Unfinished Business

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Yasuko Imatomi feels like she has heard this song before, and she's not singing along anymore. The 41-year-old homemaker has been a longtime supporter of Japan's dominant Liberal Democratic Party (LDP), and until fairly recently she counted herself as a fan of its silver-maned, silver-tongued leader, Prime Minister Junichiro Koizumi. But here in the city's Shibuya neighborhood, as Koizumi and other party members begin campaigning for the July 11 Upper House election, Imatomi is a lot more cynical than she was three years ago when Koizumi first took office. As "Jun-chan" and company promise, yet again, to enact broad structural reforms that will overhaul Japan's calcified political and social systems, Imatomi says Koizumi has been making the same pledges for years and has far too little to show for it. "I'm having doubts about just how far he is willing to push his promises," she says. "I'm planning on voting for a different party this time."

In the past few weeks, people like Imatomi have turned into a big, unforeseen headache for the Prime Minister. As little as a month ago, Koizumi was flying high and seemingly unassailable. In rapid succession this spring, he made a bold dash to North Korea to fetch family members of repatriated Japanese citizens abducted by the Hermit Kingdom in the 1970s; deftly sidestepped a pension scandal that had crippled the Democratic Party of Japan (DPJ), the nation's primary opposition party, by taking down its two most senior members; and headed off to the G-8 summit on Sea Island in the U.S. state of Georgia, where he was lavishly fêted at a private breakfast with American President George W. Bush. His burst of statesmanlike coups led many pundits in the Japanese media to declare that this week's election was over before the campaigning had even begun. The polling, they opined, would be just another formality as Koizumi, alone atop the Japanese political landscape, would lead his LDP to a runaway victory and begin his final two years in office with a clear mandate to pursue his most important initiatives and secure his place in history.

But something happened on the way to the landslide. Once boasting an approval rating of 87%, Koizumi's power base has always been his overwhelming public mandate. But popular support has suddenly dissipated at a crucial juncture in his career. Due to two critical missteps, Koizumi's approval rating has fallen from 54% to 40% (one of his lowest scores ever) in the past five weeks. According to recent opinion polls, voters have taken a dim view of his surprising declaration at the G-8 summit that he had decided without consulting (or even informing) the Diet to keep Japanese troops in Iraq indefinitely. They are likewise annoyed by the way the LDP rammed through a pension-reform bill last month that raised citizens' premiums and lowered their payouts while doing little to solve the system's fundamental flaws. Many see the pension bill as an underhanded and secretive move reminiscent of Japan's behind-closed-doors political tradition, one not in keeping with Koizumi's new era of openness and transparency. And others have called the Iraq decision slavish toadying to American dictates that puts Japanese lives at unwarranted risk. "These things have made people lose confidence in Koizumi fast," says Takao Toshikawa, a veteran political commentator and the editor in chief of the newsletter Tokyo Insideline.

The election that was supposed to be a Koizumi walkover has thus become a hotly contested battle, one that has breathed signs of life into the DPJ, which most commentators had declared all but dead. Rather than a rubber stamp for a Koizumi mandate, July 11 has now become a key measure of public confidence (or lack thereof) in the Prime Minister's performance and an important indicator of how the final years of his term may play out. With 121 seats up for grabs, the LDP's declared goal is to capture at least 51. While outright control of the government is not at stake even if it falls well short of that objective (the LDP-led coalition still retains a handsome majority in the far larger and more powerful Lower House), a disappointing performance could embolden some of Koizumi's bitterest enemies from within the LDP to call for a change of leadership. There is a precedent for this, if not a tradition: after four out of five of the most recent Upper House elections, the Prime Minister has been forced out within 54 weeks. As campaigning heats up, most politicians and observers say the chances of a catastrophic LDP drubbing followed by Koizumi's ouster are remote. But there is no doubt now that the LDP's performance will set the tone for the duration of Koizumi's tenure.

Unfinished business: it's the cloud that continues to hang over Koizumi's government. While he is already one of the longest-serving Prime Ministers since 1945, there can be little doubt that a man who has repeatedly vowed to "change Japan"—even if it requires destroying his own party—aspires to be remembered as a pivotal figure in Japanese history. And while Koizumi has made significant strides in areas such as banking reform and foreign affairs, if his administration were to end tomorrow, he would be remembered mostly for his charisma—and for a litany of promises unfulfilled. Will Koizumi go down in history as a leader who, like Ronald Reagan or Margaret Thatcher, invigorated and modernized the government and, for better or worse, reoriented the attitudes and expectations of its citizens about the role the state plays in their lives? Koizumi has a daunting task ahead of him in the next two years if he is to secure that kind of stature. Most experts point to three primary areas—Japan's political structure, long overdue economic structural reforms, and the country's dysfunctional relationship with China—where he must devote his efforts if he is to be noted not just as one of the longest-serving Prime Ministers but as one of the best.


Executive Power
From the very beginning of his term in office, Koizumi has been Japan's most independent and "presidential" Prime Minister. Conducting himself as if he were an opposition leader, he routinely rails against his own party, which has held a virtually unbroken monopoly on power for almost 50 years. Thanks to his overwhelming popularity, Koizumi has been able to work outside the LDP's famous, and famously arthritic, faction system, neutralizing it in significant ways. Early on, for example, he broke with tradition and rankled the Old Guard by picking Cabinet members he thought were most qualified for their jobs, rather than filling the posts by quota with members from each faction. Over the past three years, he has similarly built an administration that introduces far more legislation into the Diet than most Prime Ministers before him have. He routinely and unapologetically makes unilateral decisions, whether it's to open a dialogue with North Korea without consulting Japan's Ministry of Foreign Affairs or deciding to keep troops in Iraq without checking with anyone at all. In a country where a secretive ruling élite brokered deals behind closed doors, Koizumi has made the government more open and the executive branch more accountable. The citizenry may be upset that Japanese troops are still in Iraq, but no one doubts where the buck stops.

Unfortunately, it is unclear whether the government will revert to politics as usual as soon as Koizumi leaves office. Sheila Smith, a Japan specialist at Hawaii's East-West Center, gives Koizumi credit for introducing "a whole new vocabulary for the LDP, one that includes responsiveness and transparency. The next person will not be able to retreat from that." At the same time, Smith readily admits that the next PM might not be up to the job. "There aren't many Koizumis out there," she says.

Curiously, this is a situation that Koizumi seems uninterested in remedying. Not only is there no leader with Koizumi's panache waiting in the wings, but virtually every political expert in Japan agrees that Koizumi has made no attempt to groom a generation of young politicians capable of carrying on his good works. "Koizumi may have cut through LDP factional politics," says former LDP lawmaker Raizo Matsuno, "but he's not interested in creating a successor." Take 49-year-old LDP secretary-general Shinzo Abe, Koizumi's heir apparent. Abe is a young, good-looking, impeccably credentialed reformer handpicked by Koizumi to be the party's No. 2 man. He appears on many of the LDP's election posters and has been delegated to take the lead on certain issues, such as the North Korea abductees. But those who know both men say he is far from Koizumi's tight-knit inner circle and could hardly be called a protégé. Many commentators, such as newsletter editor Toshikawa, say that Koizumi brought Abe into the fold not so much to nurture him as to keep him on a short leash. While Abe will doubtless be a powerful force in Japanese politics in the future, it is unclear whether his style will approach anything that could be called Koizumiesque. And though Koizumi has put the LDP faction machine in idle, its engine continues to hum.


One of the apparently unqualified successes of Koizumi's time in office has been Japan's surprisingly robust economic rebound. After fading in and out of recession for more than a decade, the country has posted two consecutive quarters of annualized GDP growth in excess of 6% (making it the world's fastest-growing mature economy), and results for the quarter ended June 30 are expected to be equally impressive. Japan's Nikkei 225 stock-market index, meanwhile, has surged 56% since its 20-year lows reached last April, corporate profits and confidence are stronger than they have been in a decade, and household spending, consumer confidence and employee bonuses are all on the rise.

Koizumi has garnered the most praise for filling high economic and policymaking posts with effective leaders. Financial Services Minister Heizo Takenaka, for example, has forced ailing Japanese banks—once seen as the single greatest threat to the nation's financial stability—to radically overhaul their balance sheets. Thanks to Takenaka's get-tough measures, nonperforming loans at major Japanese banks have fallen from 8% in 2001 to 5.2% at the end of March 2004; debt-rating agency Standard & Poor's has just lifted its assessment of several Japanese banks for the first time in 21 years. Meanwhile, Toshihiko Fukui, who was appointed Bank of Japan governor in March 2003, has been much more successful than his predecessor in stifling Japan's pernicious, decade-long bout of deflation through unconventionally loose monetary policies.

Even with such savvy appointments, many critics maintain that Koizumi has still mostly been lucky—that the economy has been buoyed primarily by forces beyond his control. While Koizumi has not attempted to kick-start growth via wasteful public-spending projects the way many of his predecessors did, much of Japan's economic revival is the result of self-initiated restructuring by many of the country's world-class multinational businesses. (Meanwhile, Japan's highly inefficient domestic industries, such as mom-and-pop retailing and food production, bumble along as unprofitably as ever.) And the voracious appetite of Chinese industries for basic materials, not to mention that country's growing consumer demand, has proved to be a surprising and welcome salvation to a broad swath of Japanese manufacturers and exporters that only recently had been sounding the alarms about China's ability to "export deflation" or "hollow out Japanese industry" by taking over factory jobs once handled by domestic workers.

Regardless of the immediate causes of Japan's recovery, questions remain about its sustainability. Koizumi came to power as an economic reformer. Yet his three pet reform initiatives—privatizing the postal system, reforming the quasi-governmental highway-development companies, and overhauling the pension system—have barely left the drawing board since he made some of them central campaign planks as far back as 2001. In interviews with the Japanese press last month, Koizumi said that privatizing the postal system—an oddball governmental institution that not only delivers mail but also acts as the country's largest savings bank and as an insurance company—was his highest priority. An increasingly skeptical populace has been hearing that same promise for more than three years, and few believe he has enough political capital left to force unwilling LDP members to make the radical legislative changes necessary. Editor Toshikawa says, "He simply doesn't have the clout to carry out these privatization schemes. And if the LDP doesn't get 51 seats [in the Upper House election], he might abandon postal reform altogether."

Even those who are sanguine about Japan's recent economic performance warn that as long as structural reforms and a pension overhaul remain uncompleted, the country's fundamentals will continue to decay. The soaring stock market, they say, has papered over lingering inefficiencies at many companies, giving a much-needed (though potentially short-lived) boost to their asset levels. Similarly, Japan faces the worst demographic time bomb in the industrialized world—a problem that Koizumi and the LDP's pension reforms have done little to address. Many say Koizumi has lost any taste he may have had for the battles necessary to effect change. "The whole pension system needs to be taken apart and rebuilt," says Kazuhiko Nishizawa, an analyst at the Japan Research Institute in Tokyo, "but the administration isn't thinking that far ahead."


While Koizumi came to power as a domestic reformer, his greatest successes have so far been in foreign affairs. He boldly dispatched troops to Iraq (the first shipment of Japanese troops to a foreign land without the United Nations' blessing since World War II), and has maneuvered to be a major participant in the multinational engagement with North Korea to abandon its nuclear weapons program. For all his aplomb on the geopolitical scene, however, Koizumi has allowed Japan's crucial relationship with China to languish. "While pursuing closer ties with the U.S. and attempting to normalize relations with North Korea, Koizumi has abandoned China," says Jun Iio, a professor at the National Graduate Institute for Policy Studies in Tokyo. Since taking office, Koizumi has lived up to his promise to visit Yasukuni Shrine, which honors Japan's military war dead, at least once a year—meaning the Prime Minister, regularly like clockwork, offends China, whose citizens were brutalized by Japanese soldiers during World War II. Beijing has declared that Koizumi is unwelcome as long as the visits continue. So while trade between China and Japan has been booming, diplomatic relations are stalled.

Fixing that may mean making compromises about Yasukuni Shrine and more fully addressing other aspects of Japan's past war conduct, such as the Nanjing Massacre. Any admission of wrongdoing would be very unpopular with many of Koizumi's most conservative supporters, but political experts maintain that such compromises are the only way to get more fruitful dialogues with China rolling. "China is strengthening its presence throughout East Asia, but Japan and China have so many unresolved, complicated issues," says Terumasa Nakanishi, professor of international politics at Kyoto University.

From the day he burst onto the political scene, Koizumi was the outsider in his own party, relying on charm and public support to push his often maverick agenda. But as his popularity rating now hovers near an all-time low, his antagonistic relationship with many of his colleagues may have boxed him in on everything from structural reforms to international relations. While Koizumi's tenure has already been an unqualified, if modest, success on a number of fronts, he has an exceedingly tough climb ahead of him if he is to achieve all of his goals before leaving office. According to Glen Fukushima, ex-president of the American Chamber of Commerce in Japan, what was once a river of goodwill that allowed Koizumi to float, almost miraculously, above the politics-as-usual fray, has begun to evaporate. That has created a vicious circle that threatens to snuff out his attempts to salvage a lasting political legacy. "His failure to implement what he has said he would do," Fukushima says, "has led to a decline in his popularity—which makes it difficult for him to do what he needs to." Back in 2001, as Japan's Prime Minister came to power on a wave of confidence and public optimism, he declared himself "Junichiro Koizumi, the lionhearted." As he heads into a tight election and perhaps his toughest season of policy battles, Koizumi has an opportunity to prove whether he deserves that nickname not just because of his leonine mane, but because of the power of his convictions and the tenacity of his fight.