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Advantage, Hashimoto (Int'l Edition)

International -- Asian Business: JAPAN

ADVANTAGE, HASHIMOTO (int'l edition)

He'll likely call elections soon

Ryutaro Hashimoto has certainly had a good run since assuming the Premiership last January. His coalition government, led by his Liberal Democratic Party, has deflected public outrage over a $6 billion bailout of corrupt housing-loan thrifts. It has soothed U.S. trade relations without big concessions. Japan's $5 trillion economy has snapped out of a four-year funk. And the opposition New Frontier Party has so far proved about as alluring as day-old sashimi.

Now, Hashimoto, 59, may be about to make his big play. Although he doesn't have to face voters until next July, election fever already is raging in the smoke-filled back rooms of Nagata-cho, Tokyo's Capitol Hill. LDP members are prodding Hashimoto to call a snap vote by yearend, maybe even in October. The economy is growing, and opposition leader Ichiro Ozawa is out of favor. So taking the plunge this fall would offer the LDP a great opportunity to resume the dominance of Japanese politics it enjoyed until scandals forced it from power in 1993.

ECONOMIC UNEASE. Whenever the runoff comes, Hashimoto and Ozawa, 54, will seek to address a deep economic anxiety. After spending most of the decade in the doldrums, Japan's economy should produce 2.7% growth this year. But things are already starting to look dicey for 1997. Many economists expect growth to slow to just 1.7%. That prospect is enly adding to unease among the many Japanese edgy about the country's scandal-prone financial institutions, fraying cradle-to-grave social contract, and deteriorating high-tech competitiveness.

As they present ways to deal with this distress, the two politicians will offer vastly different takes on Japan's future (table). Ozawa wants to pitch into history's junk heap the traditional Japanese model of a heavily regulated economy dominated by powerful ministries. In its place, he champions sweeping deregulation, tax cuts, and a strong Premier's office heading a weakened bureaucracy.

The LDP certainly talks an ambitious game, too. "We have to change the Japanese economic structure drastically," muses LDP General Secretary Koichi Kato. Yet few see Hashimoto tearing apart a system built during the party's four-decade reign. He opposes efforts to stem the power of the Ministry of Finance or bust up the $70 billion Nippon Telegraph & Telephone Co. He will be more focused on fiscal tightening and tax hikes to tame Japan's swelling budget deficit.

Heading into the campaign, Hashimoto's defense of the status quo seems to be winning out over Ozawa's proposals for dramatic change. The opposition party's approval rating is all of 7%. That's largely because Ozawa lacks credibility as a reformer. Voters remember that before recasting himself as a crusading rebel, he was a legendary LDP power broker. Moreover, his heavy-handed leadership style has caused some friction within the party. On Sept. 11, three top New Frontier members quit, saying they resented Ozawa's near-exclusive grip on issues.

A big wild card in the vote is the new set of electoral rules passed in 1994 that scrapped Japan's multimember district system. Before, members of the same party often ran in the same district, winning Diet seats with as little as 15% or so of the vote. Now, there will be 300 single-seat districts that require a make-or-break 50% and 200 proportional ones that allocate seats based on party totals. More seats have been shifted to urban centers, loosening the LDP's ties to the powerful farm lobby. Yet some things haven't changed: The LDP boasts a powerful grass-roots organization and will have plenty of cash. It expects to spend $110 million in the general-election campaign.

Hashimoto will get an additional boost from a series of diplomatic meetings, including a scheduled summit with President Clinton in New York in late September. That follows a session of the U.N. General Assembly, where Hashimoto will push for permanent Japanese membership on the Security Council. Then, German Chancellor Helmut Kohl will arrive in Tokyo on Oct. 31 for a state visit.

CLOSE TO A MAJORITY? Nevertheless, the upcoming election won't be easy for Hashimoto. His government's 31% approval rating is mediocre at best. The LDP has been embarrassed by allegations that General Secretary Kato accepted an illegal political payoff six years ago--a charge he denies. Ozawa has hammered away at the party's and Hashimoto's silence on the issue. The New Frontier is pushing for the Diet's ethics committee to examine the charges. The LDP would prefer to have the general election early, before the embarrassment of an investigation.

Another reason for a speedy vote is a weakening economy. Last September's $130 billion government pump-priming package of tax breaks and public-works programs will start to lose its oomph later this year. And a tax hike will slow the economy more when it goes into effect next April. The LDP-backed increase in the sales tax from 3% to 5% is supposed to provide extra cash to close the nation's yawning budget gap. The deficit is currently 4.2% of gross domestic product, compared with 2% in the U.S. Ozawa has pounced on the issue by proposing a sales tax freeze until 2001. Even some LDP members advocate shelving the plan for a while.

Still, odds are that the LDP would come close to a majority in a quick election. It probably would land some 230 of the 500 seats in the lower house of Parliament, up from its current 208, figures Yasunori Sone, a political scientist at Keio University. Getting a majority would require wooing back LDP defectors from the New Frontier and keeping an alliance of sorts going with its coalition partners--the Social Democratic Party and the New Party Sakigake. That's more complicated now that a new party is being formed by Sakigake defectors led by Yukio Hatoyama and his brother, Kunio, who resigned from the New Frontier.

After a snap election, a victorious Hashimoto might cut a deal on U.S. force deployment on the southern island of Okinawa, where the bulk of America's 47,000 troops reside. Back in April, the U.S. agreed to hand back a major Marines base and other properties. But other Pentagon operations are spread across hundreds of other pieces of land with leases that come due next year. Hashimoto will feel pressure to act: A lopsided Sept. 8 referendum in Okinawa, in which 90% of voters backed further reductions, has emboldened locals to push him for more concessions and perhaps tax breaks to kick-start the island's ailing economy.

Fortunately for Hashimoto, the demands of areas like Okinawa have little impact on voters on Japan's main islands. If, as appears likely, many of them back his party, Hashimoto will be the strongest Japanese Prime Minister in a decade. The bizarre interregnum of the past three years will then have concluded, with the LDP once again safely in control of Nagata-cho.By Brian Bremner in TokyoReturn to top

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