Commentary: Japan: This Time, The Rebel With A Cause Could Win

Kato wants to push ahead with market-opening measures and end Japan's dependence on public works

Veteran observers of Japanese politics might be forgiven for playing down the recent turmoil in the ruling Liberal Democratic Party. Yes, Koichi Kato, a reformer and senior member of the LDP, has launched an internal rebellion to provoke the downfall of Prime Minister Yoshiro Mori's LDP government. But plenty of other efforts to cure the LDP's addiction to pork have failed miserably. Why should things be different this time?

The cynics are right to be wary. But the 63-year-old Kato may have a better chance than earlier reformers of forcing some change. That's because his predecessors tried to rein in the LDP at a time when Japan could still afford the party's fondness for over-the-top public spending.

This time around, the government is plain tapped out--and Kato and his allies are bold enough to say so. "If we wait any longer," says Kato's senior adviser, Hiroshi Ueki, "the Japanese economy will collapse."

Kato certainly has the facts on his side as he plots to oust Mori and set up a new LDP-led coalition that would push ahead with market reforms and take a wrecking ball to Japan's public-works edifice. The budget deficit is now clocking 10% of gross domestic product. Bankruptcies are at a postwar high. And the Nikkei is down 21% since the beginning of the year. The LDP has responded with more public-works schemes, but this attempt to goose the economy is having less and less impact, especially since local governments are too broke to pay their share for the latest projects.

The looming crisis is spurring LDP rank-and-filers to join Kato's cause. Most of his 45-member faction, plus the 19 lawmakers in a smaller group run by ally Taku Yamasaki, are backing a no-confidence vote against Mori that's expected from the opposition Democratic Party of Japan (DPJ) this month. The opposition controls about 200 votes, so a Kato-led defection could prove lethal in the 480-member lower house of the Diet. If Mori went down, the LDP would have the option of calling a general election, or, more likely, installing another revolving-door Premier.

Kato would be a strong contender for the throne, but opposition inside his party is fierce. While the Harvard-educated career politician has long been considered for the top job, the LDP detests mavericks. Undaunted, Kato has taken his case to the Japanese media and baldly stated that if the LDP doesn't back him, he may bolt for the DPJ and set up a reformist opposition government with that party's Yukio Hatayama and Liberal Party chief Ichiro Ozawa.

There is no denying that Mori, the current Prime Minister, has been nothing short of a disaster for the LDP since he assumed the job in April following the death of his predecessor, Keizo Obuchi, from a stroke. Mori's cabinet has been beset with scandal after scandal, including the resignation of his right-hand man, Cabinet Secretary Hidenao Nakagawa, who quit in disgrace last month for tipping off his mistress about an impending drug investigation by prosecutors.

The dilemma for the LDP is that the party represents the kind of coddled businesses--construction companies, retailers, and distributors--that have the most to lose from the kind of deregulatory shock therapy backed by Kato and his allies. Other executives, meanwhile, aren't in the mood for full-fledged political crisis--not with the economy still stumbling along. Mitsubishi Motors Corp. Chief Executive Officer Takashi Sonobe, who believes Kato will fail, says "if the Prime Minister changes, it won't affect economic policies much."

Nonetheless, some fear a Kato-led rebellion could delay passage of $44 billion worth of supplementary public-works spending expected by yearend. "If that's stalled, the shock to the market will be severe," says Shigenori Okazaki, a political analyst with UBS Warburg Japan Ltd.

Kato isn't flinching, however. Should he manage to grab the Premier's chair, his immediate priority will be ordering up the kind of spending cuts needed to get the central government's budget mess under control, while opening the economy to greater competition. Long-range, of course, that's what Japan needs. In the shorter term, it means more turmoil. Kato may not succeed. But more and more Japanese are listening to the disturbing things he has to say.

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