NO. 38 -- October 10, 1997


Feature Article


Prime Minister Ryutaro Hashimoto followed his early September unanimous reelection to a second two-year term as president of the ruling Liberal Democratic Party with a political blunder that quickly snuffed out the glow of victory. By reshuffling his cabinet to include Koko Sato, a veteran LDP lawmaker convicted of bribery, Mr. Hashimoto has shaken the public's trust in him and his party. The prime minister's handling of the Sato appointment also revealed the enduring influence of precisely the sort of intraparty rivalries and factional politics that served to topple the LDP from the government helm in August 1993 after 38 years in control.

Although Mr. Hashimoto forced Mr. Sato to resign after barely two weeks on the job, his attempt at damage control fell flat. Sensing political mileage to be gained, the opposition parties and the LDP's noncabinet allies, the Social Democratic Party of Japan and the New Sakigake Party, threatened a motion of no confidence. They also declared their intention to use this fall's extra Diet session to focus on political ethics generally and alleged LDP ties to a shady oil dealer in particular. These diversions risk derailing the prime minister's stated plans to pass legislation implementing administrative, economic and social welfare reforms, budget deficit-reduction targets and new U.S.-Japan defense cooperation guidelines.

A perceived failure by the prime minister to follow through on his policy promises might provoke an anti-LDP backlash in the July 1998 upper house elections, some experts say, particularly if the economy continues to operate below par. But the vicissitudes of Japanese politics are such that Mr. Hashimoto's stock may rise again, perhaps not in the LDP but with the man on the street. He always has possessed more popular appeal than real political power. Whatever happens to Mr. Hashimoto, though, his party is likely to remain in control of the government. The fact remains that the Liberal Democrats are the politicians the voters know best. Moreover, the opposition still seems unable to present a credible leadership alternative.

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Weekly Review

Tankan, Other Data Present Grim Economic Picture by Douglas Ostrom

After a series of disappointing reports over the summer about the health of Japan's economy, analysts braced for the worst as they awaited the release of the latest tankan, the Bank of Japan's quarterly survey of corporate sentiment. Their expectations were more than met. The central bank announced October 1 that, as of September, large manufacturing firms were optimistic about their business prospects -- but by a margin of just three percentage points, down from seven points in the survey conducted three months earlier. At least big producers remained upbeat. Large nonmanufacturers and small companies slipped further along the pessimistic range of the index. Some analysts suggested, however, that these disappointing results -- even together with such earlier data as the substantial drop in the gross domestic product in the spring -- presented far too negative a view.


Japanese Stock Market Outlook Dims by Jon Choy

While American stock exchange indexes continue to defy gravity, their Japanese counterparts seem unable to find a footing. Even as Japan's top exporters report strong sales and solid profits, potential buyers of Japanese stocks have been bombarded with surprisingly negative news about the economy's past and future performance. Investor confidence also has been shaken by a widening scandal that links organized crime figures and top domestic brokerage houses. Despite the government's efforts to portray the economy as being in a recovery mode and to support stock prices through actions behind the scenes, the consensus among market watchers and investors is that the economic fundamentals needed for a solid equity price rebound still are not in place.


Sato Controversy, Weak Economy Dominate Hashimoto Diet Address by Barbara Wanner

The 75-day special Diet session that began September 29 will not be a picnic for Prime Minister Ryutaro Hashimoto. Against the backdrop of a weak economy, he faces the daunting task of selling the Diet on a budget deficit-reduction plan that some critics charge will delay, rather than propel, a business upturn. Mr. Hashimoto also will feel pressured to follow through on the promise he renewed to implement sweeping reforms in the nation's economic, administrative and social welfare systems. In addition, the prime minister has committed his government to undertake during the last three months of 1997 the potentially controversial task of developing legislation that will enable Japan to carry out the expanded roles and responsibilities outlined in the new U.S.-Japan defense operational guidelines.


Asian, European Economic Ministers Call For Closer Ties by Eric Altbach

Economic ministers from Europe and Asia called for closer cooperation on trade and environmental issues during a meeting held September 27 and 28 outside Tokyo. Despite efforts to highlight areas of agreement, significant differences emerged between the European participants and Japan on some key matters. The question of the accession of the People's Republic of China to the World Trade Organization and efforts to coordinate proposals for the international conference on climate change to be held in Kyoto in December revealed in particular the divergent priorities and interests of European capitals and Tokyo.



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