Asia Times: ANALYSIS: OZAWA'S HOMECOMING



	January 08, 1999	atimes.com

Japan Economy

ANALYSIS: OZAWA'S HOMECOMING
Asia Times.

Japan's ruling Liberal Democratic Party (LDP) led by PrimeMinister Obuchi and the opposition Liberal Party (Jiyuto) headed by IchiroOzawa concluded a hastily drawn-up, surprise coalition agreement last week. Thefive-point basic agreement stipulates the following:

* The two parties agreed in principle on a policy proposal made by Ozawa onpolitical and administrative reforms, national security and tax reform, andagreed to immediately begin consultation between the two parties.

* Jiyuto will cooperate with the government and the LDP in the managementof the next extraordinary session of the parliament beginning November 27.

* The two parties will cooperate in drafting the initial fiscal 1999 budgetwithin this year.

* The two parties will form a coalition government after drafting thebudget and before the opening of the ordinary Diet session. The date willbe decided in consultation between the leaders of the two parties.

* The two parties will establish cooperation in elections. For now,incumbent legislators will in principle be given priority in the electionfor the House of Representatives.

Reportedly, the LDP-Jiyuto agreement was brokered by ChiefCabinet Secretary Hiromu Nonaka - the idea-man and shadow shogun who effectively runs theJapanese government on behalf of a weak prime minister inexperienced incurrently all-important economic affairs.

Nonaka is known to be a bitter Ozawa political foe ever since the latter - in 1993 - broke up the once all-powerful Takeshita faction of the LDP leading to the party's electoraldefeat that year. To his credit, Nonaka was prepared to put such enmityaside: he knows that the Obuchi government, lacking a majority in the upperhouse of Parliament, badly needs outside help against LDP and Ministry ofFinance (MOF) opponents of tax cuts and administrative reform.

At first sight, the Nonaka move appeared to bear fruit: The Tokyo stock market'sNikkei index was up 3 percent on the news in trading on Friday and the yenregistered gains against the dollar. Internationally, the coalition movewas praised nearly uniformly by analysts.

Cautious on the likely effects of the government's 24 trillion yen economic stimulus package - which contains altogether too much public spending for dubious purposes - pundits areyet encouraged by the fact that Ozawa and his party are on record demanding acut in the national sales (''consumption'') tax, promising an overall boost toconsumption and consumer confidence. They also see the Obuchi/Nonaka-Ozawadeal as a clever end-run around Finance Minister Kiichi Miyazawa's opposition tofurther tax cuts, a position he apparently has adopted in deference to thestance of MOF bureaucrats.

The important issue, of course, is whether the new coalition deal has arealistic chance to last. Asahi Shimbun conducted a poll over the weekend and found that 45 percent of registered voters questioned opposed the new coalition and saw nothing promising in it; only 21 percent of those polled favored the agreement.

One might be tempted to write that off to the ingrained cynicism of Japanese voters - the fact that a majority of them have lost interest in politics altogether and simplyfeel that once again they are being hoodwinked by scrupulous politicianscutting deals over their heads.

But that would be the easy answer and wouldignore the fact that in recent (July) Upper House elections voters turnedout in much higher than expected numbers and dealt the ruling LDP aresounding defeat.

It would also ignore the fact that the so-called YKK(Yamasaki-Kato-Koizumi) grouping in the LDP, which favors an LDPorientation toward the opposition Democratic Party (Minshuto) and theSocial Democratic Party, is unhappy with an alliance with Ozawa. They seem him as overbearing and autocratic and they thoroughly disagree with him onsecurity policy matters. The seeds for continuing conflict and indecisionare thus sown.

Perhaps the only hope for the new coalition's success - at least for aperiod of time - is suggested by the results of another weekend Asahi Shimbun poll,in which a large majority of respondents saw little new or positive in the24 trillion yen government spending package, but heavily favored a consumptiontax cut. Chief Cabinet Secretary Nonaka appears to be a tough-mindedrealist who knows that not only Japanese economic recovery but recoverythroughout East Asia depends on decisive Tokyo action on tax relief andbanking reform.

During US President Bill Clinton's just concluded Tokyovisit, Nonaka got some much needed encouragement from U.S. Deputy TreasurySecretary Larry Summers. After meeting tax cut opponent Miyazawa, Summersmused, ''wouldn't it be a good idea to boost consumer confidence andspending with a cut in the consumption tax?'' Nonaka's ploy may work as ashort-term measure to get Japan back on the track. In the longer term, morefundamental political issues will have to be resolved.

Meanwhile, the Obuchi government can mark up one undoubtedly positiveresponse to its recent economic policy initiatives: The financial systembail-out and banking reform measures enacted recently are finding takers.Eight major city banks and a group of trust banks have announced that theywill jointly avail themselves of some 6 trillion yen in public monies - toughrestructuring and new reporting requirements notwithstanding.

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