Japan’s New Prime Minister: Junichiro Koizumi
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TERENCE SMITH: Joining me now to discuss Japan’s new prime minister are Robert Hormats, vice chairman of the investment firm Goldman Sachs International and a former economics official in the Nixon, Ford, Carter and Reagan administrations; and Mike Mochizuki, Associate Professor of Political Science and International Affairs at the George Washington University.
Welcome to you both. Mike Mochizuki, nine prime ministers in ten years. Is this just another prime minister or a real departure in Japanese books?
MIKE MOCHIZUKI: Well I think it’s really one of the most promising and exciting developments in Japanese politics in a long time. It reminds me of the excitement that greeted the election of Prime Minister Hosokawa back in 1993, and it raised a lot of expectations that Japan was on the way for real political reform. So in that sense I think there’s a great deal of excitement in Japan now, but I think we have to be cautious about it because what happened to Mr. Hosokawa. Although he had 70% of the support of the people, his administration only lasted six months. And he accomplished a change in the electoral system, but he really did not transform Japanese politics.
TERENCE SMITH: How will this kind of personality, in your opinion– the hair, the hip image, et cetera– go down with an essentially conservative Japanese public?
MIKE MOCHIZUKI: Well I think the public will be quite attracted to this person because he really is a breath of fresh air, and I think people have been tired of the old gray, staid party bosses of the past. This gives them hope that maybe Japan can make up for the last ten years of economic stagnation and have a bright future.
TERENCE SMITH: Bob Hormats, style aside, he faces some formidable obstacles.
ROBERT HORMATS: He certainly does. He really is a new breath of fresh air. His style is very different but he faces very strong, very strong head winds. He faces resistance from factions of the LDP, the ruling party, many of whom are not represented in a very major way in the cabinet.
He faces resistance if he wants to privatize the postal savings system from politicians who want to use that money for their pet projects in their districts, and from employees in the system he faces resistance to reform of the banking system because there are a lot of construction companies, real estate companies that have a lot of bad debt. Some of them will be forced to go bankrupt if there is big reforms in the banking system and restructuring of these bad loans. He’s got a formidable set of obstacles. One would hope that he could do it but the resistance is something we should not underestimate. There’s a lot of entrenched resistance to this.
TERENCE SMITH: So he’s got to bring a lot of people along with him and do it I suppose in a fairly short time.
ROBERT HORMATS: Yes, that’s right. I mean, he can’t make miracles right away. There will be upper House elections in July –
TERENCE SMITH: Just three months from now.
ROBERT HORMATS: That’s right. Even before that he has to go to the G-7 summit with President Bush and other leaders to at least try to convince the world that he’s making progress or at least some progress toward reform. But he has to mobilize a lot of people in Japan. And it’s a relatively conservative society. Even though, Mike correctly pointed out, people wanted a change — but they don’t really have that sense of urgency yet to make the kinds of radical reforms that they probably are going to have to do to really restructure banks and really get some of this bad debt off the books of the banks and off the books of the corporate sector like we did when we had our S&L crisis. They really haven’t gone through that major restructuring that we went through in the ’80s.
TERENCE SMITH: Do you see the obstacles in similar fashion?
MIKE MOCHIZUKI: Yes. The real problem is that in the short term he has to convince the Japanese people to swallow some… a bitter pill, to take some economic pain, infuse public funds into the financial system, maybe even see a downturn of more corporate bankruptcies, but to convince them that in the future, the Japanese economy looks bright and to restore some consumer confidence. I mean, one of the problems in the Japanese economy is that they save a lot of money, which is a good thing, but then they’re not spending enough as well to get the economy going.
TERENCE SMITH: Is he a sufficiently persuasive politician to be able to translate today’s pain into tomorrow’s promise?
MIKE MOCHIZUKI: Well, as a speech giver, he’s not very good. He doesn’t have the orator skills of maybe someone like former Prime Minister Nokosono. But you know there is a lot of expectation. Because of his maverick style, I think he’s captured the imagination at this moment for the Japanese people. Now he’s got three months before the upper House election. I think he has to convince the Japanese people that he’s for real, and he needs to reach out beyond the LDP rank-and-file that revolted against the party bosses to the non-aligned voter, especially those in the urban areas. And then if he can kind of go against the expectation that the LDP was going to face an electoral disaster in July, then I think he would have a firmer political base in the LDP then to pursue the very difficult reform process in the fall.
TERENCE SMITH: Bob Hormats, what’s the U.S. stake in this man’s success or failure?
ROBERT HORMATS: Well, the U.S. Stake is really enormous. Japan is our second or third, depending on the year, biggest trading partner. It’s clearly the biggest economy in Asia by far; dwarfs China and the rest of Asia. Japan is really the central economy of the region. And if the Japanese economy remains weak, it certainly makes our own economic recovery much more difficult. Just to give you an example: When we had the stock market crash in 1987, it was growth in Japan and in Western Europe that helped us to get through that period with relatively little damage.
When we had the recession in 1990, 1991, Japan was growing very rapidly. It helped us to cushion that recession and to get out of it very quickly. Now we’re going into a period of very weak economic growth with this big trading nation in Asia in a very weak condition. That not only is bad in terms of bilateral trade, it makes the rest of Asia weaker, because a lot of countries sell a lot of goods to Japan. So the American stakes in Japan coming out of this period of economic weakness and resuming robust growth, the American stake is very high in that.
TERENCE SMITH: Are there things that this administration can do or not do to affect his prospects?
ROBERT HORMATS: Relatively little, actually. One of the problems is that we have been… Bob Rubin and Larry Summers and others were pushing the Japanese for a number of years to stimulate their economy, to do something…
TERENCE SMITH: Former Treasury Secretaries.
ROBERT HORMATS: Now Paul O’Neill, the new Treasury Secretary, said we don’t want to go out and bludgeon the Japanese and push them very hard and very visibly. But the U.S. does have a stake, and Secretary O’Neill will be meeting his Japanese counterpart this weekend, and certainly he’s going to have to express concern about the Japanese economy and encourage them to have more monetary stimulus, print more money and stimulate the economy through monetary policy, just as the Federal Reserve is trying to do, to put more money into a system by fiscal policy, which is they infuse more money into the banks, and also to restructure these bad loans just as the U.S. did with the S&L crisis. It’s very difficult to do. The pressure from the United States can help, but only marginally.
TERENCE SMITH: This notion of privatizing the postal savings system, which I guess is the largest savings bank in the world that the Japanese have their money in, this is a pretty radical notion, isn’t it?
MIKE MOCHIZUKI: Yes, it’s a very radical notion. It is radical because it really gets at the heart of the Liberal Democratic Party’s support base. The post office is… There are tens of thousands of post offices all across Japan, and that’s been a tool for mobilizing voters for the LDP and so Mr. Koizumi is trying to get at that. In a sense, he’s trying to… He’s destroying the LDP in order to recreate it and make it stronger. That’s going to be very, very difficult. I think he’s going to have to probably moderate that policy platform and concentrate on restoring the financial system to health, and then deal with the privatization of the postal savings later.
TERENCE SMITH: Is there any parallel to the notion in this country of possibly privatizing some part of Social Security?
ROBERT HORMATS: Well, to a degree, but really this is, in a way, a much more fundamental thing because, as Mike points out, it’s so politically important to Japan and to the people in the LDP. They use this money for pet projects. And this is $2 trillion, a huge amount of money. I think that politically he’s right. They’re going to have to really push this to the sidelines. It’s symbolically important. It’s economically important, but the most important thing is these bad loans on the books of the banks. Banks are not going to lend to a lot of corporations if they have a lot of bad loans on their books. And the corporate sector really can’t borrow unless they have better balance sheets, unless they’re good borrowers. They’re not good borrowers as long as they have a lot of debt. That’s the primary goal, I think.
TERENCE SMITH: One other notion that he has talked about, the new prime minister, is revising the Japanese constitution to give the military a stronger role and greater latitude. How is that likely to go down?
MIKE MOCHIZUKI: Well, I think there’s growing support in Japan for revising or at least reinterpreting the constitution. This is not the first step on the road to the remilitarization of Japan. All Mr. Koizumi is saying is that the present constitution seems to allow the interpretation among some that Japan does not have the right to defend itself, that the self-defense forces may be unconstitutional. So he wants to change the constitution to explicitly permit that. Really, so that Japan can exercise its inherent right of individual and collective self- defense. That’s a right that is enshrined in the United Nations charter, so I would not interpret this as a swing towards a much more robust military role for Japan in the region.
TERENCE SMITH: Very quickly, any problem with the U.S. on that?
ROBERT HORMATS: No, I think the U.S. wants Japan to play a more assertive role. Now with all these issues in China, I think there will be some effort by the United States to encourage Japan to play a more robust role in the region in conjunction with the United States.
TERENCE SMITH: Thank you both very much.