Japan's Prime Minister Aso Faces Ugly Economic Truths

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Toru Hanai / Reuters

Japanese Prime Minister Taro Aso answers a question during a parliament session in Tokyo on Jan. 26, 2009

For someone who is expected to meet with Hillary Clinton during her first trip to Asia as U.S. Secretary of State, Japanese Prime Minister Taro Aso appears to be a host not yet ready for the party. Japan's economy continues to shrivel, the government remains gridlocked as elections loom, and public approval for Aso's administration is plunging. Even influential former Prime Minister Junichiro Koizumi is criticizing Aso's performance, though both are members of the ruling Liberal Democratic Party (LDP).

Aso's woes have an obvious cause: the public perception is that his administration has failed to come up with strong enough medicine to counteract the country's increasingly dire economic plight. The world's second-largest economy shrank at an alarming annualized rate of 12.7% last quarter, its worst quarterly contraction since the 1974 oil shock. Exports also fell an unprecedented 13.9%, while the unemployment rate shot up to 4.4% in December, reaching levels not seen since World War II. "There is no doubt that the economy is in its worst state in the postwar period," said Economic and Fiscal Policy Minister Kaoru Yosano. (See pictures of Japan and the world.)

Little wonder that fewer than one in 10 Japanese support Aso, according to a recent poll by Nippon Television. His approval rating of 9.7% is the lowest since former Prime Minister Yoshiro Mori bottomed out at 8.6% in February 2001. (Mori resigned two months later.) Despite efforts to jumpstart economic growth, including a controversial proposal to hand out $21.7 billion to the Japanese public, many think Aso hasn't done enough. "We have a once-in-a-hundred-year crisis and the policy response is not even average," says Jesper Koll, president and CEO of Tantallon Research Japan. "The people running the show are not politicians, not independent or accountable political leaders. The policies are run by bureaucrats."

Aso recently hurt his own cause by remarking that he did not support the privatization of Japan's huge postal savings system — a key financial reform that Koizumi pushed through in 2005. Koizumi said on Feb. 12 that Aso's comments made him "flabbergasted to the point that I want to laugh." Koizumi also expressed doubts about Aso's stimulus package and his ability to lead the LDP in upcoming parliamentary elections. Gerald Curtis, professor of political science at Columbia University, says there is an obvious rift in the LDP. Koizumi's attack on Aso was a way of "throwing down the gauntlet," he says.

Aso must call a general election by September, and one could come as early as April. But as his approval ratings plummet, speculation is increasing that he will be forced to step down soon. "There's no optimistic short-term scenario for Japan," says Curtis. "The economy will get worse. Politics will get worse. That's the cruel reality of Japan today." And that means Aso's support rating can only get worse. "It's too late for Aso to turn it around," Curtis says. "He'll lose a point a week and by early March he'll be down 6% or 7%. He's going to have to quit." If Aso were to quit, he would be the third Japanese prime minister to do so in as many years. (Watch a TIME video from Tokyo.)

Curtis adds that if Aso resigns, the LDP would need to find someone to lead the party into the general election. "But who wants that job now when they know they're going to lose the next election?" Curtis says. "Either way, you have to assume the chances are very good that the LDP will get absolutely blasted in the next election and that the [opposition Democratic Party of Japan] will come to power," he says.

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