A New Japan?

It seems more like Italy than Japan. Days after national elections on July 18, the leaders of nine Japanese political parties are embroiled in fervid backroom maneuvering to forge a new government. There is a frenzy of media speculation over the likelihood of a government run by the long-ruling but now- hobbling Liberal Democratic Party or one patched together by remaining parties. Japan hasn't known this kind of political fluidity since the LDP began 38 years of uninterrupted rule in 1955.

Just who heads Japan won't be clear until early August. That's when the new Diet will convene to elect a Prime Minister. Current betting is that it will be an LDP man, perhaps Justice Minister and Deputy Prime Minister Masaharu Gotoda, 78, a champion of political reform. No one rules out the possibility of an opposition coalition assuming power, however. Its Prime Minister most likely would be former Finance Minister Tsutomu Hata, co-leader of the recent LDP-breakaway Renewal Party. The LDP now holds 227 seats, 29 short of a majority in the 511-seat Diet's lower house.

Whether the new government is run by the LDP or others, however, don't look for sudden shifts in Japanese policy or international behavior. Rather than shattering an established order, the Japanese elected a more thoroughly conservative Diet than at any time since World War II. Because several independents returned to the LDP's fold after the election, the party did not actually lose any seats. It was the Japan Socialist Party that suffered the most grievous blows, losing 64 seats to parties led by former LDP men. That humiliation spells the almost certain demise of what was once a major opposition party.

STEADY MARKETS. So despite what appears to be Italian-style chaos, the government that emerges from this stew of conservative parties will continue most of the economic, diplomatic, and social policies Japan has pursued for decades. "It doesn't really matter who runs the next government," says Michio Nakajima, president of Citizen Watch Co. "There won't be that much change. Japanese people don't have that mentality." The markets agree. The Nikkei stock average has held steady, and the yen has strengthened since July 18.

That's not to say the election lacked significance. Most observers believe that it signals the beginning of a slow, subtle shift that will lead to a Japan that's diplomatically more activist, economically more efficient, and socially more consumerist. Maybe even politically less corrupt. Western misperceptions to the contrary, Japan's political restructuring could ultimately yield a stronger nation.

It could also mean a sharpening of U.S.-Japanese economic friction as Japan's trade surpluses continue to mount. Even though the Clinton Administration is hailing a so-called "framework" for negotiating with Japan, the coming period of political jockeying could make any market-opening talks more frustrating than ever. With politicians weakened, "the bureaucracy will take much more power than before," says Taichi Sakaiya, a former official at the Ministry of International Trade & Industry and author of the book What Is Japan? "That means the U.S.-Japanese relationship will become even rockier."

CLEANING HOUSE. Rather than responding to external demands for open markets, the overwhelming preoccupation of Japan's leaders will be internal political reform. The new government's paramount task will be to redraw multiple-member electoral districts that currently give rural voters wildly disproportionate power and foster LDP corruption. Failure to accomplish this goal sparked the no-confidence vote against Prime Minister Kiichi Miyazawa in June that forced the election and the modest splintering of the LDP.

According to the most widely accepted scenario, a reform package that leads to redistricting will be implemented within a year. Then another general election would follow, which many believe will yield two major conservative parties: some version of the current LDP vs. an amalgamation of new conservative forces. For the first time since the mid-1950s, Japan would have a true two-party system promising the possibility of occasional changes in government.

That doesn't necessarily mean consumers' interests will become supreme. In fact, one implication of a two-party system is that big business would no longer be hostage to an LDP bent on protecting shopkeepers and farmers. During the cold war, with the Socialists as the major opposition, business had no choice but to fund the LDP. But with two contending conservative parties, its options would increase. "It wouldn't have to concede as much on things like the irrational distribution system, overregulation, agricultural subsidies, and protectionism," says Kent E. Calder, director of the Center for U.S.-Japan Relations at Princeton University.

If that's true, a two-party system might actually create a better environment for business. "There will be more chance for freer business activities in Japan," says Hiroo Kinoshita, an executive vice-president at Sumitomo Corp.

Likewise, even if political leaders are eventually able to gain influence over powerful bureaucrats, the net result might be a more rational economic order. Members of the popular and conservative Japan New Party are vociferous critics of centralization and bureaucratic zeal. Leader Morihiro Hosokawa, a former prefectural governor now elected to the Diet, loves to tell of his one-time desire to move a bus stop several feet in southern Kumamoto Prefecture. Despite being governor, he had to get approval from the Transport Ministry in distant Tokyo. By advocating decentralization, Hosokawa's goal is to create a better life for average Japanese, not force a breakup of Japan Inc.

How soon any of these potential changes occur hinges on whether--or if--the new parties manage to wrest power from the LDP. It won't be easy. "The LDP remains the single strongest party in Japan," notes Gerald L. Curtis, a Japanese politics specialist at Columbia University. "They have their hands on a system of pork-barrel projects that gives them great power."

MODERNIZATION. Such experts believe that if the LDP is smart, it will put forward a reformer such as Gotoda or former Prime Minister Toshiki Kaifu. Then if an LDP-led coalition accomplishes its long-sought goal of political reform, the party could prolong its rule. "Lots of people have lost money betting against the LDP over the years," notes a veteran Western observer.

Whether the LDP manages to hang on or not, the new political forces at play in Japan will create change--but not the kind of change that the outside world has hoped for. It won't become a weaker, more pliable country. Instead, the Japanese goal is a stronger, better nation. For years, political scientists have decried the failure of Japan's "premodern" politics to keep pace with its world-class economy and sophisticated society. At long last, it appears, the political system is catching up with the times and listening to its people.