In Japan, It Looks Like Out With The New, In With The Old

After two years of patiently waiting in the wings, Japan's Liberal Democratic Party could be on its way back to regaining the Prime Minister's slot. Since last summer, the LDP has been cohabiting with Prime Minister Tomiichi Murayama's Japan Socialist Party in a bizarre coalition government. But the Socialists appear headed for a humiliating defeat in Upper House elections on July 23. That could open the way for the LDP, which has the biggest bloc in the more important Diet, to place one of its own in the top job.

The revival of the LDP indicates that the once promising reform movement in Japan is, if not dead, in deep trouble. The corruption-riddled LDP seemed mortally wounded in 1993 when it was ousted after four decades in power by a group of renegades led by former LDP kingpin Ichiro Ozawa. But Ozawa's plans to radically reform Japanese politics have failed miserably--in part because he and his cohorts were also tainted by money politics. The two Prime Ministers Ozawa picked were forced out of office: Morihiro Hosokawa by unsavory revelations and Tsutomu Hata in a no-confidence vote.

Ozawa's reforms were basically designed to give more power to the voters and the politicians they elected. But his shortcomings, combined with a weakened LDP, have left the government bureaucrats with more control than ever over economic policy. With little political direction, however, the bureaucrats have been unwilling to take the bold measures needed to ease Japan's bank crisis or kick-start the economy. Ozawa, who formed the New Frontier Party last December, has been calling for a big-spending "New Deal" to halt the deflation in real estate and equity prices that Hosokawa says threatens a "global financial panic," but so far this message has not caught on with the voters.

The possibility of an LDP return is heightening interest in the party's leadership contest scheduled for the end of summer. The party race is likely to boil down to a battle between two stalwarts: Foreign Minister Yohei Kono and International Trade & Industry Minister Ryutaro Hashimoto. Although Hashimoto has been in the headlines lately, Kono, 58, is a more powerful figure in the LDP as he is now the party's chief and enjoys the backing of a strong faction controlled by former Prime Minister Yasuhiro Nakasone.

Hashimoto, 57, is something of a New Age politician whose irreverent handling of U.S. trade negotiator Mickey Kantor in the recent auto talks scored big points with the Japanese public. But Hashimoto's penchant for blunt speaking hurts him with LDP elders. If Hashimoto does prevail, he is likely to take a strongly nationalistic stance in upcoming trade disputes with the U.S., which would probably prefer dealing with Kono.

"LOW CREDIBILITY." If the LDP manages to regain the Prime Minister's office, it won't be to thundering applause. The LDP boasts that it can get things done, but Japanese big business is frustrated with the present coalition's inability to deliver on long-promised deregulation. Japan's apparent slide back into recession also has the country's corporate chiefs very edgy. At the same time the public sees the pairing of the once bitter rivals, the LDP and the Socialists, as proof that the politicians have no scruples left. "Two years ago, there was great hope" Japan would change, says Yotaro Kobayashi, CEO of Fuji Xerox Co. "Now, politicians' credibility is very low."

Such sentiments have helped to fuel a populist movement of sorts. Back in April, voters elected two television comedians, both independents, to top posts in the cities of Tokyo and Osaka. But these newcomers don't have the money to score big on the national level anytime soon. The LDP is slipping back into the driver's seat--almost by default. That probably rules out the kind of dramatic change many think Japan needs.

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