No. 28 July 21, 2000

Feature Article


Barbara Wanner


Given the enormity of the economic, business and social-welfare problems confronting Japan, some pundits could not resist speculating that the Liberal Democratic Party and its governing partners, the New Komeito and the New Conservative Party, would take a royal drubbing in the June 25 lower house elections. The proverbial last straw that would cause voters to abandon the ruling parties in droves, they proposed, was none other than the substantively weak, gaffe-prone Prime Minister Yoshiro Mori, who had been propelled to the nation's highest elected office by LDP elders in need of a loyalist to warm the seat vacated by the gravely ill Keizo Obuchi. To the surprise of these observers, not only did the coalition clinch a 271-seat absolute majority in the 480-member House of Representatives, but the three parties also quickly united behind Mr. Mori, ensuring his easy reelection as premier.

The election results were hardly a rousing endorsement of Mr. Mori and his triparty administration, however. The Liberal Democrats lost the simple majority that they had had in the lower house before it was dissolved for the poll. The ranks of its partners also were thinned by more than a third. The opposition parties, in contrast, boosted their Diet representation substantially — but not by enough to unseat the coalition.

Voters seemed to be saying that even though they continued to lose faith in the LDP's leadership, they were not ready to entrust the running of the government to an opposition led by the Democratic Party of Japan. Mr. Mori's win also may be viewed as a victory by default. The prime minister was able to keep his job primarily because he was a less-divisive figure than any potential LDP contender. Furthermore, Mr. Mori is needed to preside over the late July summit on Okinawa of the leaders of the Group of Seven industrial nations plus Russia.

Most experts believe that the next major turning point for the LDP and its partners will be the July 2001 upper house elections — although almost anything could happen in the meantime in Japan's fluid political world. Mr. Mori already faces some known challenges in the near term. In addition to getting the economy on a self-sustaining recovery track, the prime minister must navigate the mine field created by a bribery scandal involving a former Construction minister, the collapse of retailer Sogo Co., Ltd. and the January 2001 implementation of a sweeping bureaucratic reorganization.

In the end, Mr. Mori may be forced out of office sooner rather than later, especially if further revelations implicate senior LDP members in the Ministry of Construction scandal. Moreover, the LDP leadership could be threatened by instability from within the party that is fueled by generational differences as well as by the clash of traditional interest group agendas, a growing split among key constituencies and old-fashion power plays. However, barring the emergence of a unified political opposition with a well-conceived policy platform, the Liberal Democrats will deal with these potentially transformational forces by making only incremental changes in policy and political behavior. Then again, muddling through is how the LDP has managed to hang onto power for 40-plus years.

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Weekly Review

--- by Douglas Ostrom

For months, Bank of Japan officials have been dropping hints that the central bank soon would end its 17-month policy of maintaining interest rates at zero or thereabouts on the financial instruments it controls most closely. By the week before the July 17 Policy Board meeting, a majority of analysts were predicting that BOJ finally would take the plunge. They noted that the market appeared to be factoring in an increase of roughly a quarter of a percentage point on comparable instruments outside BOJ's direct control.


--- by Jon Choy

A tsunami of public anger swept aside logical arguments that would have kept troubled retailer Sogo Co., Ltd. afloat, forcing Tokyo to second-guess its decision to support the firm's workout proposal and leading executives of the department store chain to seek court protection from creditors. Some observers say that the decisive role of public opinion in deciding Sogo's fate is a turning point in the restructuring of Japan's economy. In this view, the backlash showed that voters no longer believe in rescuing every name company that is failing. Others analysts counter that the public's ire — while understandable — may have forced actions that may not yield the best long-term solution to the Sogo mess. Although the retailer's decision to file for bankruptcy will halt the debt workout as well as Tokyo's active role, it will not end the controversy about government bailouts.


--- by Marc Castellano

Prime Minister Yoshiro Mori unveiled the details July 14 of an extraordinary $18 billion package that will help developing economies, mainly in Asia, bridge the so-called digital divide — the gap between nations that have benefited from the proliferation of information technology and those that have not. At the most basic level, the landmark initiative, which includes $3 billion to fight infectious diseases, represents Tokyo's commitment to the success of the summit of the leaders of the Group of Seven industrial nations plus Russia on Okinawa. The digital divide and the problems of infectious diseases in the developing world are key agenda items at the global forum.


--- by Barbara Wanner

Given the continuing threat that regional conflicts pose to global peace and stability, the foreign ministers of the Group of Seven industrial nations plus Russia seemed to have few problems reaching a consensus during their July 12-13 confab in Miyazaki prefecture on the importance of undertaking preventive measures. The resulting Miyazaki Initiative for Conflict Prevention, a five-point action plan for developing a "constructive response to international concerns over security, nonproliferation, humanitarian and human rights issues," lays the groundwork for further discussion on diplomatic and security-related matters by the leaders of Canada, France, Germany, Great Britain, Italy, Japan, the United States and Russia when they convene on Okinawa for this year's summit.



By the conclusion of this year's International Whaling Commission plenary session, the Japanese delegation had made more progress toward gaining acceptance of its viewpoints than at any IWC meeting in recent memory. While several of their motions were voted down, Tokyo's representatives did convince the group to resume work on the Revised Management Scheme — a set of legal and scientific guidelines for regulating commercial whaling — after a 13-year hiatus. If preparations are completed as planned, the RMS could be implemented as soon as the 2001 IWC conference. "Strictly controlled, sustainable harvesting of abundant [whale] species" would follow, according to the head of Japan's delegation. However, the IWC's summary statement pointed out that "work on a number of issues, including specification of an inspection and observer system, must be completed before the commission will consider establishing catch-limits other than zero."


Lower costs are in store for communications carriers, domestic or foreign, in Japan that need to access the networks owned by Nippon Telegraph and Telephone East Corp. and Nippon Telegraph and Telephone West Corp. to initiate or terminate voice and data traffic or to move it across the country. Reaching agreement on the depth of cuts in NTT's interconnection charges and their timing took nine months of on-again, off-again talks capped by intensive negotiations starting July 10 in Tokyo. Finally, the morning of July 19, U.S. Trade Representative Charlene Barshefsky and Chief Cabinet Secretary Hidenao Nakagawa separately announced in the Japanese capital that the two governments had a deal. The settlement, achieved overnight, eliminated a potential source of distraction from Japan's lofty agenda for the July 21-23 summit on Okinawa of the leaders of the Group of Seven industrial nations plus Russia. It also cleared the way for the release of the third (and presumably final) report on progress under the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy. Most importantly, the agreement should inject some much-needed competition into Japan's local telephone market and enable carriers and Internet services providers to deliver a broader range of services less expensively (see JEI Report No. 26B, July 7, 2000).

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