Rarely has Japan seen such a spectacle. On July 9, the Finance Minister Ryutaro Hashimoto, with tears glistening in his eyes, publicly accepted responsibility for Japan's dangerously widening stock market scandal. The powerful minister announced that he and two senior aides would punish themselves by taking 10% pay cuts for three months.

Concerned about his and Japan's reputation, Hashimoto is racing to put a lid on the scandal. He would like to have it under control before he and Prime Minister Toshiki Kaifu arrive in London for the Western industrial summit on July 14. A quick end to the crisis is essential to restoring investors' confidence in Tokyo's shaken market (chart). Beyond that, if Hashimoto can't contain the damage, his position as a leading candidate to succeed Kaifu in the fall could be badly crimped.

Hashimoto has moved boldly so far, cracking down on Nomura Securities Co. and three other brokers at the heart of the scandal. Calling their behaviour "shameless," he ordered all four to cease trading with corporate clients for four business days. The brokers also were hit with penalties and back taxes for improperly deducting $870 million in payoffs. Following the ministry's cues, several cities as well as government agencies are boycotting them. "The point is to make sure the problem does not happen again," says Hashimoto.

There's no sign yet that the financial turmoil is abating. Several of Japan's trust banks are thought to have followed the brokers' practice and covered losses for favored customers. In another shocker, tax authorities say Tadao Yoshida, president of zipper maker YKK and one of Japan's leading philanthropists, understated his income by about $100 million. As such revelations of misdeeds continue to pile up, Hashimoto's opponents question whether he has enough control over his ministry's powerful bureaucrats to force any real change in Japan's insular markets. More bad news, analysts warn, could knock the market down an additional 2,000 points or more after its 40% plunge since 1989.

Backing up Hashimoto's tough talk, the Finance Ministry is mulling stiffened regulation of brokers and the market. But many experts doubt that there will be any follow-through. "There's limited manpower, so perfect regulation is difficult," says Teruiki Uchida, deputy director of the ministry's Securities Bureau. "It's not necessary to have an SEC in Japan." As long as that attitude prevails, investors will probably remain skeptical.

INDEPENDENT POSE. The scandal could weaken Hashimoto in the ruling Liberal Democratic Party. A tough debater in a world where compromise is prized, Hashimoto has alienated some LDP luminaries during his 27 years in parliament. "He isn't enough of a backslapper," says one member of his faction. Rumors are now spreading that Hashimoto's political rivals will try to oust him from the ministry after the Group of Seven summit. While few think such an attempt would succeed, new, unpleasant surprises could make Hashimoto vulnerable.

Hashimoto's take-charge attitude has earned him additional points with the Japanese public. Even before the stock market mess, polls showed him as the most likely candidate to succeed Kaifu. And in Japanese popularity polls, women voters find his youthful good looks appealing.

Since taking over the Finance Ministry in the wake of another scandal two years ago, Hashimoto, 53, has struck an unusually independent pose. Last summer, he brushed aside protests from the budget bureau and boosted Japan's infrastructure spending to $3.1 trillion in response to U. S. requests.

Overseas, Hashimoto has quickly gained a reputation for being a tough bargainer in the two years since his appointment. He is perceived as pushing Japan's interests more forcefully than his predecessors ever did. "Hashimoto is clearly of the younger generation, and he brings a different approach to problems," says a Bush Administration official. "He has seen the strong rebirth of Japan, while the older leaders knew the reconstruction days and Japan's dependence on the U. S."

But the stock market scandal may lead Hashimoto into a new fight with Washington. U. S. trade officials are already pointing to the Tokyo brokers' favoritism to longtime clients as the latest evidence of the barriers faced by Americans in Japan. Hashimoto is likely to respond stoically that Japan can hardly be accused of foot-dragging on cleaning up the mess. In addition to being censured by the Finance Ministry and fined by the Tokyo Stock Exchange, the "Big Four" brokers--Nomura, Daiwa, Nikko, and Yamaichi--have cleaned house themselves.

But while such moves have proved embarrassing, the penalties imposed so far are little more than a light slap on the wrist. Indeed, while the ministry's 136-person Securities Bureau is too understaffed to monitor the country's 267 brokers, Hashimoto has rejected recent calls from business leaders to set up an independent body similar to the Securities & Exchange Commission.

Meanwhile, the once vibrant Tokyo Stock Exchange is in a blue funk. Nervous underwriters recently persuaded camera maker Nikon Corp. to drop an issue of warrants, and Japanese life insurers are urging other corporate issuers to halve their plans to raise $7 billion a month in new equity this summer.

It looks like Hashimoto will have to bang more heads before he can credibly claim Japan's markets are clean. Doing that without capsizing the stock market will require all his political skill.

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