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No. 33 — August 28, 1998

 

Feature Article

POLITICS, ECONOMIC PROBLEMS MAY COMPLICATE JAPAN'S DIPLOMATIC AND SECURITY INITIATIVES by Barbara Wanner

Summary

Japan's foreign relations were jarred by the outcome of the mid-July upper house elections, which ended up boosting the strength of the political opposition and forcing Prime Minister Ryutaro Hashimoto's resignation. Mr. Hashimoto's long-planned visits to the United States and Russia were canceled, and Foreign Minister Keizo Obuchi's participation in this year's Association of Southeast Asian Nations Regional Forum meeting was uncertain. Mr. Obuchi's subsequent elevation to Liberal Democratic Party president and, in turn, prime minister seemed to ensure continuity in diplomacy. However, some observers soon questioned whether the politically weak premier could keep important foreign policy initiatives on track in the face of intense domestic and overseas pressure to clean up Japan's bad-loan mess and jump-start the economy.

Due largely to the Ministry of Foreign Affairs' strong, ongoing management of the nation's external relations, Japanese diplomacy in all likelihood will not be undercut by the uncertain political situation. Furthermore, Mr. Obuchi made some shrewd cabinet appointments, elevating Vice Foreign Minister Masahiko Komura to the top diplomatic post and naming Mr. Hashimoto as a special foreign policy adviser.

Thus, Tokyo's efforts to conclude a peace treaty with Moscow by the end of this century will continue uninterrupted, as will parallel initiatives aimed at improving ties with Beijing. Moreover, Japanese involvement in both official and informal multilateral security-related forums, in confidence-building exchanges throughout Asia and in the United Nations is not likely to be influenced by political developments.

Nonetheless, a newly empowered political opposition anxious to flex its muscle could inject tensions into U.S.-Japan security relations by pushing amendments to legislation implementing last year's bilateral defense cooperation guidelines. Sino-Japanese relations also may be strained by opposition-driven debate concerning the geographic coverage of the new transpacific defense blueprint. Further troubling to American and Japanese defense officials, the non-LDP parties may try to use their newfound clout to cause problems for Mr. Obuchi as he attempts to carry out Tokyo's end of the U.S.-Japan agreement to consolidate the American base presence on Okinawa.

If, as some pundits predict, the current government falls within six months due to economieconomic events and/or political machinations, Mr. Obuchi's successor may be tested by the not insignificant task of repairing relations with Japan's most important ally. This job could be doubly hard because of Washington's frustration with Tokyo's seeming inability to make good on promises regarding key economic and foreign policies.

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Weekly Review

LONG-TERM CREDIT BANK SETS REORGANIZATION AS TOKYO DEBATES BANK-RESCUE STRATEGY by Jon Choy

The managers of troubled Long-Term Credit Bank of Japan, Ltd. announced a plan August 21 to cleanse the bank's books of nonperforming loans and to rationalize its operations in order to clear the way for a merger with Sumitomo Trust & Banking Co., Ltd. Prime Minister Keizo Obuchi, top bureaucrats and Bank of Japan officials immediately pledged their full support for LTCB's restructuring effort as well as for the expected merger with Sumitomo Trust. Opposition party officials and outside analysts, however, have raised doubts about several aspects of the LTCB scheme, especially the use of public funds to inject capital into the ailing institution. At the same time, the ruling Liberal Democratic Party continues to cross swords with the opposition parties over legislation vital to its plan to rid the banking industry of nonperforming loans. It is not clear when or whether the LDP's six bank-rescue bills will emerge from the legislative process.

 

RISING CURRENT ACCOUNT SURPLUS LINKED TO LACK OF CONFIDENCE IN ECONOMY by Douglas Ostrom

Japan's multiple economic troubles make it difficult to assign a cause to unwelcome trends. The 37.9 percent jump in the current account surplus in the April-June quarter from the year-earlier figure is a case in point (see Table 1). Few policymakers on either side of the Pacific profess a desire to see this measure of external imbalance grow, but choosing among possible countermeasures is rendered difficult by uncertainty regarding the origin. The weak Japanese economy, East Asia's economic and financial crises and the prolonged slump in the yen all rate as plausible culprits. The situation is complicated further by the reality that these factors interact with each other.

 

SEOUL ASKS TOKYO FOR $3 BILLION IN LOANS; CHINESE PRESIDENT POSTPONES VISIT by Eric Altbach

With South Korea still struggling to recover from its debilitating economic problems, Seoul reportedly has asked Tokyo for $3 billion in new untied loans from the Export-Import Bank of Japan to finance trade. Japanese officials are expected to decide on the request, which has not been made at the official level, before President Kim Dae Jung's first state visit to Tokyo, scheduled for early October.

 

NEW STUDY GROUPS REVEAL POLITICAL RIFTS by Barbara Wanner

The outlook for Prime Minister Keizo Obuchi's fledgling government — launched barely a month ago to record-low approval ratings — seems bleaker by the day. Not only has the premier had to contend with opposition parties anxious to flex new political muscle following their impressive gains in the July 12 upper house elections, but recent developments within Mr. Obuchi's own Liberal Democratic Party suggest that some of his brethren already are maneuvering to succeed him.

 

NOTES

Conditions of competition have improved in Japan's consumer photographic products market over the last three years, but exclusionary business practices and restrictive regulatory policies still handicap Fuji Photo Film Co., Ltd.'s challengers. That was the bottom line of Washington's first semiannual report on how closely reality matches Tokyo's assertions to the World Trade Organization that the domestic market for consumer photographic film and paper is open. The White House resorted to this novel veracity test in February after a WTO dispute-settlement panel rejected out of hand Clinton administration claims that Japan's government had skewed the market against Eastman Kodak Co. (see JEI Report No. 5B, February 6, 1998).

By the spring of 2000 at the latest, American exporters of apples, cherries and nectarines should find a more hospitable regulatory environment in Japan. In an interim ruling issued August 6, a World Trade Organization dispute-settlement panel decided that Tokyo's costly, time-consuming requirement for varietal testing of U.S. produce subject to quarantine treatment violates the WTO Agreement on the Application of Sanitary and Phytosanitary Measures, in large part because it lacks any scientific basis. Washington forced a WTO resolution of this issue last October after Department of Agriculture experts had failed over the years to convince Ministry of Agriculture, Forestry and Fisheries officials that the combination of methyl bromide fumigation and cold storage that they had accepted as effective in killing codling moths on red and golden Delicious apples would be equally efficacious at getting rid of this pest on Gala, Fuji and other varieties of apples from the Pacific Northwest (see JEI Report No. 22B, June 13, 1997).

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