Political Morass Could Trap Japan’s Economic Recovery : Leadership: A split in the hours-old coalition government sends the Tokyo stock market lower as investors lose confidence.

The political chaos that hit Japan’s government early today, just 12 hours after the election of new Prime Minister Tsutomu Hata, may derail an expected economic recovery and lead to worsening trade friction with the United States.

Much depends, however, on how long the collapse of Hata’s ruling coalition delays policy-making. The risk of stalemate is also balanced, to some degree, by the possibility that current upheavals will eventually bring a more stable political structure.

Reflecting investors’ fears, the Tokyo stock market’s Nikkei index fell 158.53 points, or 0.8%, to 19,550.61 in early-morning trading today.

Investors “had bought the dream of a return to efficient government led by a stable coalition and a prime minister who is very pragmatic,” said Jesper Koll, an analyst with S.G. Warburg Securities. “And you are now short somewhere around 60 votes of a majority (for Hata’s government). Minority governments are inherently unstable. . . . You have the knee-jerk reaction in the stock market.”

The coalition that elected Hata split into conservative and leftist factions early today. Angered by the sudden formation of a parliamentary “bargaining group” by several coalition parties, Socialist Chairman Tomiichi Murayama announced at 1:22 a.m. today that his party would leave the government.

Murayama said his party would help pass a budget for fiscal 1994, which began April 1, but would no longer be bound by any other policy agreements with other coalition parties. Passage of the budget, which contains some measures designed to stimulate Japan’s stagnant economy, is considered the most basic prerequisite to encourage renewed economic growth.

But much more active market-opening and economic-stimulus measures will be needed to address trade disputes with the United States in the face of Clinton Administration threats to impose retaliatory trade sanctions.

Japan has pledged to produce by June a program to “substantially” reduce its $141-billion global trade surplus, including a $60-billion surplus with the United States. New action to stimulate economic growth, thereby pulling in more foreign goods through an increase in domestic demand, is a key element of what has been expected. But it is no longer clear that Hata’s government will have the time or the political strength to focus on these issues before that deadline.

“The promise of clarity over the fiscal stance has been shattered,” Koll said. “You’ve got a government that is less likely to produce a permanent tax cut, as desired by the U.S. government, before the July Naples summit” of the G-7 major industrial democracies.

Koll also noted that pressure for a stronger yen may resume if other steps to cut Japan’s huge trade surplus are ineffective. A strong yen makes Japanese exports more expensive--and less competitive.

A political upheaval had been feared for months, but many had hoped that the election of Hata would usher in at least a few months of relative calm. Now the possibilities range from a quick political realignment that still gives Hata a working majority to a dissolution of the lower house of Parliament and general elections.

Jeffrey Young, an analyst at Salomon Bros. Asia Ltd., said the stock market did not show a greater reaction to the coalition’s collapse because “no one expected the left-wing Socialists to stay in the coalition forever.”

Another factor, he said, is that political realignment is likely to bring “a more stable system” once another general election is held, which could be this year or next.

* MAIN STORY: A1