The planned marriage brought welcome relief to embattled Prime Minister Junichiro Koizumi, whose popularity has waned precipitously in recent weeks. On July 11, voters punished his ruling Liberal Democratic Party in Upper House elections by handing the most seats to opposition rivals. Meanwhile, fresh opinion polls show support for his cabinet now below 40 percent for the first time since the silver-maned political outsider took power three years ago, pledging to enact “no pain, no gain” reforms. News of the proposed megamerger was a well-timed bright spot in an otherwise dark week. As his supporters quickly pointed out, this tidying of the banking sector is taking place only because of the tougher accounting rules Koizumi’s economic team implemented to avert a financial meltdown in 2002; it bolsters his claim that he’s fixing what’s wrong with the world’s second-largest economy.
That’s always been key to Koizumi’s appeal, and if he wants to follow through on his agenda in the remainder of his term, he’ll have to spotlight other achievements–fast. Fortunately, there’s plenty to talk up: lower unemployment, rising consumer spending, GDP growth estimated at 5 percent for the first half of 2004. In a new economic assessment released last week, the Cabinet Office said the recovery was advancing at a “solid pace,” with exports and industrial production rising and growth “extending into the household sector.” Indeed, Koizumi appears to be presiding over Japan’s most optimistic outlook since its bubble economy deflated in the early 1990s.
Still, the prime minister won’t easily recapture his rock-star edge. For starters, he’s already served longer than any Japanese leader since Yasuhiro Nakasone reigned in the 1980s; familiarity inevitably breeds contempt in a system accustomed to a revolving door at the top. In a recent combination of missteps and calculated-but-unpopular moves, Koizumi has slashed his own popularity by half, measured from its peak in April 2001. His plan to revitalize Japan’s sinking national pension system by cutting benefits and raising premiums, for example, proved a bitter pill to the public following revelations that many senior politicians–including Koizumi himself–at times had failed to pay into the system. And even though most Japanese question their leader’s steadfast participation in the U.S.-led occupation of Iraq, a mission that tests a constitutional ban on overseas military action, Koizumi has stayed the course. The deployment is central to his broader agenda of creating a stronger, more assertive Japan–and apparently, worth the cost in political capital.
Koizumi’s ability to regain momentum “depends most on what he does next” says Masaaki Kanno, chief economist at JP Morgan in Tokyo. “The message of the election is that Japanese are divided.” On one side, Koizumi has lost some urban voters vexed by the perception that reform has stalled. On the other, traditional LDP constituencies accuse him of driving pell-mell to destroy their livelihoods. They include farmers, the construction industry and public companies–targets of Koizumi’s efforts to cut entitlements, build fewer roads and privatize a broad range of services. “No pain, no gain makes sense if enduring pain brings rewards,” says Hisao Machida, a real-estate agent and local LDP organizer in Chichibu, 80 kilometers northwest of Tokyo. “But not here, because it’s just pain and pain.”
Within the LDP, Koizumi faces unrest among powerful faction chiefs opposed to his leadership. Once held in check by his huge popularity, they now seem better positioned to make demands by threatening to topple Koizumi should he refuse. “The magic is gone, and that means his leverage within the party is shrinking,” argues Brad Glosserman, director of research at Pacific CSIS, a Honolulu-based think tank. The most visible policy divide involves Japan’s Postal Savings System, a massive bank that has traditionally funded the LDP’s pork-barrel politics. Koizumi favors privatization, a scheme decried by party stalwarts. They are expected to demand that an antireformer be handed the postal brief when Koizumi reshuffles his cabinet, probably in September.
The Democratic Party of Japan reportedly will press Koizumi to repeal changes to the pension system enacted in June in favor of a sweeping fix. On the campaign stump, DPJ candidates supported higher taxes and deep cuts in public spending to dig the government out from under a mountain of debt now estimated to top 140 percent of annual GDP. Their call for deeper reforms pleased city folk who embraced Koizumi when he took power but now see him as “more interested in preserving the LDP than changing Japan,” says Shigenori Okazaki of UBS Securities Japan Ltd. The result: a huge protest vote in favor of DPJ candidates.
Still, few observers believe Japan will soon hand power to the opposition. Nor do average citizens want the LDP to revive faction-led traditions. But Koizumi no doubt knows that the knives are out. Tokyo University political scientist Takashi Inoguchi forecasts a “season of conspiracy” as rival LDP members spend the summer positioning themselves for cabinet appointments. Koizumi must appoint capable people to head battleground ministries in charge of postal, land and agricultural policy or risk having his reforms founder inside the party. If he fails this test, then it may truly be the beginning of the end.
