July 13, 1998
Prime Minister Ryutaro Hashimoto resigned after his Liberal Democratic Party suffered a resounding defeat in Sunday's national parliamentary elections. In his resignation speech, Hashimoto said his country would continue with economic reforms aimed at ending the current recession. Elizabeth Farnsworth leads a debate about the political and economic future of Japan.
JIM LEHRER: Political and economic turmoil in Japan. We begin with a report on Sunday's election from Robert Moore of Independent Television News.
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ROBERT MOORE, ITN: Grim and visibly exhausted, the Japanese prime minister offered his resignation, having been battered by a stunning electoral reverse and also knowing the country remains in the grip of a serious recession.
Mr. Hashimoto openly acknowledged his mistakes. "When you sum it all up," he declared, "it is responsibility." It leaves a few days for power brokers from Japan's ruling Liberal Democratic Party to choose a successor. The question is whether there'll be a change of policy, as well as leader.
The result of the vote is seen as punishment for a government that has watched helplessly as Japan has endured its worst financial crisis for decades, one that also threatens to damage the Asian and western economies. On the market it was a roller coaster day. Some analysts now fear a political vacuum will create further uncertainty. Others say new government could provide the radical fix that Japan most needs. Mr. Hashimoto has canceled all foreign trips and will step down as Japanese prime minister as soon as his successor is chosen.
What is the meaning of the election results?
JIM LEHRER: Elizabeth Farnsworth in San Francisco takes the story from there.
ELIZABETH FARNSWORTH: And we get three views. William Clark was Assistant Secretary of State for East Asian and Pacific Affairs during the late Bush and early Clinton administrations. He is now president of the Japan Society, which promotes better U.S./Japanese relations. Mike Mochizuki is a senior fellow at the Brookings Institution specializing in Japanese domestic politics and U.S./Japan relations. And David Hale is the global chief economist for the Zurich Group, a domestic and international mutual fund investment company. William Clark, do you see the election as a referendum on the Japanese economy?
WILLIAM CLARK, Jr., Japan Society: Well, it's certainly a referendum on the way it's been handled, and clearly it shows that the Japanese public is not pleased. Not only did they turn over nine seats to the Democratic Party. They also gave an extra nine seats to the Communist and turned out in record numbers to do that. What is less clear is what the Japanese people hope. Are they hoping that the government will move promptly ahead with deregulation and banking reform, or are they hoping that the government can turn the economy back to the way it was, which worked so well for so long?
ELIZABETH FARNSWORTH: Mike Mochizuki, what do you think about that? Do you think that there was a message on what the Japanese people hope?
MIKE MOCHIZUKI, Brookings Institution: Yes. I think there definitely was a message on the Japanese people. They want a more forthright policy from the Japanese government in order to deal with the bad loan problem and also they are interested in a major cut in the personal income tax, the permanent cut to really get the economy going again.
A vote in favor of reform.
ELIZABETH FARNSWORTH: So you think, Mr. Mochizuki, that this was a vote in favor of the reforms?
MIKE MOCHIZUKI: Yes, definitely. I think this was a referendum on the economic policy of the Hashimoto government, and it was a clear indication that the Japanese people wanted real reform.
ELIZABETH FARNSWORTH: David Hale, do you think the message is that clear?
DAVID HALE, Zurich Group: Not that clear. In fact, it was a big increase in the gulf of the Democratic Party and the Communist Party. This was mostly a repudiation of Mr. Hashimoto. He's been described in recent months as the Herbert Hoover of Japan. And Herbert Hoover suffered a major defeat in 1932 and now so has he. What's unclear is what comes next, the LDP Caucus will elect him to prime minister in the next few days. The risk is that we'll get a traditional LDP politician like Mr. Hashimoto. The odds, in fact, favor Mr. Obuchi, the foreign minister. It would be the equivalent of the U.S. in 1932 going from Herbert Hoover to Warren G. Harding. There will be reform, there will be change, but it will happen very incrementally. And it's far from clear this election will be decisive because of the nature of the Japanese political system.
ELIZABETH FARNSWORTH: David Hale, the whole world seems to be watching this election. I don't remember the NewsHour covering a Japanese senate election. Is this election as important as seems to the world?
No well-defined alternative.
DAVID HALE: Well, by itself, it's not that important, because it wouldn't change things that dramatically. All it confirms finally is that the Japanese people are angry. In recent months we've had more and more pressure on Japan out of Washington, out of Beijing, out of the whole of Asia to stimulate the economy, to restructure the banks, to get things moving again. And Japan has moved very incrementally and very gradually, because that's its traditional way of doing things. Now finally we have-not just the global community, not just the Americans demanding change, but the Japanese people demanding change as well. The problem is there's not a well-defined alternative. Many of the people in Japan voting yesterday were also opposed to change themselves. They want to go back for the good old days of a controlled, stable economy. Others, by contrast, want deregulation. They want tax cuts. There isn't that explicit message in this vote to go forward from. But the fact is the previous government, Mr. Hashimoto has announced various changes, preferred stock purchases to help the banks, a new kind of resolution trust to clean up the banks. Those will go forward. The question is can a new prime minister, a new man, in fact, give a clear message for change, a clearer sense of momentum? And if we have that, that will bolster the stock market, bolster the yen, and help the whole Asian crisis. But there's no guarantee that will happen. The risk is we may get somebody who's colorless, less impressive, and just keep revisiting this issue through the final months of 1998.
ELIZABETH FARNSWORTH: Mike Mochizuki, do you think that the reforms that have been pushed so hard by the U.S. and by other governments will go forward, reforms like the ones mentioned by David Hale, a kind of resolution trust solution for the banks, for example?
MIKE MOCHIZUKI: Yes, I do agree with Mr. Hale that there will be greater domestic political pressure for that that will reinforce the global pressure and the pressure coming from markets and the United States government. But, you know, I think it's important to emphasize that only 60 percent of the LDP hard core supporters turned out and voted for the LDP. And what really boosted the Democratic Party were many of the floating voters who did not vote in the last election. And they came out in numbers to vote for the Democratic Party, which is interested in greater reform. So, of course, their reform is going to be incremental, but now that there is strong domestic pressure to move things forward.
ELIZABETH FARNSWORTH: So, Mike Mochizuki, you're actually encouraged by this vote?
MIKE MOCHIZUKI: Yes, I think it's a very positive development. It's much better than the last two years of immobilism. There is going to be some inevitable turmoil in the coming months. But I think the best-not in any worse than the paralysis that we've seen over the last year.
ELIZABETH FARNSWORTH: William Clark, what do you think the prognosis for reforms in the future, in the near future is?
WILLIAM CLARK: Well, I think the prognosis is not all that much change. But I think all three of us agree on one point, and that is that the Japanese people are fed up with the waffling that has been going on for the last year or year and a half. Certainly in the three months before the election the prime minister was for a permanent tax cut was just studying the tax bill, was not for a permanent tax cut, then was for a permanent tax cut quickly, which would be in April of next year, leaving the Japanese public wondering just what the prime minister was for, a clear cut policy saying where it's going, which will probably hurt. If it's going to work, it will have to hurt, as I think what the Japanese people are looking for.
The economic implications.
ELIZABETH FARNSWORTH: David Hale, how dangerous is the next week or so for the yen, for example, and for the economy in general, when there is no new prime minister appointed, and matters are somewhat uncertain?
DAVID HALE: Well, the fact is the market did so sell off quite sharply initially in Tokyo. Then it rallied, and the belief that, in fact, this election could increase the odds of positive change, meaningful policy reform, so the market's kind of agnostic right now. If we get Mr. Obuchi as the new prime minister, the odds are the yen will sell off and the market will sell off. If we get by contrast another politician, Mr. Kajiyama, who's been more aggressive in demanding radical changes, the market might rally. Most positive would be somebody outside this traditional leadership mix, someone much younger, but in the history of Japanese politics that kind of outcome is very unusual. Given the scope of the defeat, we can't rule out a major change, but right now the consensus view in Tokyo is to be Mr. Obuchi or Mr. Kajiyama. The market is ready for that, but still there will be some slight disappointment if end up with Mr. Obuchi. He really is very uninspiring. He's very much somebody associated with the past, not with the changes that Japan needs.
ELIZABETH FARNSWORTH: Mike Mochizuki, what's your view of the short-term dangers right now for the yen and for the economy as a whole?
MIKE MOCHIZUKI: Well, I agree with Mr. Hale that it could go in two different directions. I mean, there's the hope for greater change in the future, but in the short-term there will be a lot of turmoil, but I think, on balance, the direction is in a positive direction, and the United States should welcome this election verdict.
Defining U.S. policy.
ELIZABETH FARNSWORTH: And Mike Mochizuki, what do you think the United States' policy should be more specifically in the weeks ahead?
MIKE MOCHIZUKI: It should very much encourage the reform process in Japan and work with any leader. And of course, Mr. Obuchi is a politician from the past, but he is better than the continuation of Mr. Hashimoto. I mean, he will be able to start with a clean slate and really push the reform process forward.
ELIZABETH FARNSWORTH: And William Clark, what do you think U.S. policy should be in the near future? Do you think the United States has been sending messages too loud, just about right?
WILLIAM CLARK: Well, I think we've been sending messages that in one sense were right, that the Japanese economy, Japanese economic policy needs to change. It is not at all clear that you can take the policies we used when we were in difficulties in the late 1980's, early 1990's, and overlay them on Japan. They have a number of other difficulties. So yes, I think we should be calling for reform, for deregulation. I think we should to the degree that it's possible be doing it in a manner that is helpful and not quite as noisy as it has been in the past.
ELIZABETH FARNSWORTH: And David Hale, what's your view about what U.S. policy should be?
DAVID HALE: We've been in a dialogue with Japan for many years. The late 80's we wanted Japan to deregulate, to improve access for our trade. Now the concern is that Asia is in a depression, it needs Japanese growth leadership to recover, so we have no alternative but to lobby for more stimulus. Obviously we can be more diplomatic from time to time but given the scope of this crisis, this is now increasingly the emergence of a trilateral relationship with China, as well as Japan, and concerns about their exchange rate policy-we will have to play a leadership role in encouraging change. I think Mr. Obuchi will basically be the beneficiary of that because the fact is he will also have to deal with the traditional resistance, the factions of the LDP that might get in the way of change, and he'll probably invoke American pressure, American suggestions as one of the reasons to go forward.
Will there be a leadership void?
ELIZABETH FARNSWORTH: And finally, Mr. Mochizuki, is there a chance-we haven't really talked about this-that there could be less leadership in the weeks ahead as other political parties decide they don't want to cooperate with the Liberal Democratic Party in pushing forward with any reforms?
MIKE MOCHIZUKI: There could be less leadership, but I think what it essentially entails is a transition, and it's quite possible that there could be even a rebellion with the Liberal Democratic Party itself, and younger politicians may come to the forefront, and we might get in the year-within the year another kind of politician which will really represent the future of Japan.
ELIZABETH FARNSWORTH: What do you mean by that?
MIKE MOCHIZUKI: Well, someone that we don't even talk about today, not someone like Mr. Kajiyama or Mr. Obuchi, but someone like Mr. Junichiro Koizumi, who is the health and welfare minister, who's been arguing for a major liberalization of the financial system, and a major reform of the banking structure, and someone like that may emerge as a candidate for the top job in the Liberal Democratic Party, supported by the younger politicians.
ELIZABETH FARNSWORTH: And William Clark, do you see any chance for even less leadership?
WILLIAM CLARK: There's a possibility but less leadership in comparison to what, in comparison to the last days of the Hashimoto government-I think that's probably not very likely. Hopefully, the rumors in Tokyo now are that there is a ground swell to find the younger leaders who is not so steeped in the old traditions of the Liberal Democratic Party, so possibly-just possibly-we could see a younger leadership emerge that will provide more dynamism and more rapid response to the Japanese political process.
ELIZABETH FARNSWORTH: And David Hale, in the little bit of time left, what--do you see a new leader coming?
DAVID HALE: The answer is there will be a new leader by the end of the week, the question is who, but keep in mind that after this election, the LDP has to confront a general election for the lower house of parliament, which elects prime ministers, no later than the year 2000. Given the scope of this defeat, I think the pressure now is much greater for meaningful policy change. Even if we get a traditional leader, the fact is he will have to adapt as well, so the trend's in the right direction. The whole question is one of speed and the style of change that will occur over the next few weeks and months.
ELIZABETH FARNSWORTH: Well, thank you all very much.