Japan’s Next Leader Faces One of World’s Toughest Jobs

Photograph by Kiyoshi Ota/Bloomberg, Illustration by Bloomberg View Close

Photograph by Kiyoshi Ota/Bloomberg, Illustration by Bloomberg View

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Photograph by Kiyoshi Ota/Bloomberg, Illustration by Bloomberg View

Yoshihiko Noda will doubtless win his party’s leadership race this week. There’s little certainty, though, that Japan’s prime minister is up to putting his country, the world’s No. 3 economy, on stronger footing.

For starters, Noda’s victory may be Pyrrhic. He is under pressure to dissolve parliament and hold national elections, perhaps as soon as November. His dismal public support raises the specter of the ruling Democratic Party of Japan losing power after just three years. That would put the Liberal Democratic Party, which governed Japan for more than half a century, back on top.

Noda, 55, and his party must also contend with a new political force: Osaka Mayor Toru Hashimoto, 43, who is forging a popular new third-party movement. Whoever takes control as 2013 approaches, Noda and the DPJ or the LDP, faces a daunting set of challenges. Here are the three biggest.

First, get a grip on territorial disputes. Anti-Japan demonstrations sweeping China are endangering a trade relationship that tripled in the past decade to more than $340 billion, as well as the stability of markets, Japan’s credit rating and its global standing. China, it must be said, has been too tolerant of the increasingly violent protests over disputed islands. This week, the official vehicle of U.S. Ambassador Gary Locke was damaged as it entered embassy grounds.

Olive Branch

Embroiled in its own leadership transition, China seems keen on fanning the flames of nationalism to deflect attention from embarrassments such as the corruption scandals surrounding Bo Xilai. The next leader of Japan must extend an olive branch before the crisis escalates into armed conflict -- not because it’s all Japan’s fault, but because China is unlikely to do so.

Second, revive the economy. Noda, or the LDP’s to-be-named- later pick for prime minister, must find his inner Koizumi. Prime minister from 2001 to 2006, Junichiro Koizumi was the closest thing Japan has had in decades to an economic reformer. He reduced wasteful public-works spending, put deregulation on the table and privatized the vast postal system, which ran the world’s biggest savings bank.

Still, history shows Koizumi was more of a Mikhail Gorbachev than a Margaret Thatcher or Ronald Reagan: a leader who set the stage for a genuine economic reformer. Japan’s next leader must be that change agent.

The formidable economic to-do list includes reducing the world’s largest debt without killing growth, managing the consequences of an aging population and a negligible birthrate, tweaking the tax code to cultivate job-creating startups, and raising Japan Inc.’s corporate-governance game. The next leader must get serious about forging free-trade agreements and devising a more open and economically advantageous immigration policy.

Last but not least, that next leader must find a new energy policy. A massive earthquake and tsunami on March 11, 2011, forever changed Japan’s relationship with nuclear power, turning a majority of Japan’s 127 million people against the reactors that had provided about 30 percent of their electricity.

Greenpeace exaggerates when it argues Japan can live comfortably without its reactors. Its public coffers are under stress to pay for oil, gas and coal to generate electricity, and its carbon footprint is growing. Japan should boldly champion renewable energy sources -- solar, wind, geothermal, biofuels derived from algae, you name it.

Dispiriting Message

A case in point would be to approve plans by Masayoshi Son, the billionaire chief executive officer of Softbank Corp., to spend about $1 billion building 10 giant solar farms. They are snarled in red tape, sending a dispiriting message to other would-be investors at a time when Japan needs lots of alternatives to nuclear power.

Noda’s biggest failing, in our view, is a lack of vision and imagination. He won kudos for doubling Japan’s consumption tax to 10 percent to pay down public debt. Yet raising taxes on a population traumatized by two decades of economic drift and last year’s earthquake was taking the easy road. It’s a quicker route, certainly, than shaking up a change-resistant economic and political system. It’s about time Japan’s leaders choose the road less taken.

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