Time for Compromise in Japan

While Japan’s new government tries to get the parliament to focus on badly needed bank reform, the opposition parties are preoccupied with politics and demands for new elections. Tokyo fiddles, the yen sinks to an eight-year low and markets jitter around the world.

Prime Minister Keizo Obuchi holds the key. He must use his consensus-building magic to persuade the opposition to move quickly on his reform package. Strong and prompt governmental action is required to reinvigorate both Japan’s economy and others in Asia that are affected by its flagging performance.

So far, Obuchi has fended off opposition attempts to dissolve parliament and seek new elections in the lower house, which is controlled by the prime minister’s ruling Liberal Democratic Party. The LDP lost its majority in the upper house last month in a stunning rebuke by voters, and the opposition has been looking for an opportunity to further damage the LDP ever since.

The Democrats, strongest of the opposition forces, have dismissed the LDP’s proposed bank reform and are demanding far tougher measures. Obuchi is now espousing a willingness to deal, and he should. Compromise would result in better bank reform. The opposition fears that the LDP’s plan is too protective of the party’s old-line supporters in banking and business.

Reform is vital to easing tensions across Asia. There are fears that further weakness in the yen will force China to devalue its yuan to maintain its trading position.

With these formidable forces at work, Obuchi and Finance Minister Kiichi Miyazawa have no choice but to marshal bank reform through the parliament. That will take some tough compromises, but these agreements must be struck--and soon. Japan’s credibility is at stake.