Something quite extraordinary has just transpired in Japan. On Sept. 11, Prime Minister Junichiro Koizumi engineered one of the most stunning electoral victories in Japanese postwar history by effectively trash-talking his own long-dominant Liberal Democratic Party. Throughout the campaign, his constant targets were the LDP stalwarts who for years tolerated and prospered from the corrupt, insider-driven machine politics that long had been the party's distinguishing feature. The contest drew a record voter turnout and has left an LDP claiming to be committed to reform under Koizumi's leadership with an absolute majority in the Japanese Diet.
Rarely has a call for financial reform received such a ringing political acclamation. Koizumi called the election in early August when anti-reform elements inside the LDP, long supported by postal unions, blocked his efforts to privatize Japan's $3 trillion postal savings system. It was risky, but Koizumi deftly used the media to explain to voters what was at stake: By moving the nation's postal savings stash into the private sector, the LDP would no longer have a fat piggy bank to fund pork barrel projects to buy off voting blocs.
The massive rally in the Nikkei in recent weeks and a steady stream of robust economic data suggest Koizumi's moves to clean up the banking sector, turn off the public works spigot, and hand out Cabinet posts based on merit rather than connections are finally paying off. Now Koizumi should quickly use some of his enormous store of political capital to begin taming Japan's giant budget deficits, introduce regulatory reforms and more state asset sales to bolster the country's still-lagging economic competitiveness, and shore up its insolvent state-run pension system before his scheduled resignation in September, 2006. Landslides are a rarity in Japan, so Koizumi must make the most of this one.