest party's conservative policy prescriptions.

Political observers less caught up in pro-reform euphoria following the LDP's 1993 upset contend that a dramatic change in political substance and structure in Japan simply was not possible in the first test of the new electoral plan. By combining single-seat races, in which large, well-organized parties like the LDP have the edge, with proportional representation, which ensures a continued presence for smaller parties, the architects of the new system effectively hampered the restructuring of political forces that would have occurred under a U.S.-style, first-past-the-post single-seat system. The two-party consolidation effect was mitigated further by a proviso that enables single-seat candidates to run simultaneously in one of the proportional representation districts. In addition, while the new laws made fund-raising more transparent, the decline in contributions to parties from corporate and other support groups forced candidates to amass their own war chests; that, some observers propose, may fuel the very graft that provoked an anti-LDP backlash three years ago.

In perhaps the greatest blow to political reformers who sought to elevate policy debate over personality differences the major parties appeared unable or unwilling to develop well-conceived platforms that set their candidates apart from each other. This created confusion in many voters' minds and discouraged electoral turnout. Rather than running on party platforms, or even their own, candidates for the most part resorted to old-style, door-to-door personal appeals to galvanize supporters. Some experts argue that the key to political restructuring, in fact, lies in policy debate, particularly on such heretofore sensitive issues as Japan's role in the post-Cold War world. As long as the parties avoid engaging the citizenry in meaningful discussions on key domestic and international issues, these same observers add, politics will have little meaning to the average Japanese, and voter turnout may drift even lower. Political commentators are hopeful that Japan's new generation of leaders can provide the impetus for such a debate and, in turn, set in motion the wheels of systemic change.

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Weekly Review

--- by Douglas Ostrom

One might never know from the reaction of financial markets that a pro-business, conservative political party had prevailed at the polls in Japan October 20. In the week following the election, for example, the Tokyo stock market took a dive, while the yen weakened on world currency markets. By the last week of October as many as 114 yen could be traded for a dollar, leaving the Japanese currency at its lowest level vis-a-vis the dollar since April 1993. Market reactions, while seemingly perverse, in fact were unsurprising in light of the political forces that gained ascendancy as a consequence of the elections for the Diet's lower house (see JEI Report No. 40B, October 25, 1996).

--- by Jon Choy

No sooner have Japanese monetary authorities begun to implement their plans to relieve the nation's financial system of nonperforming loans held by seven housing loan companies or jusen than the nonperforming loans held by nonbank financial institutions have reached crisis proportions. One indication is the recent record-setting bankruptcy filing of Nichiei Finance Co., Ltd. Listing a whopping ¥990 billion ($9.9 billion at ¥100=$1.00) in liabilities, Nichiei Finance executives sought protection October 22 from creditors before the Yokohama district court, asking for time to develop a reorganization plan. Finance Minister Wataru Kubo tried to reassure the nation that his ministry would neither let the Nichiei Finance filing threaten the health of the nation's financial sector nor advocate the use of public monies to help bail out the failed finance company. Both the government of Prime Minister Ryutaro Hashimoto and the Ministry of Finance were the subjects of public outrage earlier this year when they tried to implement a plan to use ¥685 billion ($6.9 billion) worth of taxpayer funds to liquidate the nonperforming loans of the seven jusen. Observers predict that cleaning up the bad loans held by nonbanks will be even more difficult, as they are even more intertwined with other firms than the jusen were. As some analysts predicted, the nonperforming loan problem is taking a great deal of time and money to resolve.

--- by Barbara Wanner

Following weeks of intense lobbying by senior officials of the Ministry of Foreign Affairs, Japan won an unprecedented eighth term as one of 10 nonpermanent members on the United Nations Security Council in October 21 balloting by the U.N. General Assembly. Japan secured a comfortable 142 votes, or more than the 120 votes that represented the required two-thirds majority of the 181 member nations participating in the first round of balloting. Indonesia will vacate the rotating seat on the Security Council at yearend, and Japan will begin the 1997-98 term January 1.

--- by Christopher B. Johnstone

The first ministerial meeting of the fledgling World Trade Organization is less than six weeks away, but the question of whether the gathering will produce any notable accomplishments still is unanswered. A number of issues likely to be at the center of discussions at the December 9-13 meeting in Singapore remain sharply divisive among participating delegations. The rifts span sectors and topics that already are the subject of WTO-mandated negotiations and include as well "new issues" that some members — particularly more advanced economies — proposed for inclusion in ensuing rounds of multilateral trade talks. Among the former set of topics, WTO members are unlikely to do more than reiterate support for a resolution to currently deadlocked negotiations aimed at liberalizing trade in financial and telecommunications services. Among the "new issues," opposition from developing countries appears likely to derail U.S. efforts to include labor standards and transparency in government procurement practices under an expanded WTO agenda. The difficulty in bridging the many divides suggests that the Singapore meet is likely to focus on implementation of pledges already made rather than on attempting to break new ground. One notable exception may be a possible accord to eliminate tariffs on information technology products.


Japanese authorities' arrest of the former head of Sumitomo Corp.'s copper trading operations has reignited speculation that investigation of the scandal may widen (see JEI Report No. 23B, June 21, 1996). Yasuo Hamanaka was charged October 22 with forging key documents that allowed him to conduct allegedly unauthorized trades for a decade, running up losses initially estimated at $1.8 billion but more recently calculated at $2.6 billion as Sumitomo officials try to clean up the company's copper trading ledgers. American and British authorities also are continuing their investigations, focusing on how Mr. Hamanaka was able to hide his losses for such a long time and whether any American or British firms were accomplices in illicit activities.

The Clinton administration, criticized last spring for declaring the June 1995 transpacific automotive trade agreement an unqualified success (see JEI Report No. 15B, April 19, 1996), provided what insiders called a balanced assessment in the second follow-up report on implementation of the controversial accord. Problems are identified, but the "significant progress" conclusion of the initial review is the highlighted bottom line of the October 21 update. The scorecard — again filled out by an interagency enforcement team headed by the Department of Commerce and the Office of the U.S. Trade Representative — credits to the pact the increase in Japanese sales of North American-built vehicles by the Big Three U.S. automotive makers, the business opportunities created in Japan for American suppliers of replacement parts and the expansion in purchases of U.S.-made original equipment parts by Japanese vehicle manufacturers for their factories here and at home.

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