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No. 45 — December 4, 1998

 

Feature Article

SURVIVAL TACTICS TAKE PRECEDENCE IN JAPANESE POLITICS; LEADERSHIP FOUNDERS by Barbara Wanner

Summary

"Japan seems rudderless." This observation has appeared in countless op-ed pieces and political commentaries in both Japanese and American publications since the late July inauguration of Prime Minister Keizo Obuchi. Admittedly, he was handed an economic agenda that any leader would have found incredibly challenging, headed as it was by the imperative to find solutions for the crisis in the banking industry and for a contracting economy. Perhaps not surprisingly, after four months in office, Mr. Obuchi has little to show for his pledge to boldly attack the problems weighing down the world's second-largest economy.

Some experts have attributed Tokyo's less-than-urgent move on the bad-loan crisis to Mr. Obuchi's consensus-oriented style of governing. The ruling Liberal Democratic Party's diminished political clout — the result of its poor showing in the mid-July upper house elections as well as its own internal conflicts — created further leadership problems for the premier. Faced with an empowered political opposition that controls the upper chamber, Mr. Obuchi's lieutenants were forced into the laborious process of cutting separate deals with the nonruling parties in order to secure Diet passage of a bank-rescue package and additional bills.

Anxious to avoid prolonged wrangling over other pivotal economic and security-related legislation, the Liberal Democrats spent much of the fall exploring possible alliances. The questionable price of these unions in terms of policy has left Mr. Obuchi open to charges of ushering in an era of politics without principles. It is unclear what the LDP stands for anymore, critics charge, since its policy decisions seem to be determined solely by the party's desire to hang on to power at any cost rather than by an overarching vision.

Some analysts attribute the LDP's survival tactics — and, more broadly, the recent propensity in Japanese politics for shifting alliances — to a weakening of the party as an organizing unit. Out of the muddle, however, has emerged a new generation of lawmakers who have taken the lead as policy developers, an unexpectedly refreshing change since bureaucrats traditionally have played that role.

If the economy remains recession-bound and if, as some predict, Mr. Obuchi is forced out of office, it is unlikely that the Liberal Democrats will depart from their seniority-based succession formula and tap this reservoir of young talent to lead the party. Moreover, notwithstanding the Obuchi administration's record-low approval ratings, experts do not see the Democratic Party of Japan, the largest opposition party, taking over in the near term. The DPJ still lacks the ruling party's organizational base and has yet to offer a coherent game plan.

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Weekly Review

BANKS CONTINUE PROBLEM-LOAN CLEANUP, BUT THE MESS KEEPS GROWING by Jon Choy

The efforts of Japanese banks to clear their books of nonperforming loans are beginning to take on Sisyphean overtones. Like the mythical Greek king, the country's 19 top banks have appeared before to be on the verge of completing this burdensome task only to find themselves back at the bottom of the hill as problems worsened. Banks' business results for the first half of FY 1998 underscore their plight. Worried that the troubled banking industry was holding back a general economic recovery, Tokyo decided to help banks boost their capital bases by making public funds available to them. The necessary legislation was approved in October. However, it took considerable jawboning by financial authorities before most major banks announced that they intended to accept government help. Financial analysts and global investors are skeptical, though, that either banks or the government has found a way to break the bad-loan cycle.

 

CLINTON URGES DEMAND-LED RECOVERY, RAISES RED FLAG ON TRADE by Barbara Wanner

President Clinton once again proved himself the consummate politician with a direct appeal to the public on a difficult matter. This time, though, the American leader's audience was the Japanese people, and at issue were the potentially dire consequences of Tokyo's failure to act expediently to deregulate markets and jump-start the nation's moribund economy. Instead of limiting his November 19-20 swing through Tokyo to closed-door discussions with Prime Minister Keizo Obuchi about Japan's economic problems, regional security challenges and other head-of-government formalities, Mr. Clinton took advantage of the media's spotlight to issue a U.S.-style grass-roots call to action.

 

U.S.-JAPAN SERVICES GAP NARROWED IN 1997 by Douglas Ostrom

Although most trade analysts focus on merchandise, international trade in services is of increasing importance. In the case of U.S.-Japan commerce, trade in services shows markedly different trends than does trade in goods. The bilateral services surplus last year offset more than one-third of the transpacific deficit in goods, even though the excess of exports over imports declined 4.4 percent to $19.7 billion, according to recent Department of Commerce data. The drop in the services surplus was a result in large part of the weakness of both Japan's currency and its economy last year. The weak yen and unsettled economic conditions, for example, discouraged overseas travel. In dollar terms, overall U.S. services exports to Japan managed a 1 percent gain from 1996's total, a strong performance given the shrinking Japanese economy and roughly constant prices in dollar terms. At the same time, U.S. services imports from Japan increased 9.6 percent, albeit from a low base.

 

POLITICS AND TRADE: THE STEEL DUMPING CASE by Susan MacKnight

Decisions unfavorable to Japan are coming so fast in response to the American steel industry's September 30 complaint about unfairly priced carbon hot-rolled steel sheet (see JEI Report No. 38B, October 9, 1998) that Tokyo twice already has questioned Washington's objectivity and fairness in handling the petition. Politics, the Japanese government not surprisingly suspects, have influenced procedure.

 

NOTES

Japan Defense Agency Director General Fukushiro Nukaga resigned November 20 following the previous day's release of an in-house investigative report concluding that JDA "systemically" covered up evidence of its involvement in an equipment procurement scandal. The outgoing JDA chief was replaced by Hosei Norota, who, like his predecessor, is a member of the ruling Liberal Democratic Party faction led by Prime Minister Keizo Obuchi. Mr. Norota brings to his new position very little defense-related expertise; his last cabinet stint was in 1995 as then-Prime Minister Tomiichi Murayama's minister of Agriculture, Forestry and Fisheries. That lack of background calls into question Mr. Norota's ability to play a leading role in the Diet's consideration early next year of key legislation to implement new U.S.-Japan guidelines for defense cooperation.

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