Japan’s Election of Socialist Raises the Specter of Turmoil : Trade: Tomiichi Murayama as new prime minister adds strain to U.S.-Japan relations.

Socialist party leader Tomiichi Murayama’s election Wednesday as Japanese prime minister places new strains on U.S.-Japan trade relations and may derail Tokyo’s efforts to carry out economic reforms.

Japanese business leaders and bureaucrats reacted with alarm to the prospect that the new government--a coalition of the Liberal Democratic Party and the Socialists--may be paralyzed by infighting between conservatives and leftists, who joined in an alliance of convenience to oust the reformist coalition of outgoing Prime Minister Tsutomu Hata.

A Murayama Administration will probably be even less accommodating to the United States on trade issues and largely unwilling to dismantle regulations that protect farmers, retailers and industry from unfettered domestic and foreign competition.

Aside from supporting the interests of farmers and small shopkeepers, the LDP and the Socialists share few policies. The LDP was always seen as the representative of big business, while the Socialists depend on labor union backing. The LDP built up a large nuclear power industry in Japan, while the Socialists are anti-nuclear.

Together, however, the two parties represent the old, highly regulated Japan, and some commentators said Murayama’s election means bringing back the old system in disguise. “Although Murayama will be prime minister, the Liberal Democratic Party will be the core of the Cabinet,” said Kosaku Inaba, chairman of the Japan Chamber of Commerce and Industry. “I’m worried that on fundamental things, they won’t be able to reach agreement.”

U.S. Trade Representative Mickey Kantor, setting the stage for a possible standoff on trade issues when President Clinton and Murayama meet in Naples, Italy, next week, cautioned against expecting any quick economic breakthroughs with Japan.

“I think we have to be careful, cautious, realistic and pragmatic as we deal with these Japanese officials under a situation where we face the fourth Japanese government in less than a year,” Kantor said in Washington.

Concern that trade tensions may escalate again helped send the dollar to a post-World War II record low. The dollar opened in Tokyo today at a record-low 98.83 yen, but closed in morning trading up slightly at 99.07 yen.

Without strong leadership in Tokyo willing to reduce the trade surplus through market-opening measures and economic stimulus, many observers see an even stronger yen as the key to cutting the U.S. trade deficit with Japan, which hit $60 billion last year. A strong yen makes Japanese goods less competitive overseas.

One area in which Japan’s new government might take policy initiatives favored by the United States is tax reform and economic stimulus.

The Clinton Administration has been pushing Tokyo to expand domestic consumption--and thereby pull in more foreign goods--by extending indefinitely an income tax cut that so far has been enacted only for this year. The Ministry of Finance opposes extending tax cuts without raising consumption taxes, but it’s possible the politicians could extend the cut without acting on consumption taxes.

It is more likely, however, that sharp differences between the Socialists and powerful Ministry of Finance bureaucrats will merely produce deadlock.

Murayama struck a noncommittal tone on economic issues in a news conference shortly after his election.

“There are many things requested (of Japan), such as tax reduction and deregulation,” he said. “I want to research such items sufficiently to cooperate internationally.”

Some career civil servants, talking with Japanese reporters Wednesday, made no attempt to hide their disdain for the country’s new leader, who has never before held a post in government. As a member of Parliament, Murayama concentrated on pension, welfare and labor issues.

“What? Mr. Murayama? I’m really surprised. What kind of person is he?” a high-ranking Foreign Ministry official, who was not identified by name, said to a reporter for Kyodo news service.

The disrespect appears to be mutual.

Shortly after Murayama’s election, Koken Nosaka, chairman of the Socialist’s steering committee in the lower house of Parliament, complained bitterly about Ministry of Finance officials’ opposition to cutting income taxes without a firm commitment to raise other taxes. He pledged that under Murayama, politicians will fight against such resistance to their policies.

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