National Agenda : Uncertainty Shuffles the Deck in Japanese Politics : Predictability has dissolved along with the domination of a single party.

The rule of thumb that once applied to Japanese prospects--political control by a single party that would preside over an ever-prospering economy--has disappeared. And no new guidepost has appeared.

Politics has been turned on its head. Total uncertainty has replaced virtual predictability.

The turmoil, combined with burgeoning growth in Asia and the end of the Cold War, also has contributed to snarled trade negotiations with the United States and a reduced importance placed both on ties with Washington and on the U.S.-Japan Security Treaty that permits U.S. bases in Japan. Yet no new geopolitical visions are emerging.

Suddenly, an economy in which setbacks had always been cyclical, and eventual return to long-range growth a foregone conclusion, now appears unpredictable.

What economist Isamu Miyazaki called “the biggest, longest and broadest” recession in post-World War II history--a reaction to Japan’s rocketing “bubble economy” of the late 1980s--has sent corporate profits, stocks and land prices plummeting, staggered banks with bad loans, raised the specter of growing unemployment, reversed investment from boom to bust and resisted $300 billion worth of government pump-priming.

Only one familiar element remains: Japan’s trade surpluses and growing exports, spurred on by the recession at home even as Japan’s stronger yen cuts into trade profits.

Yesterday’s unthinkable--a Socialist prime minister--has become today’s reality.

“It was as if an east German had been named chancellor of Germany,” an astonished former Prime Minister Morihiro Hosokawa said when Tomiichi Murayama was elected June 29. The August, 1993, election of Hosokawa, head of a fledgling, 15-month-old political party, had itself been only slightly less astonishing.

Within the last 13 months, a country that had not ousted the Liberal Democratic Party as its single ruling party for 38 years has seen two changes of government, the ouster of three prime ministers and the sharing of power by 11 political parties. Former archrivals--the Socialists, who suffered their worst defeat in the last election and may not survive the next, and the Liberal Democrats--now rule the country together.

Reforms unattainable under stability were carried out amid instability.

The most sweeping overhaul of the political system since the postwar U.S. occupation, to be completed this fall, will slash the disproportionate electoral clout of farmers by about a third. It also will plunge the country into the unknown when the next ballot for the lower house of Parliament is held. The possible post-election scenarios for change are many.

In an ideal development envisioned by former Defense Minister Kazuo Aichi, politics would revolve around two large parties. Representatives would vote on bills as they do in the United States--largely by individual decision, not mandatory party dictates. Yet voters in new single-seat districts would cast ballots with the aim of making their candidate’s party leader the next prime minister, like the British parliamentary system, he said.

Policies, and not the pork barrel, would highlight campaigns, said Aichi, a policy-maker in the opposition Renewal Party, which staged a mass defection in June, 1993, to deprive the Liberal Democrats of their historic majority in the powerful lower house.

But another scenario, though remote, would see conservatives regrouping, making the LDP a bigger monolith than before, Aichi acknowledged. Already, one band of LDP defectors, the splinter New Party Harbinger, has rejoined the Liberal Democrats as a junior partner in the coalition.

“Right now, the LDP is halfway back into power,” said former Prime Minister Kiichi Miyazawa.

An old confrontation that perennially dogged Japanese defense policy disappeared as Murayama scrapped his Socialist Party’s bedrock insistence on dismantling the nation’s 240,000-strong armed forces and abolishing its security treaty with the United States.

Yet military experts like Seiki Nishihiro, a former vice defense minister, worry about a “hollowing out” of support for the U.S.-Japan Security Treaty on both sides of the Pacific.

He said that with the Soviet threat gone, some Americans are asking, “Why do we need Japan?” Similarly, some Japanese are asking, “Why do we need the U.S. bases in Japan?”

LDP politicians in Okinawa, where 75% of the U.S. bases are located, in July started advocating abolition of all American military facilities there in a bid to curry favor with voters on the southern island. But party headquarters in Tokyo, led by Foreign Minister Yohei Kono, has said nothing opposing U.S. bases in Japan.

Although President Clinton and Murayama affirmed the importance of the U.S.-Japan Security Treaty in July--as leaders of the two countries always have done--neither they nor any other top official has bothered to explain why the treaty is still important, Nishihiro complained.

To Japanese defense experts, the importance is to ensure that the United States retains a military presence in Asia as a “balancer,” Nishihiro said. “Japan abandoned its World War II goal of seeking hegemony in Asia. But that does not mean it wants China or Russia to assume hegemony.”

Murayama’s turnabout included acceptance of dispatching troops overseas to participate in humanitarian and noncombat U.N. peacekeeping missions--a move his party opposed vociferously only two years ago. But other than pledging to work for disarmament, the prime minister has offered no vision for a new security policy.

And now that America’s relative economic importance to Japan is dwindling in proportion to growth in Asia, where Japan’s trade surplus now exceeds its black ink with the United States, U.S.-Japan trade disputes that once caused alarm in Tokyo draw far less attention from both prime ministers and the press.

“The 21st Century will be China’s century--and Japan’s foreign policy will revolve on the dual axis of Japan-U.S. relations and Japan-China relations,” said Kosuke Ito, a member of the Liberal Democrats’ policy board.

Previously, the United States was cited as the only axis of Japan’s diplomacy.

The choice of Murayama as prime minister and his policy flip-flop, which proved that even the wildest of presumably inconceivable events was possible, wiped out the credibility of political forecasting in Tokyo. “So much has changed that we don’t know which precedents mean anything for the future,” said an American political analyst, who asked not to be named.

Policy differences that remain--such as whether to do as much, or as little, as possible, to help solve international disputes--now divide individual politicians more than party lines. Doves and hawks roost across the spectrum.

“Can’t Find an Axle for Political Confrontation,” an Asahi headline said of the new political structure.

New political jokes have emerged. An example: “To a Japanese politician, policy is like a subway station. You only stand on the platform until the train comes in.”

Koichi Kato, a rising star in the Liberal Democrat ranks, predicted that Japan would be ruled by coalition governments for at least five, and possibly 10, years.

Minoru Morita, a respected political commentator, said an expected Socialist debacle in an upper house election next July could mark the end of the present government.

The Socialists’ alliance with the Liberal Democrats will deprive the party of the large number of anti-LDP protest votes it once received, said Katsumi Samata, who served 35 years as a Socialist staff member.

And now that Murayama has wiped out the old doctrine, Socialists are likely to lose the party’s ideologues as well, he pointed out.

“Murayama is being called the ‘chairman of the Socialists’ funeral committee’--in charge of burying the party,” Samata said.

Political analysts, however, are making few other predictions. They confess they are not even sure what groups will run in the next lower house election. Already defections, feuds and shifting alliances have created a new political map splotched with 17 political parties and “associations.” The Liberal Democrats, for example, have lost nearly a third of the seats they held in 1993 through defections alone.

In 1989, Takeo Tanaka, who runs a children’s clothing store in the Kameari section of Tokyo, was enraged by LDP politicians pocketing windfall profits from capital gains in a stock-for-favors scandal even as they imposed a consumption tax on daily necessities of the Japanese people. And his opinion of politicians hasn’t changed today as politicians debate increasing the consumption-tax rate.

“Before raising the tax, why don’t politicians reform government to cut expenses and set a model themselves?” he complained. “In Japan, as soon as you become a politician, you become rich.”

Polls show once again that the political party favored by the biggest plurality is “none of the above.”

Average Japanese, nonetheless, consistently express high levels of satisfaction with their living standards. Nearly 90% of families consider themselves middle class. And despite astronomical costs of housing, nearly two-thirds of Japanese are satisfied with their present living conditions, a poll by the prime minister’s office showed in August.

Indeed, 60% of families own their own living unit.

Despite the political turmoil and the economic recession, “most people don’t have a sense of crisis. They aren’t worried about their livelihoods,” said Ryoko Yamaguchi, a therapist.

“In our family, our biggest concern is whether our son (who is 22 and will graduate from college next March) will get a job or not. He’s not worried. If he doesn’t find a job, he says he’ll support himself for a year doing part-time work, and try again next year. And he is telling us: ‘Don’t worry. I won’t impose on you,’ ” she said.

The recession, nonetheless, is making consumers more cautious.

“People who used to think that using things and throwing them away after a while was fine are now trying to conserve goods. The feeling that money will keep flowing in is gone,” Yamaguchi said.

Shopkeeper Tanaka has felt the impact directly.

“Fifteen or 16 (neighboring) shops have closed, and it’s the same in every neighborhood,” he said. But the villain is only partially the recession, which he said “has tightened the purse strings of consumers.”

The bigger blow, he said, has come from revisions of the Large Retail Store Law that were carried out at the insistence of the George Bush Administration on the theory that large stores handle more imports than mom-and-pop shops.

Government restrictions on the hours and the number of days that department stores and supermarkets can operate have been eased, squeezing the shop sector, Tanaka complained. “It’s now useless to oppose the opening of new large stores,” he added. “The law may as well have been repealed.”

Hosokawa succeeded in putting deregulation--the easing and removal of government restrictions on business--near the top of the political agenda, said economist Miyazaki, a former vice minister of the government’s Economic Planning Agency who now heads the Daiwa Research Institute. “Nowadays, kisei kanwa (easing of restrictions) appears everywhere in government reports,” he said.

Hideo Ishihara, chairman of Goldman Sachs Japan, added, “For the first time in history, we are re-examining and reappraising our system on our own, without being forced to do so by Americans.” But he also said he was “not optimistic about deregulation because so many people have their vested interests and livelihood at stake.”

Despite the political upheaval of the last year, very little change has occurred in daily life, he noted.

The common denominator today is uncertainty. Although the Economic Planning Agency declared last week that the economy has taken a turn toward “moderate recovery,” pessimism remains widespread.

“Capital markets play the role of a heart which pumps blood to the economy. Just as a politician with a weak heart cannot become a top-class statesman, an economy with a weak heart cannot become top class in the world. Right now, (capital markets) are not functioning. The surgeon is trying to make up his mind whether to prescribe medication or conduct a major surgery,” said Hideo Sakamaki, president of Nomura Securities.

Kenneth S. Courtis, strategist and senior economist for Deutsche Bank Capital Markets Asia, said bad debts held by banks “represent a massive negative for the entire economy” that make it “problematic for the economy to expand anytime soon.” And without domestic growth to pull in imports, Japan’s trade surpluses for the decade of the 1990s could reach $1 trillion, he warned.

Corporate income has plunged by more than 50%, driving volume on the stagnant Tokyo Stock Market down to a quarter of its peak and sending prices plummeting to barely half their previous level, said Sakamaki, the Nomura Securities president.

“Six times the central discount rate has been lowered. Three overall economic (pump-priming) packages have been announced. But the economy still hasn’t taken off,” he said.

Miyazaki also said he was confounded by the failure of the pump-priming packages to make an impact on the economy.

“Where has all that money gone?” he asked. “It’s not clear.”

“The economy that emerges from the recession will be--and must be--completely different from the one that existed before the recession,” Miyazaki said.

Already, even with no increase in domestic demand, labor-intensive manufactured imports from neighboring Asian nations are increasing, he noted. Yen appreciation, in effect, is forcing Japan to “import labor” indirectly to cut costs, and that trend will be a feature of the “new economy,” he insisted.

As a result, Japan will face, for the first time, “jobless growth,” or an economy in which the GNP rises by an annual 3.5% or more without producing new jobs. Unemployment, he said, is likely to become a new issue for the country.

Japan: Politics and Economics

Seats

In the lower house of Parliament, which elects the prime minister:

Party 1/21/93 Current Liberal Democrats 274 200 Socialists 140 73 Komei Party 46 52 Communists 16 15 Democratic Socialists 13 19 Japan New Party -- 33 Renewal Party -- 62 New Party Harbinger -- 21 Freedom Party -- 7 New Future Party -- 5 Reform Assn. -- 4 Koshi Assn. -- 6 Unaffiliated 8 12 Vacant 15 2 Total 512 511

Note: The number of seats in the lower house was reduced by one in a July, 1993, election. Parties listed as holding no seats in 1993 all came into existence shortly before or after the July, 1993, election. Gross National Product

(For calendar years)

Japan’s Defense Budget

For fiscal years:

Yen amount* Dollar amount** 1983 2.8 $11.7 1984 2.9 12.0 1985 3.1 14.2 1986 3.3 20.9 1987 3.5 25.4 1988 3.7 28.8 1989 3.9 27.4 1990 4.2 29.4 1991 4.4 32.9 1992 4.6 36.5 1993 4.6 43.0 1994 4.7 46.8 1995*** 4.7 47.3

* In trillions ** In billions *** Projected Source: Japan Defense Agency