Japan's Small, Smoke Filled Room

One after the other, the limousines pulled up to the exclusive Takemoto restaurant, a favorite nightlife haunt of Japan's power elite in Tokyo's Akasaka district. Out stepped four of the mightiest leaders in Japan's ruling Liberal Democratic Party. Sharing a private tatami-mat room on Aug. 16 were Finance Minister Ryutaro Hashimoto and former LDP General Secretary Ichiro Ozawa, the two top rivals for future control of the party's dominant Takeshita faction, and thus for the office of Prime Minister. Joining them were two even more senior members of the influential faction.

The gathering was prompted by the death the previous day of former Foreign Minister Shintaro Abe, who had been leader of LDP's second-largest faction. Abe was the consensus pick to succeed Prime Minister Toshiki Kaifu, whose term ends in October. With Abe now gone, the succession was suddenly up for grabs. Whom should former Prime Minister Noboru Takeshita's faction anoint as the next Prime Minister? Takeshita and these four men had the power to decide.

IN SHADOW. The meeting typifies the murky, manipulative world of LDP factions, the quintessence of back-room politics. To understand how the plague of scandals that has wracked Japan this summer might play out, it's necessary to penetrate deep into Japan's political structure. The LDP's leading factions are not distinguished by issues, or even by commitment to voters. Instead, personal alliances are what count. Interwoven into these factions are the zoku, the informal, cross-factional cliques of LDP politicians who serve to protect special-interest groups in return for steady flows of funding (table). With business and politics so tightly interdependent, the climate is ripe for scandal.

As the late-October election for Prime Minister nears, the infighting among LDP factions is pushing the scandals out in the open. Some experts speculate that those hurt most, such as Hashimoto and Nomura Securities Co. former CEO Yoshihisa Tabuchi, have been targeted for leaks because they are close to Takeshita, who was making a comeback after being forced from office in 1988's notorious Recruit scandal.

Ironically, the political weakling on whose watch the scandals erupted seems to be gaining the most. As recently as June, hardly anyone gave Kaifu a chance for another term. His lack of clout, so visible internationally, frustrates and even embarrasses many Japanese. His usefulness as a puppet of Takeshita faction bosses--who plucked him from the LDP's weakest sect because they needed a clean, harmless face to serve as Prime Minister after a rash of scandals in 1989--seemed near an end.

But Kaifu now is the leading contender for the same reason the bosses installed him: He's acceptable to the scandal-weary Japanese. He gets high support ratings and can make a strong case that the future of a sweeping program of political reform he's pushing rests on his reelection. And Hashimoto, once trumpeted as his most likely successor, has been seriously damaged as head of the ministry that is taking most of the blame for the scandals.

Factions aren't unique to Japan, but nowhere are they as institutionalized. Each of the LDP's five main factions has its own formal name, office, budget, and secretariat. They exist because they are the only means for real political competition in Japan. Except for a brief period in the 1950s, the LDP has run Japan since World War II.

The LDP has three groups to thank for its dominance: Opposition parties, led by the Socialists, have been ineffectual. Big business has been ever ready with its bankroll. And farmers have voted faithfully in return for special treatment. In addition, the LDP has persistently ignored repeated Supreme Court rulings that the current system is unconstitutional.

The key to current faction politics is that nothing can happen without the acquiescence of the Takeshita faction. Comprising 106 Diet members, it has 16 more votes than the second-largest Mitsuzuka faction, the former Abe faction now headed by Hiroshi Mitsuzuka. Together, those two allies control more Diet members than do the other three LDP factions.

Traditionally, factional leaders have taken turns running the government by brokering the election of each other as party president. But the leaders of four of the LDP's five factions today are out of the running. Shin Kanemaru, age 76, of the Takeshita faction, is too old and has never aspired to be Prime Minister. Michio Watanabe, 68, is too coarse and controversial. Former Trade & Industry Minister Mitsuzuka, 64, hasn't sufficiently established himself and is the subject of many scandal-related rumors. And as leader of the smallest faction, Toshio Komoto, 80, is too old and inconsequential.

That leaves Kiichi Miyazawa, 71. While neither he nor anyone else is openly campaigning, "he has a very strong desire," says fellow faction member Koichi Kato. Miyazawa, fluent in English, boasts the internationalist skills many Japanese think their country needs. He's more popular with younger members of the Diet than others his age. But he was tainted in the Recruit scandal, and his reluctance to play political hardball makes him seem maladroit to many insiders. "He isn't the type to get his hands dirty in a political struggle," says Professor Kenzo Uchida of Tokai University.

In the absence of a clear front-runner, power remains in the hands of the Takeshita group. Continuing to call the shots will be Takeshita, Kanemaru, and, increasingly, the much younger Ozawa. On the rebound from a humiliating LDP defeat in last spring's Tokyo gubernatorial election and a recent heart ailment, Ozawa isn't ready for the top job yet. Many analysts think he will back Kaifu for now. "Kaifu is the easiest person for Ozawa to manipulate," says Takao Toshikawa, chief editor of Tokyo Insider, an influential political newsletter.

MONEY TALKS. For most political hopefuls, deciding which faction to join is a matter of political expediency. Koichi Kato's is a fairly typical case. His father was a Lower House member who belonged to the short-lived Fujiyama faction in the 1960s. Seven years after his father died, Foreign Ministry bureaucrat Kato decided to run from the same Yamagata constituency. Since none of the LDP representatives from that district belonged to the Ohira faction, Kato wrangled an introduction to Masayoshi Ohira, who would become Prime Minister in 1978. "I liked Ohira. I wanted to be his disciple," Kato says.

To ensure loyalty, faction bosses maneuver relentlessly to get their members plum jobs. Kato, 52, hasn't done badly. Now in his seventh term, he has served as Director-General of the Defense Agency. And he is widely spoken of as a future Prime Minister.

Kato downplays the role of money in factional politics, but there's no question it's key. The typical lower House member needs about $1 million a year to cover such expenses as staff and office rental. But the government only foots 15% to 20% of that bill, enough for two staffers. Yet active, senior Diet members require more like 20 staffers. The average incumbent then needs an additional $1 million for each election, for which there are no subsidies. "Nowadays," says LDP Diet veteran Masayoshi Ito, "politicians devote most of their attention to raising money, not to policy-making." Anyone who can raise enough money to share with colleagues stands to rise quickly to the top of a faction.

That's where the zoku come in. Zoku, which means tribes, are informal, industry-oriented groups of LDP Diet members who specialize in such areas as agriculture, telecommunications, and defense. A zoku's main function is to protect its particular interest group. Through membership in Diet oversight committees, they intervene with ministries to prevent anything undesirable happening to their business interests. This nexus of bureaucracy, politicians, and interest groups is what Professor Gerald Curtis of Columbia University refers to as Japan's "iron triangle."

With the quid, of course, comes the quo in the form of massive political funding from the interest groups. By some estimates, industry is pumping as much as $100 million into zoku coffers. While most smaller interest groups such as labor unions and consumer groups tend to support the opposition, the LDP's zoku look disproportionately to big business and agriculture for funding. That explains why politicians are less than rigorous when it comes to scrutinizing business practices such as those revealed in the latest scandals. This dynamic certainly isn't unknown in the U. S., but laws that are strictly enforced limit how much any member of congress can receive from a particular source.

When misdeeds in Japan do come to light, experienced politicians such as Kaifu and Hashimoto are masters at appearing to take public outrage to heart. They will apologize to the voters, excoriate the industry, and promise to take action. Hashimoto may even resign. But don't expect fundamental reform. Even at the grass roots, most Japanese citizens are quick to get over their initial pique. Until a healthy opposition emerges--and that prospect is nowhere in sight--politics in Japan should continue pretty much as usual.


The ruling Liberal Democratic Party is divided into five factions, each with a forceful leader. At the same time, zoku, or policy "tribes," run by LDP politicians in the Diet protect business groups, such as agriculture, telecommunications, and construction. In return, the pols receive generous contributions from the industries they support

TAKESHITA FACTION Japan's most powerful political bloc. Named for former Prime Minister Noboru Takeshita, leader of the construction zoku, who had to step down after the Recruit scandal. Now run by Shin Kanemaru, telecommunications zoku leader. Also includes Finance Minister Ryutaro Hashimoto

MITSUZUKA FACTION Second-largest, headed until May by the late Shintaro Abe, and now run by former Trade & Industry Minister Hiroshi Mitsuzuka. Mitsuzuka belongs to the transportation zoku and is regarded as one of the best money conduits in the party

MIYAZAWA FACTION Run by the English-speaking Kiichi Miyazawa, former Finance Minister and member of the finance zoku. This faction is Japan's most internationalist in outlook and one of the most dovish

WATANABE FACTION Former Prime Minister Yasuhiro Nakasone's faction now is run by the chatty Michio Watanabe, a powerful leader of both the agriculture and finance zoku, and has a hawkish defense orientation

KOMOTO FACTION This smallest of factions has little influence, and Toshio Komoto, a former shipping magnate, funds it out of his own pocket. Prime Minister Toshiki Kaifu belongs to this faction and to the education zoku

Before it's here, it's on the Bloomberg Terminal.