Japan's New Premier May Just Make Matters Messier

It was perhaps the strangest and most disquieting twist that Japan's recently tumultuous politics has produced since World War II. Late on June 29, the country's parliament shocked the nation by electing a dark-horse, hard-left Socialist as Prime Minister. Tomiichi Murayama, wild-eyebrowed chairman of the Japan Socialist Party, won a rare and unexpected 10 p.m. runoff against former Prime Minister Toshiki Kaifu.

The decisive votes came from the conservative Liberal Democratic Party, which ruled Japan for 38 years until mid-1993 and for decades ridiculed the Socialists, who haven't had a Prime Minister since 1947. The country's TV networks were so unprepared that they had no analysts on hand to interpret the event for viewers.

The best that can be said about Murayama's selection is that it fills a worrisome void created by the resignation of Prime Minister Tsutomu Hata and his Cabinet on June 25 in the face of a no-confidence motion introduced by the LDP. World leaders were wondering which, if any, of Japan's senior officials would represent it at the Group of Seven Summit July 8-10 in Naples, Italy. Now they know. But dramatic policy differences between the Socialists and the LDP portend even more tumult and are likely to undercut Murayama's ability to speak with much authority at the summit.

SHOTGUN MARRIAGE. Indeed, Murayama could generate new friction with the U.S. if he stays for long. The Socialists, for example, fiercely oppose the kind of tax reform and market openings the LDP and the U.S. back to revive Japan's economy. Murayama's crowd also harbors much warmer feelings toward North Korea than the LDP and almost everyone else in Japan.

There is little reason to think the currency crisis that has seen the dollar pummeled by the yen will end soon. Japan's trade surplus is continuing to pile up, and traders think that Murayama is a poor bet to do anything about it. "This is clearly a good reason to sell dollars," says Michael R. Rosenberg, manager of international fixed-income research at Merrill Lynch & Co.

Of course, Murayama's tenure in office may turn out to be brief. The LDP-Socialist alliance is little more than a shotgun marriage that presages further instability. The two parties are going to have a tough time even forming a Cabinet. And several key LDP leaders, including former Prime Ministers Kaifu and Yasuhiro Nakasone and former Foreign Minister Michio Watanabe, bolted the LDP voting block out of disgust at their party's cynical ploy to regain power on the back of its age-old enemy.

SHOCK THERAPY. These renegade LDP kingpins particularly worry that the new coalition will seek early national elections before electoral districts are redrawn under a popular political reform program adopted recently. Such a move would further alienate Japan's already jaded voters, the renegades fear.

Still, some enemies of the victorious alliance are welcoming the LDP-Socialist deal as a shock that will outrage the populace and restore momentum to the stalled reform process. "We feel that Japanese people should be praising politicians for helping to speed the flow of political change," said Kozo Watanabe, a leader of the reformist Japan Renewal Party, on television. His party is led by Ichiro Ozawa, Japan's most celebrated political visionary and power broker, who is seeking a dramatic realignment.

The reformers would like to see Murayama's government last only a few months--just long enough to complete the redistricting that will hurt both the Socialists and the LDP. They hope that new elections will then lead to a two-party system that might help restore Japanese politics to sanity.

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