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No. 28 — July 24, 1998

 

Feature Article

UPPER HOUSE POLLS SHAKE UP JAPANESE POLITICS, BUT OUTLOOK FOR CHANGE REMAINS UNCERTAIN by Barbara Wanner

Summary

Japan's largely apathetic electorate defied conventional wisdom in the mid-July elections for the Diet's upper house: they flocked to the polls and delivered a crushing defeat to candidates from the ruling Liberal Democratic Party. Fed up with the LDP's dithering approach to resolving the country's economic problems, voters expressed their anger via the ballot box. Prime Minister Ryutaro Hashimoto subsequently resigned to accept responsibility for his party's devastating 17-seat loss in the upper chamber.

Some Japanese (and most currency and stock traders) were hopeful that the rebuke by voters would compel the LDP to select a stronger, more decisive leader, one who can implement in short order effective — but likely painful — initiatives to clean up the banking mess and get the long-stagnant economy moving again. At this stage, however, a rosy scenario seems unlikely. Mr. Hashimoto's de facto ouster precipitated an intraparty succession battle that may not necessarily produce a more able premier or dramatically different policy prescriptions.

The LDP's seeming inability to respond in a bold and timely manner to the country's economic and political needs is largely due to the very nature of ruling party politics. For more than 40 years, Liberal Democratic policymaking and leadership questions have been determined by trade-offs among personality-led power centers within the LDP as well as by the influence of heretofore cozy ties among party members, bureaucrats and constituent groups or industries. While now four-year-old political reforms over time should begin to weaken the power of the factions and of the so-called zoku-giin (policy tribes), the transition to an electoral system that places more emphasis on policy debate than on brokering deals among various interests still is underway. Mr. Hashimoto's bungled handling of possible personal income tax cuts on the eve of the upper house polls reflected the persistence of these intraparty pressures.

Given the possibility that the LDP leadership selection process will produce more of the same, some pundits give the next premier barely six months in office. These experts speculate that the newly empowered political opposition may try to block upper house action on key economic legislation as a means of forcing Mr. Hashimoto's successor to dissolve the Diet for lower house elections.

Such a strategy may not prove to be a winning one for the non-LDP parties, though. Unless the political opposition offers the electorate credible, well-conceived policy alternatives, voters dissatisfied with the ruling party may revert to their previous practice of shunning the polls and allowing LDP stalwarts to perpetuate the status quo. While many Japanese may view that as a low-risk option, countries in Asia and, indeed, members of the global community that want and need an economically vibrant Japan will not.

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Weekly Review

THREE-WAY RACE FOR LDP PRESIDENT SPARKS DEBATE, MANEUVERING by Barbara Wanner

Seiroku Kajiyama, a hard-charging former chief cabinet secretary of the ruling Liberal Democratic Party, seemed to have the lead early in the week of July 19 in an unexpectedly open, three-way race to succeed Prime Minister Ryutaro Hashimoto as party president and, in turn, as premier. Mr. Hashimoto resigned July 13 to accept responsibility for the steep losses that his party incurred in the upper house elections the day before. His successor will be chosen July 24 in the first election for LDP party president in 20 years.

 

FINANCIAL WATCHDOG LAUNCHES BAD-LOAN INVESTIGATION by Jon Choy

The Financial Supervisory Agency has kicked off its campaign to clarify the extent of the banking industry's nonperforming-loan problems by releasing banks' latest self-assessments of their loan portfolios. The reports, which cover the year ending March 31, 1998, were compiled according to new classification guidelines devised by FSA and the Ministry of Finance that are more in line with U.S. reporting standards. However, the data are difficult to reconcile with banks' public reports of their annual business results. More important, say foreign and domestic analysts alike, the new information still leaves some key questions unanswered.

 

EPA, MITI PAINT GLOOMY PICTURES IN WHITE PAPERS by Douglas Ostrom

Japanese bureaucrats adopted an unexpectedly pessimistic tone in two recent key annual economic reports. However, analysts, while cheering the new realism, still found a troubling underlying tenor to both the economic white paper, issued July 17 by the Economic Planning Agency, and the trade white paper, published June 16 by the Ministry of International Trade and Industry.

 

CAPITOL HILL VOICES FEARS ABOUT JAPAN by Eric Altbach---

Key members of the Senate Finance Committee, led by its powerful chairman, William Roth (R, Del.), have joined the chorus of Clinton administration officials warning that the United States and the rest of the world will suffer if Tokyo fails to take decisive action to get its stalled economy moving. These Senate trade and finance leaders fear that if the next Liberal Democratic Party administration cannot pull Japan out of its recession, the resulting expansion of the U.S.-Japan trade deficit will derail America's currently robust economic growth and give rise to protectionist sentiment on Capitol Hill.

 

Notes

A weakening yen, virtually no increase in 1997 North American production by Japanese-affiliated car and truck builders, and a drop in vehicle output in Japan every month from last October through this past March obviously were not conditions conducive to greater sourcing of U.S.-made parts by Japan's automotive industry in FY 1997. Add in the absence of any political pressure from Washington for expanded purchases and the 9.8 percent gain in parts procurement to $25 billion in the recently ended Japanese business year was all the more surprising.

 

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