Asia Times: EDITORIAL: Now that the nays have it, what?



	April 17, 1999	atimes.com

Japan Economy

EDITORIAL: Now that the nays have it, what?

Mr. ''No'', Shintaro Ishihara, has won the Tokyo governor's election withsome 30 percent of the vote; the candidate of the ruling Liberal DemocraticParty (LDP), colorless former United Nations undersecretary-general YasushiAkashi, came in a distant fourth.

What's the message and what's next for Japan?

The message is NOT that a traditionally liberal and left-leaning Tokyoelectorate all of a sudden has decided to embrace some awkward form ofanti-American nationalism propagated by Ishihara and reject the U.S.-Japansecurity treaty, and is getting ready to embrace an end-of-century versionof World War II-style assertive militarism.

The message is that Tokyoites (and probably a sizeable portion of theJapanese electorate overall) are sick and tired of eight years ofrecession or near-recession, don't trust traditional politicians as far asthey can throw them and want straight talk and decisive action.

This voter revolt catches the LDP/LP (Liberal Party) coalition governmentof Prime Minister Keizo Obuchi at a bad moment.

Since Obuchi took over from hapless Ryutaro Hashimoto last summer, hisgovernment has implemented far-reaching sets of reforms and fiscal andmonetary policy measures to get the Japanese economy back on track. Mostnotably, those include drastic financial markets liberalization, bankingsystem rehabilitation and injection of large amounts of public funds, andthe largest permanent tax cuts for both individuals and corporations in thecountry's history. They also include record high deficit spending andrecord low interest rates.

We have pointed out previously that those measures in many ways resembleand are modeled on similar policies adopted by the U.S. Reaganadministration when it faced a comparable economic quagmire in the early1980s. They worked then and there; there is fair reason to assume that theywill work in Japan now.

But a key step in the Reagan reforms was the second phase, carrying over tothe Bush administration: corporate restructuring and downsizing. This tooktime and imposed hardships as unemployment temporarily increased, budgetdeficits ballooned and economic growth slowed in the late 1980s and early1990s - losing George Bush the 1992 presidentail election.

Obuchi now faces a similar and, if anything, more difficult situation.Corporate restructuring is beginning, and with the creation of acompetitiveness council the government is encouraging it - but the processhits the economy, employment and wages without an intervening growth phasesuch as occurred as during the Reagan years.

From a purely economic standpoint, that's not that big a deal. As theydownsize, companies will enjoy stronger earnings - as will banks, as they paredown assets. As earnings recover, so will the stock market. But wage earnerswill benefit at first only marginally and will face increasing jobinsecurity and stagnating household incomes - and that translatesinevitably into political dissatisfaction.

Can Obuchi ride out the coming storm? The man one journalist called ''ascharismatic as a cold pizza'' will have his hands full explaining to theelectorate in convincing terms what he is doing and why. He will face asdifficult a task with the old-style LDP pork-barrel politicians, who willwant his head as they worry about their parliamentary seats.

Obuchi's first direct test comes in September when internal party electionsto choose a new LDP president are scheduled. His chief cabinet secretary and spokesman is clearly worried and on the weekend said a consensus infavor of Obuchi continuing in office should be formed now - or at any ratebefore the summer break - so that continuity of economic policy is ensured.It will be a difficult few months and will make selling cold pizza a cakewalk bycomparison.

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