Race to Replace Hashimoto Threatens Economic Plan

It could take up to eight tumultuous days to choose Prime Minister Ryutaro Hashimoto’s successor, and the Japanese fretted Monday that they could face protracted political gridlock and end up with a new government no more capable of swift reform than the one that just fell when Hashimoto resigned.

Voters here, anxious over the foundering economy and fed up with political dithering, gave Hashimoto and his ruling Liberal Democratic Party, or LDP, a drubbing in elections for the upper house of parliament Sunday; on Monday, he announced he was quitting over the debacle.

Several financial analysts, long ago grown gloomy over the slow pace of Japanese financial reform, saw little hope that a new LDP-led government would differ substantially from its predecessor.

Kenneth Courtis, Deutsche Bank’s senior economist here, predicted “more political paralysis, more indecision by the government, at the very moment when Japan has to click into gear and move ahead with strong policies on what has become a massive crisis situation.”

“If the situation is not reversed, then it is going to be very difficult to stabilize the rest of Asia,” Courtis added, expressing a global consensus that unless Japan’s economy markedly improves, it will be difficult for Tokyo to help boost its regional neighbors and avert analysts’ worst-case scenario in which the Japanese doldrums even drag down American fortunes.

But others expressed hope that the unexpected rejection by voters could jolt the LDP survivors into high gear on fixing the ailing Japanese economy after seven years of delay.

“Although the result was a bullet through the brain for the good Mr. Hashimoto, it was only a kick up the backside for the LDP,” concluded ING Barings analyst Pelham Smithers. “If the party leaders . . . get their skates on, we could see the sort of actions that the market is looking for,” including tax cuts to stimulate Japan’s economy and fast action on this nation’s huge bad-loan crisis.

Minoru Kobayashi, an analyst at Asahi Life Insurance Co., agreed, saying: “We think the speed of economic reform will be accelerated, as the government now has a sense of crisis.”

LDP members are to meet July 21 to select a new prime minister who would take office July 27. Technically, Hashimoto will remain prime minister until then, though he announced Monday he was calling off a scheduled July 22 visit to the United States.

U.S. Fears Upheaval May Hurt Relations

In Washington, there was a sense of disappointment that President Clinton now would not get the chance to strengthen U.S.-Japan relations by feting Hashimoto with full pomp for what was to be the first official visit to America by a Japanese prime minister in 11 years.

Such an overt display of the importance of the ties between the two allies was considered especially important to soothe Tokyo’s concerns after Clinton’s remarkable trip to China earlier this month.

State Department spokesman James P. Rubin stressed Monday that Hashimoto’s resignation “would not alter the strong nature of our relationship” with Japan. But he also underscored the need for any new Japanese government to move decisively to resolve the country’s economic crisis.

“We think it’s extremely important that the new government move quickly to implement concrete fiscal and banking measures to achieve strong domestic-led growth in Japan and to restore confidence in Japan’s financial system,” Rubin said. “A healthy Japanese economy is critical for the Asia region and the global economy.”

The United States and other major industrial nations have expressed grave concern that unless Tokyo gets its economy growing at a healthy clip again, the Japanese may buy fewer goods and services from America, as well as their Asian neighbors, while shipping more of theirs to foreign, especially U.S. shores; this trade imbalance, combined with collapsing Japanese investment and related instability in financial and currency markets, could have dire global consequences, experts say.

Debating Merits of the Contenders

In Japan, the airwaves and coffee shops were filled with debate Monday about the merits of at least four would-be replacement prime ministers.

But citizens here bemoaned the dearth of attractive candidates. There was no immediate indication as to which man--all the leading contenders are male--is most likely to prevail.

Business leaders warned that delay will trigger a run on Japanese stocks and the yen. (While markets throughout the region dipped, the Tokyo exchange perked up some Monday, and the yen strengthened slightly in early trading today.) They called for the swift formation of a unity government that would put politics aside while Japan hashes out legislation on permanent tax cuts and a “total plan” for bailing out and then restructuring Japan’s debt-laden banks.

“In the current severe economic situation, we must at all costs avoid a political vacuum, decide on a successor as soon as possible and convene an emergency session of parliament,” said Takashi Imai, chairman of the Keidanren, Japan’s most influential business group.

But victorious and emboldened opposition forces showed no inclination to cooperate with the weakened LDP, and the Asahi newspaper joined the opposition in calling for snap elections for the lower house of parliament, where the LDP still has a comfortable majority.

Under the Japanese system, real legislative power is concentrated in the lower house, not the upper; the lower house actually names the prime minister, ratifies international treaties, approves the budget and can even override resistance to bills from the upper house.

Upper house elections rarely get much attention. But this contest had turned into a powerful referendum on Hashimoto’s governing.

As for the idea of new lower house elections, it apparently is winning support with anti-LDP voters who feel the ruling party has lost its mandate to govern.

“It’ll be a mess, but unless they do it, nothing will change,” said Yoshihide Yoshida, 45, a pharmacist.

But political analysts predicted the battered LDP, which won only 44 of the 126 upper house seats up for grabs in this election, will put off new lower house elections for as long as it can--until the legal deadline in 2000 if possible.

Instead, the LDP will probably try to form a coalition with some elements of the opposition. The most likely candidate is the Komeito, or Clean Government Party, the political arm of the Soka Gakkai, Japan’s 8-million-strong lay Buddhist organization.

Opposition Groups Against Coalition

For months before Sunday’s electoral rout, the LDP had been courting the Clean Government Party, with Hashimoto even apologizing to Daisaku Ikeda, Soka Gakkai’s controversial leader, for negative campaign tactics in the 1996 election focusing on Ikeda’s personal life.

But Komeito members still harbor hurt feelings, and its leaders have so far categorically rejected the LDP as a suitor, Soka Gakkai spokeswoman Rie Tsumura said.

Social Democratic Party leader Takako Doi, whose party also was punished by voters Sunday for its four-year alliance with the ruling party, also categorically ruled out an alliance with the LDP.

Meanwhile, the Democratic Party of Japan, one of the winners in Sunday’s contest, also was feeling out other opposition parties about a possible anti-LDP coalition. The Communist Party expressed interest, and a more tentative Doi said cooperation on economic issues was possible.

Even while looking ahead, though, Japanese political analysts were still mulling the implications of the LDP’s stunning setback. The party failed to win a single seat in Tokyo, Osaka and three other major urban districts--a sign that “apathetic city voters have obviously had enough of being ignored by the LDP, which has curried favor [with] the rural vote for decades,” noted John Neuffer, political analyst at the Mitsui Marine Research Institute.

But while the LDP lost the cities, it also failed to turn out its supporters in rural areas. According to Keio University pollster Yoshiaki Kobayashi, only 54% of those who identified themselves as LDP supporters went to the polls--despite a record turnout of 58%. Of those who didn’t vote, 48% said they believe that the economy will only get worse but didn’t want to vote against their party and so stayed home instead.

Nor does the Japanese public have much faith that even Sunday’s rout will make much of a difference in politics. Kobayashi found that 73.4% of those surveyed Sunday did not believe that the election would make politicians listen to the voice of the people.

Disgust continued to run deep Monday, with many Japanese saying they felt even a new prime minister would change little.

“No matter who gets the job next, the result will be just the same,” said Yoko Ito, a Tokyo homemaker who gave her protest vote to the Communist Party. “Why don’t you send in a good person from America to do the job? Japanese politicians are hopeless.”

Ito even noted with disdain that Hashimoto seemed to be choked up toward the end of his resignation speech. “What’s he crying about?” she asked. “He’s supposed to be a professional politician.”

But the big challenge for politicians will be to decipher what it is that voters really want, analysts said.

“In voting against the LDP, what are they voting against?” asked Chris Calderwood, chief economist at Jardine Fleming Securities Asia. “Do they want a bigger ‘total plan’ [for bank restructuring] or a smaller total plan, more tax cuts or less tax cuts?”

One of the LDP’s great historic strengths has been its solicitous protection of its core constituents--businesses, bankers and farmers, to name a few.

But voters interviewed Monday showed a clear understanding that the old protections came with a high price--and they demonstrated a surprising willingness to suffer through painful economic restructuring.

“I want the financial restructuring plan to somehow be implemented fast,” said Hideki Ichihashi, a 26-year-old “salaryman” who voted for Democratic Party of Japan leader Naoto Kan and said all his friends did too. “The blood might flow for a while, but I want the economy to be rebuilt.”

Pharmacist Yoshida agreed, even though he said his small drugstore could be among the victims if unprofitable businesses start being forced into bankruptcy by a new breed of restructured, profit-seeking banks.

“The dead will surface, and I may be dead too,” he said, referring to the bankrupt. “But Japan must become internationally competitive. Watching the World Cup, I realized that economics is just like soccer. If you don’t play in international matches, you never become strong.”

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Times staff writer Tyler Marshall in Washington and Makiko Inoue and Chiaki Kitada of The Times’ Tokyo Bureau contributed to this report.