A Wily Koizumi Looks Set to Conquer

His back-me-or-sack-me election appears to be paying off. If he wins, pushing through postal reform will likely be just the beginning

By Ian Rowley

When Junichiro Koizumi carried out a threat to call a general election after Japan's Upper House blocked his plans to reform the country's postal service last month, it caused a quite a stir among students of Tokyo's political class.

Most onlookers had expected a truce between the Koizumi camp and opponents of postal reform, which would have paved the way for transferring management of $3 trillion of assets held at Japan's post offices to the private sector. Elders within the ruling Liberal Democratic Party were taken aback when Koizumi risked losing an election over a subject of little interest to most of the population.


  Yet with the Sept. 11 polling day looming, Koizumi's back-me-or-sack-me election looks to be paying off. Polls suggest that even a late surge from the main opposition Democratic Party of Japan wouldn't overthrow the LDP's coalition with the New Komeito party. That's despite the fact Koizumi dumped 37 lawmakers who opposed postal reform. A few of the ousted LDP members went on to form two new parties to compete in the campaign, while most are running as independents.

On Sept. 4, a poll by the Asahi Shimbun daily even predicted that the LDP could win an outright majority -- by securing more than half of the 480 Lower House seats for the first time since 1990. Such a result would represent a nice increase to the 212 seats the LDP currently holds. "It would be a big surprise if the ruling coalition didn't get a majority," says Masaaki Kanno, chief economist at JP Morgan & Co. in Tokyo.

If the polls are right, Koizumi must take credit for one of the slickest campaigns in Japanese election history. After seemingly backing himself into a corner over the dull-as-dishwater topic of postal reform, he has used all his political savvy to win over the public, portraying himself as a reformer-in-chief who fights defenders of the status quo.


  "Koizumi's a new breed. He has shown himself to be a very adept campaigner," says Jeffrey Kingston, professor of Asia studies at Temple University Japan in Tokyo. That savvy is reflected in the Premier's approval ratings, which on Aug. 23 reached 49% -- the highest since May, 2004 -- according to business daily Neihon Keizai Shimbun. And flag-waving crowds have lined the streets at his public appearances.

Indeed, such is Koizumi's appeal, a book about Oda Nobunaga, a feudal warlord who laid the foundations for Japan's reunification in the 16th century, joined the best-seller list in August after word got out that Koizumi was a fan.

Not that the LDP campaign has been just about its charismatic leader. The party is also benefiting from parachuting in celebrity candidates to run head-to-head against the postal-reform rebels. Those participating in the LDP camp include a popular female economist, a famous cooking instructor, and Takafumi Horie, CEO of Internet company Livedoor, who grabbed headlines earlier this year with an audacious bid for one of Japan's biggest TV networks.


  "Japan can't afford to have an outdated political system. If it was a company, it would have long been bankrupt," says Horie, who is running as an independent -- but on a pro-postal-reform ticket with Koizumi's support. Less-controversial business leaders, while usually reluctant to offer explicit support, are also favoring Koizumi.

"We support the change from the old Japan to a new Japan," says Takeo Fukui, president of Honda Motor (HMC ). "That's why we are firmly in the pro-Koizumi camp." All of which is making for an election billed as the most exciting in years. Voter turnout is expected to reach 65% to 70% -- higher than the average 60% for the last three elections.

Of even greater significance, the election could also give much-needed economic reforms renewed impetus. One reason: The month of campaigning has strong-armed the opposition Democratic Party of Japan into outlining its own plans for postal and other reforms.

Previously, the party, drawn from the left and right of Japanese politics, had been reluctant to make clear policy statements. For instance, the DPJ, which opposed Koizumi's postal reforms in parliament, has now unveiled a package of measures more radical than the LDP's, which were heavily watered down in the vain hope of getting them passed.


  "On major economic policies, the campaign has made clear that both parties share the same basic concepts of reform and small government," says JP Morgan's Kanno.

Meanwhile, if the LDP wins the Lower House election by a large margin, that will make it difficult for the Upper House to block postal reform a second time. While success is by no means certain, Koizumi has already said he will resubmit the postal bills as soon as possible after the election.

That, says Jesper Koll, chief Japan analyst at Merrill Lynch & Co. in Tokyo, could lead to approval of the bills by the end of November, enabling the LDP to move on to other reforms. Overhauling the near-bankrupt health-care system will likely top the list. "Of course, vested interests will voice opposition, but that has not stopped Koizumi in the past," says Koll.


  A resounding LDP victory could also herald big changes on Japan's political scene. An election fought over reform and modernization represents another nail in the coffin of the powerful factions that once dominated the LDP. During Koizumi's tenure, political power has increasingly fallen in the hands of the Prime Minister and his Cabinet members, isolating such former faction leaders as onetime Prime Minister Ryutaro Hashimoto, who's retiring from politics at the time of the election, and Shizuka Kamei, who's opposing Horie as an independent in Hiroshima.

Despite his apparent success in shaking up Japanese politics, Koizumi isn't planning to stay around to see his reforms through, however. During the campaign, he has reiterated his intention to step down as Prime Minister in September, 2006, when his term as LDP leader ends. Calls for him to stay are growing.

What remains clear is that whenever Koizumi does exit, he'll be a tough act to follow.

With Hiroko Tashiro in Tokyo

Rowley is a correspondent for BusinessWeek in Tokyo

Edited by Rose Brady

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