Uncertainties and risks have been looming on the horizon of the world economy. As the year develops, the black cloud hanging over the world is becoming bigger and bigger. Oil price is forecast to increase over 200 dollar per-gallon. No sign is yet seen that souring commodity prices are hitting the ceiling. World inflation is becoming a real threat. As subprime mortgage issues in the United States have not yet to settle down, many financial institutions have been struggling to write off bad assets and strengthen their capital base. Though Secretary of Treasury Henry Paulson suggested that the credit crunch might have passed the worst time, banks are still charging a high risk premium for their lending.

According to the forecast of IMF, the growth rate of the world economy for 2008 might dip into below 3% growth, which is defined as the world recession. Under the deteriorating situations of the world economy, a close attention is paid to the recent developments of the American economy. Against the optimism of its policy makers, the American economy appears sliding into a recession. Sharp increase of unemployment in May has changed the optimistic sentiments to be totally pessimistic. Sooner or later the worsening labor market conditions would have a negative impact on the consumption, which has been the driving force of the American economy.

There are similarities and differences between the economic conditions after the bust of the IT bubbles and that of the housing bubble. Similarity is that the Fed took a prompt action to lower the federal fund rate. But the effects of extremely easy monetary policy are quite different. With short-term interest rates declining after the bust of the IT bubble, long-term interest rates fell as well because of low inflation expectation. Therefore the Fed did not care about inflation in implementing its monetary policy. Stable and declining prices of commodities including oil contributed to a decline of inflation expectation and a resultant decline of long-term interest rates. Falling long-term interest rates stimulated housing investment, which led the recovery of the American economy. Low long-term interest rates and housing boom boosted consumption through refinancing of housing loans. Combined effects of the housing boom and the Bush tax cut were pulling the American economy out of the recession. The recession at the time was shortest in the post war period. But the extremely easy monetary policy created excess liquidity and eventually caused the housing bubble.

This time, the economic situations surrounding the American economy is totally different from the previous case. In spite of lowering federal fund rate, long-term interest rates remain high because of higher inflation expectation. As prices of commodities and foods have skyrocketed, the Fed should be cautious about rising inflation expectation. Credit crunch caused by the subprime loan debacle also keep long-term interest rates from falling because lenders are asking for higher interest rates. Even though the Fed lowered the federal fund rate to 2 % by 3.25 percent points since last September, the tangible effect of easy monetary policy to stimulate economic activities is not yet witness. Without the decline of long-term interest rates, the economy would not gain steam. This time, that is happening.

High long-term interest rates would delay the adjustment of the housing market. Standard & Poor’s home price index plunged 12.7% last February 2008 from a year earlier. This is the biggest decline of the index since 2001. Home sales were also down by 18% in April. What’s more, home foreclosure exploded 112% for the first quarter of this year from a year earlier. The adjustment of the housing market is far from being completed. It means that the subprime mortgage problems would continue for some time. In spite of massive injection of liquidity by the Fed into the financial market, the credit crunch is still a big problem.

The growth rate of the American economy for the fist quarter of this year was disappointingly low at 0.6%. Fed Chairman Ben Bernanke said in the Congressional testimony in April that there would be some possibility that the American economy would suffer from a recession during the first half of this year. Fortunately, his prediction was not realized because the growth rate for the fist quarter was positive (the definition of a recession is the consecutive two quarter negative growth). But it seems inevitable that the economy would fall into a negative growth for the rest of the year. If that happens, the Fed will have to take another action to lower the federal fund rate to respond the sluggish economy. The market expects that the Fed might make a decision to lower federal fund rate in this fall. But the Fed should pay attention to the development of inflation. According to the minutes of the FOMC released in May 21, the members commonly expressed the concern about inflation. The Fed has to walk on a thin line between a possible recession and emerging inflation.

There is another headache for the Fed to deal with, which is the falling exchange rate of dollar. Weaker dollar would have a benefit to increase exports to compensate for decline of domestic sales, but it would add to inflationary pressure. If the Fed lowers short-term interest rates to cope with a recession, it would promote a further decline of dollar. It is reported that the European Central Bank is considering the rise of interest rates to counter the rising inflation pressure. The ECB action would widen the differentiation of interest rates, which would lead to the further decline of dollar. If the decline of dollar continues, the Fed has to take measures to stop it. Taking these factors into a consideration, policy options for the Fed are greatly limited.

The Bush administration made an optimistic forecast of the economy by citing the effect of tax break. They said that its effect would be fully felt in the second half of this year. But who spends money when they are faced with possibilities of losing their jobs. Telling from the experience of Japan, tax break or tax reduction was not effective to encourage consumers to spending more under a high degree of uncertainty for the future. We cannot expect a so-called multiplier effect. Tax break would be just a one-shot fiscal stimulus. The unemployment rate of May jumped to 0.5 percent point to 5.5%, which is the highest level since October 2004. In addition, according to the household survey, employment fell by 285,000. When employment fell 28,000 for April, which was far less than forecasted, many economists said that it would be unlikely that the American economy slips into a recession. But the rise of the unemployment rate has wiped away optimistic views on the economy. The fear of recession is now revived. If employment declines, earning income also declines. So does consumption.

There is another drag on consumption, which is home equity loan. Home equity loan has been a big source of money for the household. Declining home prices would make difficult for homeowners to borrow money from banks by using their homes as collateral. On the contrary, many of house owners might not roll over borrowing or might be asked to pay it back. If the increase of income stops and borrowing ability is lost in addition to the worsening job market, people have to reduce consumption. Besides, rising prices of gasoline and foods would reduce the disposal income of the household. Consumption accounts for two thirds of GDP. After checking with these facts, a rational conclusion would be that the American economy slips into a recession.

OECD forecasted that the growth rate of the American economy for the second quarter would be minus 0.5%. The growth rates for the third and fourth quarter are expected 0.7% and 0.2%, respectively. For the full year of 2008, the growth rate is expected to reach 1.2%. This is certainly based on an optimistic analysis that “the response of macroeconomic policy will help to moderate these (negative) effects, as will a dynamic external sector (meaning increase of exports)”. Lowering short-term interest rates and increasing export are not sufficient to help the American economy grow.

The Japanese economy is also in a difficult situation. The first quarter of 2008 posted a rather high growth rate at 3.3% on an annualized base. But A half of the growth attributed to the increase of export. The export is heavily dependent on the American and Chinese economy. Business investment, which contributed to the growth for the fourth quarter of 2007, fell for the first time in the three quarters. As corporate profits for fiscal 2009 is expected to decline in addition to sluggish increase of final demands, capital investment would remain sluggish. According to the date released in June by the Ministry of Finance, the combined pretax profits for the first quarter of this year declined by 17.5% for the first time since the fourth quarter of 2001 because of increasing costs of materials. For the same period, capital investment fell for the fourth straight quarters.

Consumption is a key to predict the future course of the Japanese economy. But consumer confidence index for April showed the decline from March and the lowest level since March 2003. As a result of the deregulation of the labor market under the leadership of former Prime Minister Junichiro Koizumi, companies posted record high profits in the course of the economic recovery. On the contrary, wages and salaries remained stagnant, which is the main culprit of sluggish consumption. Rise of prices of food and services has been eroding disposal income. Japan has been struggling to make a domestic-demand-led growth of the economy. But we cannot see such changes yet.

Policy options for Japan are very limited. Interest rates are already very low so that there is almost no room to lower interest rates to stimulate the economy. On the contrary, the Bank of Japan has a strong desire to normalize interest rates as soon as possible. OECD recommends that “the Bank of Japan should not raise the short-term policy interest rate.” The Japanese government puts a highest priority on the reduction of the budget deficit. Fiscal expansion is out of the option. Both monetary and fiscal policy could not be used to support the economy. If the Japanese economy suffers from sluggish economy, there are no policy measures to be used.

The growth of Euro zone will also fall from 2.6% to 1.7% according to the estimates of OECD. The total growth rate of OECD countries is expected to fall to 1.8% from 2.7% . The center of the world economy growth is certainly shifting from the advanced nations to the emerging countries, in particular to the Chinese economy, of which growth rate for this year is forecasted reach 10%.

Just two days before the election, a small private meeting was held at the center of Tokyo, where journalists, diplomats, scholars, government officials and others attended and freely exchanged their own views about various topics. This time, naturally the main subject was about the election. One participant, who is well acquainted with newspaper editors, said that the newspapers intentionally reported the conservative forecasts because if they report the most-likely results, it would surprise the readers greatly and might influence their voting behaviors. Needless to say, the most-likely outcome would be a land-slide victory for the LDP. In a sense, the opinion palls made a correct prediction. Other participants agreed with his comment and analysis. But even at that time, I still had an optimistic forecast for the DPJ, that is, there would be still a chance for them to increase their seats, though not sufficiently enough to overtake the government from the LDP, but enough to change the course of politics.

I was totally wrong about the forecast. Koizumi’s coalition government won 327 seats among 480 seats, which consists of LDP’s 296 seats and Komei’s 31 seats. LDP increased their seats by 84. The combined number of the seats by LDP and the Komei exceeds the two-third majority. On the other hand, DPL lost 65 seats to only 175. But if you look at the share of votes in the single-seat constituencies, LDP gained about 43% of the total votes. It is not necessarily overwheliming.

It is a miserable defeat for DPJ. Party leader Okada announced his intention to resign from the party chairman immediately after the election. During the campaign, he pledged that he would resign if he fails to win the election. But the actual outcome is beyond his imagination. I wrote the first blog article, titles of which is “Japan’s September 11: A Turning Point for Japan.” This article is my second comment on the election.

Table: the number of the seats by major parties (the number within parenthesis indicates the number of the seats before the dissolution of the Diet)

LDP: 296 (212)
DPJ 113 (177)
Komei 34 ( 31)
Communist 9 ( 9)
Social Democrat 7 ( 5)

I will make a list of the reasons for the land-slide victory of Koizumi.

(1) Blitz Dissolution of the Lower House:
When an unexpected large number of the Diet members of the ruling LDP voted against the law to privatize the postal system in the Lower House and the law was voted down because of the betrayal of the LDP members in the Upper House, Koizumi was supposed to lose his influence and to become a lame duck with his term remaining one year. But he turned this adversarial situation into his overwhelming political victory. In spite of opposition of many people including his party allies, he decided to dissolve the Lower House by arguing that anti-reformers have denied the reforms, and asked for the referendum on the privatization of the postal system. The first and foremost reason for his success is that he denounced the members of the LDP and the other opposition parties who are against the law as anti-reformers. And he established himself as reformer. Medias joined his campaign to criticize these politicians. “Reform” is a magic word to get the support of the people in Japan regardless of its content. Koizumi clearly forestalled the opposition parties in the election campaign and succeeded in controlling the election agenda.

Blitz dissolution of the Lower House made it possible because Koizumi seized the offensive attack first while the opposition parties, in particular the Democratic Party in Japan, were not fully prepared for the general election and were put on the defensive side from the beginning. Issues in the general election became simple, to choose reformers or anti-reformers. This kind of a white-and-black issue was so effective to catch the attention of the people. And “white” is Koizumi

(2) Effective tactics for the first week after the dissolution of the Diet:
After the unexpected dissolution of the Lower House, Koizumi continued his effort to catch media attention by nominating celebrates as one candidate after another. Almost every day Koizumi announced new candidates, so every day media extensively reported newly-nominated candidates, who are called “assassins” by media to kill anti-reform former LDP members. In a usual situation, well-established and celebrity female candidates provoke hostility among female voters. But because of strong support of Koizumi, they became the member of the crusade of reformers. Eventually most of them were elected. This is a big success of Koizumi’s media strategies, by which Koizumi could control the media attention. People really enjoyed stories about fighting between reformers and anti-reformers which reported every day by media. Media described this situation as “political theater for Koizumi.”

On the other hands, the opposition parties did not make any effective counter-attack against Koizumi. They are denounced as anti-reformers who try to prevent Koizumi’s reform efforts. And DPJ failed to produce its own election agenda. Though he repeatedly argued for the necessity to privatize the postal system, Koizumi did not mention any other issue in the campaign even though the leaders of the opposition parties asked him to explain other major issues such as the reform of pension programs, foreign policies, budget deficits and so on. He stuck to the one-issue election strategy. DPL asked LDP to hold the one-to-one discussion meeting between the two leaders, but Koizumi refused this request by saying that the discussion meeting should include all the party leaders.

(3) Successful Campaign Strategy:
As already mentioned, Koizumi characterized the election as referendum on privatization of the postal system. He said in the TV advertisements, “If we fail to privatize the postal system, how can we reform more difficult and bigger systems? Privatization of the postal system is just the beginning of the grand reform of Japan. I don’t understand why the opposition parties are against privatization of the postal system.” But he did not mention any detail of the reform of the postal system at all. “Privatization of the Postal System” became an easy political and campaign slogan, which no one can deny in general. Koizumi was so successful in making the election as referendum on it.

The real issue of the postal system is not about whether it should be reformed or not, but about how it should be reformed, and how fast it should be done. Koizumi’s plan just one of the options. DPJ leaders know that there are the problems with the current postal system and the current system cannot be maintained for a long time. They also argue for the necessity of its reform, but in a more moderate way than LDP’s plan. But they made serious mistakes not to present their own reform programs. They stood by while there was serious fighting within LDP in the process of the deliberation of the bills in the Diet. Koizumi attacked DPJ by saying, “Because the labor unions are large supporters of DPJ, they cannot provide their own reform programs.” It is true that as DPJ has many factions with diverse ideas about how to reform the postal system mainly because some Diet members of DPJ are former leaders of the labor unions, they cannot work out a consistent and comprehensive reform programs. Okada failed to consolidate conflicts within the party. In their manifesto which is the policy platform, they made some proposal. But no one listens to it seriously. Under those circumstances, DPJ was forced to stand on the defensive side.

Honestly speaking, the majority of the people did not understand how the postal system would be reformed and what kind of impacts it would have on their daily life. DPJ struggled to divert the election agenda from the privatization of the postal system to other more important issues such as pension reform, budget deficits issues, and so on. But Okada failed to make an effective presentation. His rather defensive election slogan in the TV advertisements had no attractiveness to people. He shouted, “I will not abandon Japan (or I don’t give up Japan)” The opposition party should convey more aggressive and positive messages to voters. In any case, there was no serious discussion about reform of pension programs, foreign policies and so on.

(4) How did independent voters respond?
Recently independent voters or swing voters play a decisive role to determine the outcome of elections. This time election was no exception. One of major characteristics of elections in Japan is that any party does not have strong and enthusiastic party royalists. Opinion polls conducted every election always show that more than 60% or even 70% of voters answered “undecided” just before few days of elections. Sometimes they are indifferent to or even totally apathy toward politics. But generally speaking in the past, conservative LDP has strong constituencies in local districts while liberal parties have strong supporters in cities area. Because of the lopsided constituency system in which the number of seats allocated to local districts outnumbers that in cities districts, LDP maintained the largest seats in the Diet. That is the post-war system where LDP played the role to redistribute money collected from city dwellers to local people such as formers and construction companies through government programs. Beneficiaries of LDP policies are mainly local people. City people usually receive higher education and are divided among themselves without strong political clout and pay more taxes than receiving benefits from the government. They usually are critical of LDP and its government. In the previous elections, LDP experienced devastating defeats in Tokyo districts.

The tide has changed in this election. These town dwellers cast their votes for LDP. Koizumi repeatedly said, “I was elected as prime minister with the mission to reform Japan. If there is opposition within LDP, I will dare to destroy the party. Politicians should not represent interest of specific regions or groups, but act as representatives of the nation.” Suddenly the conservative party became the progressive party. And the leader of the party became the icon of reform. His remarks spurred city dwellers, who are usually go on picnic on the election day, to expect something new in the future even though they don’t understand the meaning of reform. Because of the support of these swing voters, LDP won most of Tokyo districts and Kanawaga districts, where DPJ overwhelmingly won the election in November 2003.

(5) Is Koizumi a real reformer?
The best reform is doubtlessly to change the government. Substantial reform cannot be expected from the ruling party. LDP is still standing on the iron triangle, namely politicians, bureaucrats and business people. If you look into the detail of Koizumi’s policies for last four years, it is hardly to say that he is a “reformer.” Against his campaign slogans, he totally depended on bureaucrats for formulating policies except for privatization of the postal system. He did not take any initiative to reform Japan, just paying lip services. One big issue was privatization of Japan Highway Public Corporation. That public corporation is going to be privatized, but it is far from the perfect. There are lots of problems with the public corporation such as bid collusions, waste of public money and cozy relations between the parent company and affiliated companies.

As to other policies, he broke his campaign promise to put the cap on the issuance of government bonds. Budged deficits ballooned last four years against his pledge to reduce it. He worsened the diplomatic relations with the neighboring countries. He postponed dealing with the critical issues such as tax increase, reform of pension programs, administrative reforms, and so on. When he was asked by opposition leaders in the public discussion about tax increase issue, he just said, “While I am in the office, I have no intention to raise it. But after my administration, it is not my issue.” How irresponsible he is!! If you are sober enough, you easily realize how little he did as prime minister. It is true that he is a different type of leader. Usually Japanese leaders are not so outspoken as he is. He has no power base in the party, which allows him to act without being traped by any vested interest. That sounds great. He has changed the party procedures. He picked up new candidates by himself without any pre-consultation with the party leadership. That is quite unusual. He may have carried out coup within the party. He successfully expelled his opponents or challengers to his position from the party. He has established the strongest leadership which is not ever seen in the past so that other party members including senior members can hardly resist him. He may be a great politician with a keen sense to read the political current.
One good example is that when his popularity started to decline, he flew to Pyongyang to meet North Korean leaders, which was a specutaluar political show. His popularity sharply rebounded.

(6) Future of the Koizumi Cabinet:
Mr. Koizumi repeatedly said in the public that his term would expire November 2006 and he would not ask for the expansion of the term. If so, what will and can he do for one year from now? He said in the press conference that possible candidates for the next prime minister would work hard, which means he will nominate some of them as cabinet members in the coming cabinet reshuffling. He may hint that he would become a king maker in the LDP.

What the new Koizumi cabinet will do first it to reintroduce the bills to privatize the postal system. It is highly likely for the bills to pass in the Diet. But a lot of issues are left unsettled such as tax issue, diplomatic relations, pension reforms, budget deficit issues, and so on. Under the normal situation, he could use his political capital to realize his political agendas. But during the election campaign, he did not mention any other issues except for privatization of the postal system. We don’t know what policies he has in his mind and how he prioritizes each of political issues.

Once again, Koizumi himself was surprised by the outcome of the election. He started the election in order to survive, but he is given too much prize to handle.

This year, he did not go to Yasukuni Shrine even though many nationalists strongly urged him to go to Yasukuni Shrine on August 15 as official status, namely as prime minister. This might be because of his consideration of the general election, which is scheduled on September 11. Another reason for his decision not to go to Yasukuni Shrine on “the V-Day” (in American term, Japanese never say so) is that he would not like to divert the election agenda from privatization of the postal system, which is regarded as the symbol of the Reform of Japan in Japan, to other issues such as the Yasukuni Shrine issue, on which the nation is clearly divided. Mr. Koizumi’s rhetoric in the election is that “If you support the Koizumi cabinet, you support the Reform. If you support opposition parties, you are against the Reform.” A simple agenda is most strongly appealing to the voters. If he went to Yasukuni Shrine this summer, the Yasukuni Shrine issue would become one of the big election issues. That would be a bad idea for the LDP and Mr. Koizumi.

Another reason for him not to go to Yasukuni Shrine is that he might have paid attention to the position of the Komei Party (the Clean Government Party) which is more concerned about the Yasukuni Shrine Issue than the LDP. During the war time, the leaders of the Soka-Gakkai, the Buddhist-religious group and the main constituency of the Komei Party, was persecuted by the government and nationalists. In that sense, they share more with liberals than with nationalists about the Yasukuni Shrine issue, even though they formed the coalition government with the conservative LDP. The leaders of the Komei Party publicly recommended Mr. Koizumi not to go to Yasukuni Shrine on August 15. He could not neglect the “advice” from the Komei Party because without election cooperation with the Komei Party, the LDP could not maintain the majority of the Diet. Election cooperation between is indispensable for these two parties to win the election.

The Yasukuni Shrine issue is also closely related to the resurgence of Japanese nationalism and Japan’s relationship with the neighboring countries, in particular with China and Korea. Because of the pledge, he went to Yasukuni Shrine several times after becoming prime minister. But, ironically speaking, he never went to Yasukuni Shrine before that. His pledge to go there is a kind of political calculations to get the support of the Japan War Bereaved Association and to win the presidential election of the LDP in 2001. He stuck to his pledge in spite of running risks of worsening the diplomatic relations with China and Korea. Actually the relationships with these two countries have been getting worse, now the worst in the post-war period because of his visit to Yasukuni Shrine. Some of senior members of the LDP who are greatly concerned about the worsening relations with China advised Mr. Koizumi not to go to Yasukuni Shrine, but he did not listen to them.

Why is China so concerned about the visits of Japanese leaders to Yasukuni Shrine? One of the main reasons is that at the time of signing the peace treaty between Japan and China to reopen the formal diplomatic relation, China used a rhetorical gimmick to separate the Japanese soldiers from leaders who led Japan to the war against China, and to criticize only these leaders. China said that these leaders should bear the war responsibility. The war-time leaders were executed by the ruling of the Tokyo Tribunal of War Criminals. They are classified as “Class “A” War Criminals.” For some time after the war, they were not enshrined in Yasukuni Shrine. But they are now enshrined in the Shrine in the same way as other soldiers are. China’s gimmick is now of no use. They cannot ignore the Yasukuni Shrine issues and have to face it from their domestic reasons. China stiffened their attitude against Japan. Not only prime ministers but also nationalist politicians are visiting to Yasukuni Shrine as a formal status. This makes China and Korea get angry because the Japanese leaders seem neglecting the war-responsibility by admitting the enshrinement of Class “A” war criminals at Yasukuni Shrine.

In responding to the criticism from China and Korea, Mr. Koizumi excused himself by saying that it would be a natural sentiment to console the soldiers who devoted their lives to the nation regardless of their role in the war. Nationalists join these arguments, and they refuted China’s criticism as an interference with domestic matters. If Mr. Koizumi’s argument is right, there are no war criminals in Japan and that Japan has no war responsibility.

In addition, the textbook of history, which is compiled based on nationalist’s viewpoints on the war, is published and put fire on the controversy about the interpretation of the war-time misbehaves of Japan in the Asian Continent. The textbook publicly refuted accusations from China and Korea about issues such as the Nanjing Incident and comfort women’s issue, and others. These two countries criticized Japan for rationalizing its war-time policies of Japan and for denying its war responsibility. And territorial issues between Japan and China, between Japan and Korea would throw a shadow on the future course of the relations between Japan and the others. Combined with the issues about the historical interpretation of the war, these territorial issues have complicated and even aggravated further the relations between Japan and China.

Under the current conditions, it might be difficult to find out solutions for these issues because the Japanese nationalists are gaining bigger and bigger voices in these days. Why are Japanese becoming more nationalistic? Why do nationalists hate China so much?

Japan is not an exception in the world drifting to a conservative regime. Conservative ideas are becoming more popular in Japan. With the conservative tide rising world-widely, Japanese sentiments are also becoming conservative or nationalistic particularly after the Japanese economy passed its peak in the 1980s. For the along stagnation of the economy, people became tired and depressed so that they are so easy to accept arguments which inspire nationalism. Japanese have been witnessing the decline of the position of Japan in the world for last ten years and have lost both self-confidence and self-identity. The voice that Japan should regain its pride is very much appealing to many Japanese. This is the undercurrent of the Japanese society for last ten years. Against a backdrop of rising nationalism, some politicians, scholars, journalists and others started to speak out their nationalistic ideas much louder.

Frequent criticism from China and Korea about misbehaves of Japanese during the war time has exasperated some of Japanese. When China and Korea had to depend on Japan for their economic development, they tended to keep silent. But once their economies grew and have regained self-confidence, they became much more vocal about the war-time issues. Anti-Japan education in China and Korea also aggravated further their anti-Japanese sentiments. On the contrary, as there is almost no education about the history during the war in Japan, many Japanese are totally ignorant of what Japan did during the war time and how Chinese and Korean people feel about Japan. There is no common grand to understand each other. The Yasukuni Shrine issue might be the last straw that deteriorated the relations between Japan and China.

The above is the general description of the Japan-China situations. There is another reason why Japanese nationalists hate China is their ill feelings about China. It is difficult to explain why nationalists have emotional antagonism against China. Many of them claim that we should not trust China because Japan is betrayed many times by China in the past, or that China is hegemonic nation which has hidden agent to dominate Asia, or that China shamefully refused to acknowledge the financial contribution of Japan to China’s industrial modernization. Some of them even say that once Japan makes a small concession to China, China will make more demands to Japan. Most of them who make these kinds of arguments don’t like China, more precisely speaking, hate China. Both countries have the similar ill feeling about each other. This is a quite unhappy situation for the both countries.

The other reason is that Japanese nationalists are feeling the threat of China, both economically and politically. China is now one of the major military powers even though it is still regarded as a developing nation. Its military budget has been constantly increasing. Because of its bigness in terms of population, military strength and the size of the nation, no one cannot deny the increasing political, economical and military influence of China or cannot look down upon China any longer. Last 40 years, Japan was the “only member of the rich country club in the world” by representing Asian countries, particularly Eastern Asian countries. Rising influence of China not only in the Eastern Asia but also all over the Asian region would greatly frustrate Japanese nationalists and offend their nationalism. Nationalist believe that the Chinese government manipulates the anti-Japanese movement in China.

Those who feel that China would be a future military menace to Japan have sought to strengthen military and diplomatic relationship with the United States, which also regards China as a destabilizing power in the world political and economic arena. They have allied with conservative Bush administration to contain the expanding influence of China in the East Asian region. In the Two-plus-Two Conference (participated by the foreign minister and self-defense director from Japan and the secretaries of state and defense from America) held in Washington this spring, they agreed to protect the Taiwan Straits jointly, which is regarded as essential for the national security for the two countries. And the communiqué of the Two-plus-Two indicated for the first time that Japan and the US would do military joint operations beyond the Japanese territory specified by the US-Japan military treaty.

In the interpretation of the treaty, the joint-operation should be limited in the territory of Japan. High ranking officials of the Defense Agency argued that it would be necessary to redefine the treaty to cope with the future situations in the East Asia. They agreed to maintain the security of the Taiwan Straits, which means that they would protect Taiwan from China by means of weapons. Needless to say, China got angry and criticized this agreement. China said that Taiwan is part of China, so the Japan-US agreement is the interference in the internal affairs of China.

Honestly speaking, from a journalist’s point of view, Japanese nationalists’ arguments against China have almost no rationale except for their emotional hatred against China. Nationalists do not necessarily represent the sentiments of the majority of Japanese, but they are very influential. Many major and influential magazines, both weekly and monthly, have published a series of feature articles to criticize the anti-Japanese attitude of China. Even moderate and main stream magazines are following the trend of such sentiments.

Japan is forced to pay high costs for its attitude about the war responsibility and its military engagement with the United States. Japan is not regarded as an Asian moral leader for mishandling the war responsibility issues. Japan might be forced to give up the hope to become a permanent member of the Security Council of the United Nations because of the lack of the most important support from the neighboring countries.

On the other hand, China and Korea take advantage of these situations with Japan to strengthen their domestic political positions. In the history, any governments used tactics to divert the attention of the people from domestic issues to foreign issues at the difficult time. In this case, because of anti-Japanese sentiments the Chinese government can easily agitate and mobilize people against Japan and would consolidate its domestic political positions. Under these circumstances, Japan, China and Korea are now trapped in the stalemate of the diplomatic relations.

One good sign is that Prime Minister Koizumi announced the statement in which he apologized for war-time misbehaves. This statement is quite identical to that of former Prime Minister Muramaya in 1995. We don’t know how seriously Mr. Koizumi is thinking of this issue, but it is clear that he wanted to avoid further worsening of the diplomatic relationship with China and Korea, particularly at the time of the election. Foreign presses reported favorably about the statement by Mr. Koizumi. And the Chinese government tried to calm down anti-Japanese sentiments at the same time. There were no big anti-Japanese demonstrations in China in August.

But the problem is yet to be solved at all. Nationalists in Japan apparently regretted that Mr. Koizumi did not go to Yasukuni Shrine. After the election on September 11, if the LDP wins the majority or forms a coalition with the Komei Party, Mr. Koizumi would say with much greater confidence that he get the blank check about the policies from the public, and he would be inclined toward more nationalistic position.

The real problem is: for last 60 years Japan avoided making a serious discussion about the war responsibility mainly because if Japan makes discussions about the war responsibility issue, the discussion of Emperor’s war responsibility should be unavoidable. The current political and ideological situations of Japan might be a natural result of such negligence of the most important issue for Japan. When liberals were dominant in the Japanese society up to 1970s, nationalists’ voices were weak. But in corresponding to the world backlash to conservatism, they started to gain their influence not only in politics but also in other areas such as press and academia.

The war-responsibility issue remains unsettled in Japan. This is not diplomatic issue but our own issue. The Yasukuni Shrine issue is a derivative of the war-responsibility issue, not about whether or not to console the souls of soldiers who were devoted to the nation. Recently some of nationalists even argue that Japan should deny the rulings by the Tokyo Tribunal of War Criminals and the San Francisco Peace Treaty, and that the war was not an imperialistic war, but emancipated the colonized Asian countries from the Western imperial powers. But Asian nations which were invaded and colonized by Japan would not be happy to hear such arguments.

There is also a popular argument among nationalists. Japan should have its own constitution because the current Constitution was drafted and imposed by the GHQ. One of the main platforms of the LDP is to re-institute the New Constitution, and they recently worked out the draft of the new constitution. History education is also another important issue for nationalists. According to their argument, the young generations in the post- war period were not taught about the good tradition of Japan, and they were taught only about bad aspects of Japanese history, so that new history textbooks should teach them good tradition of the society to regain the national pride. They say that “patriotic education” is needed. Though the controversial history textbook is adopted by only one percent of all the high schools across the nation, this kind of argument is gradually accepted. Nationalistic and conservative sentiments are permeating steadily into Japan. This would make much more difficult for Japan and China to reconcile with each other.

This also reflects the current trend of politics in Japan. Ideological confrontation between Japan and China would become more apparent. Mr. Koizumi cannot change the situation for better. Rather it is Mr. Koizumi who has caused the political stalemate between Japan and China. He is totally responsible for the current situation because of his insensitive remarks and actions. Obviously present confrontation would not yield any fruitful results for the two countries. Nationalists not only in Japan and but also in China are usually in no-compromise positions. How can we break this political and diplomatic stalemate between Japan and China? That is the subject of the second part.

Mr. Koizumi has taken unusual election tactics. At the press conference just after he decided to resolve the Lower House, he criticized the LDP members who voted against the legislation and said that those politicians are the “rebels” within the LDP and against the reform of Japan. He said, “How can we make much bigger reforms of Japan if we fail to make rather small issue such as the privatization of the postal system.” There is now no one in Japan who dare say publicly “No” to any reform. People believe that any reform is absolutely good in Japan regardless of its contents. Several opinion polls showed that majority of the Japanese people support the privatization of the postal system. But it is not ranked first in the list of the priority. The most urgent issues the people think are the reform of the pension program and tax issues.

By regarding the politicians who voted against the legislation as the rebels, Mr. Koizumi could assure his position as a reformer. Even the opposition parties such as the Democratic Party and others which voted against the postal reform legislation are pushed into a corner and have to take a defensive position. If the focus of the election is on the one issue of privatization of the postal system, opposition parties have difficulty to differentiate themselves against the LDP. Opposition parties might be regarded as the same anti-reform group as the rebellious members of the LDP if they disagree to the privatization of the postal system or fail to present their own counter proposal of the reform agendas. So far Mr. Koizumi succeeded in making a single agenda for the general election: the privatization of the postal system.

In addition, Mr. Koizumi took another unusual step to ask the candidates of the party to run for the general election to sign a pledge to support the postal reform legislation. If they refuse to sign, they would not get the party endorsement for the election. This is a kind of “a coup” within the party. This will undoubtedly strengthen the position of Mr. Koizumi within the party. Now the party leaders led by Mr. Koizumi are exercising overwhelming power over the party members. They have the authority to decide whether or not for the party to endorse any candidates according to their own judgment. Leaders of the factions (habatsu), who once had the power to select candidates, seem to have lost their influence over the selection process of candidates.

Without the party endorsement, candidates will have a tremendous difficulty to get elected because they are not provided election money from the party. And if they run for the election as independent candidates, their campaign activities are very much limited because of the election law, which stipulates the single-seat constituency system. They are not granted even opportunities to make campaign speeches in the TV election programs.

As party endorsements are refused by the leaders of the LDP, some of the rebels decided to run for the election as independent candidates with the hope of returning to the LDP after the election. Some decided to establish a new party in order to avoid unfavorable treatment in the election campaign and to show their determination to fight against Mr. Koizumi. But Mr. Koizumi has not stopped at this point. He decided to make challenging candidates against the rebels in all of their constituencies to prevent them from getting elected. In the general election in Japan, local relationships between politicians and the local people are very important. Politicians have their own supporters’ organizations which gather votes during the election period. Supporters are usually engaged in daily political activities for politicians.

Mr. Koizumi has chosen scholars, government officials, business people and others who are well-known in the media as challenging candidates against the rebels, but they don’t have any local supporters’ organizations. Majority of them are females. These challenging candidates who don’t have any connection with local people are expected to take advantage of media coverage and exposure to make appeal directly to voters in their constituencies. Mr. Koizumi is an excellent director of this political play. Almost every day, he appeares in the TV news programs and announces the names of challenging candidates. Newspapers and magazines are speculating who is next, and call these challenging candidates as “assassins” of the rebels. Yes, it is a strategy to terminate rebellious members from the Diet. But it is a very risky tactics because both a rebel and a challenging candidate who are both conservative would compete against each other and eventually both of them would be defeated by a candidate of the opposition party, particularly the Democratic Party.

One time, media reported that there would be a great chance for the Democratic Party to have the majority seats in the Lower House because of the breakup of the LDP. Because of the astute election tactics of Mr. Koizumi, the Democratic Party is standing on the defensive side. The parties announced the political manifest or policy agendas for the election, but the people did not pay much attention to them because they are enjoying the political play directed by Mr. Koizumi. For the first round of the election, even though the election has not yet formally started, Mr. Koizumi has been so successful in his tactics.

Mr. Koizumi has a strong personality and is regarded as a lone wolf within the LDP and is not being deeply involved in traditional style or party politics within the LDP. He has no friends within the party except for only a few .such as Mr. Taku Yamasaki, senior member and former vice president of the LDP. Mr. Koizumi did not listen to senior members of the LDP. Traditional practice of the LDP is typically a consensus building among the party members. Because of such a collective decision making, there is no one who assumes final responsibility. That is not limited to the LDP. That is a remarkable characteristic of the Japanese society. He violated such a practice. In the process of deliberation of legislations, there is an unwritten rule in the LDP that any legislation should be endorsed unanimously in the General Council of the party. Because of strong opposition within the party, the leaders of the LDP under Mr. Koizumi passed the reform legislation of the postal system by voting in the General Council. The rebels are arguing that Mr. Koizumi destroyed not only the rule of the LDP but also the good tradition of the party.

Because of his style of being outspoken and seemingly independent of the party hierarchy, he can enjoy the high popularity rate among the people. Every time when he might lose the support of the people, he announced unexpected policies and actions, by which he regained the support from the people. After the dissolution of the Lower House this time, opinion polls again showed that the rise of his popularity rate to almost 50%, a big jump from the previous survey.

Mr. Koizumi has certainly a keen sense about political situations and trends. He is a political animal with instincts to smell the trend of the sentiments of the people. One example is that on August 15, he eventually did not go to Yasukuni Shrine against his promise because he knew that it would be unwise to make the Yasukuni Shrine issue as one of the election issues. He sticks to the only one agenda: the privatization of the postal system. By doing that, the probability for his party to win the election would become much higher. Not because of his intention to improve diplomatic relation with China and Korea, but because of the election consideration, he did not go Yasukuni Shrine. Good choice not only for him but also for Japan!

So, what is the problem with Mr. Koizumi? We should ask ourselves whether Mr. Koizumi is a true reformer of Japan. He took office as prime minister in April 2001 with the agenda of the structural reform of Japan. What has he actually done for Japan? If you look at the truck record of his policies, you will never say that he is a real reformer of Japan. He made several concessions about important policy issues such as the privatization of the Japan High Way Corporation which is scheduled to be divided to several private companies. His attitude toward this issue was rather sober, more precisely speaking no enthusiasm. He promised to cap the issuance of government bonds. Again he broke it, and the budget deficits continue to increase. As to more important issues such as the reform of the pension program, there has been no progress. Bureaucratic reform is in stalemate. Honestly speaking he lacks in enthusiasm about the bureaucratic reform. No policies were announced to deal with the serious issues such as aging of the society and the decline of birth rate. He has no social agenda. He is one-issue prime minister of the privatization of the postal system. Even though he took an attitude to antagonize to the LDP in his rhetoric, he depends on the old-type LDP leaders to get the support from the LDP.

About the foreign policies, he seems much more nationalists than his predecessors, particularly in the relationship with China. Before becoming the prime minister, he never went to Yasukuni Shrine for console of the soldiers who died in the wars. But because of his promise to the Japan War-Bereaved Association (Nihon Izoku-kai, a powerful interest group) he neglected the criticism from China and Korea. He seems to have regarded China as an adversarial nation to Japan or a challenger to Japan even though he repeatedly said that the two countries are basically in a good relationship. But one big excuse for him is that he did not go to the shrine on the 15th of August, when Japan accepted an unconditional defeat. On the other hand, he has strengthened the military and diplomatic relationship with the United States. He sent the troops to Iraq in response to the request from the United States. And early this year at the conference of two plus two (the conference between Japan’s foreign minister and director-general of the Defense Agency and America’s secretaries of the state department and the defense department) in Washington, the two countries agreed to protect the Taiwan Strait, which meant the one step forward was taken for the military cooperation between Japan and the U.S. The island issues with China and Korea were worsened. He has no principle of diplomatic policies.

Mr. Koizumi is neither a great philosopher nor a great communicator even though he is outspoken. Foreign media gave him rather positive evaluation because of his outspokenness, which is unusual among leaders in Japan. His manner of speech or communication is very much provocative. He seems to have refused any communication with his opponents. He has not made any efforts to persuade others to accept his ideas. What he said is that “You have your own idea, and I have my own idea.” Period! There is a discussion session in the Diet between the prime minister and the leaders of the parties. But these discussions were totally fruitless. I am sure that that his manners of communication did damage to this nation. Serious discussion about politics disappeared in this country. Any arguments seemed to have become meaningless. The leader has no ear. But in the recent press conference, he said, “I have two ears.”

He sent only one simple message to the people: “the reform.” But he did not elaborate on the details and meanings of the reforms. But in his mind, the reform means that of the postal system, but no other systems. In the coming general election, he tactically chose one subject as the agenda of the LDP, which is the privatization of the postal system. Actually no one knows exactly what kind of reform is expected for the postal system and what kind of impact it will have on the life of the people. The people hear many times that the election of this time is a choice between reformers and anti-reformers. Whether or not to support the reform legislation of the postal system is a litmus paper. If you say that you agree to the reform legislation of the postal system, you are supposed to be a reformer. If you say, “Just a moment, let discuss more about this issue,” you are supposed to be an anti-reformer. That is an excellent election strategy because the attention of the voters is diverted from more important issues such as the reform of the pension program and diplomatic policies.

So far, the election strategy of Mr. Koizumi seems so successful. But the people will be fed up with the political burlesque and will become more sober when the day of the election is nearing. There is still a 50-to-50 possibility for the Democratic Party to win the majority of the Lower House in this election. No one predict the result of the election at this moment. One thing is quite sure: Good thing for Mr. Koizumi is not necessarily good for Japan.

The result of the general election on September 11 will have a serious impact on the future course of the politics and this society.

• Freelance journalist
• Part-time lecturer of International Christian University in Tokyo (teaching the courses of Japanese Economy, Japanese Business Management and American Studies)
• Former Senior Editor of Weekly Toyo Keizai (the oldest weekly business magazine)
• Former Editor-in-Chief of Japan Company Handbook
• 1981 to 1982 Fulbright Journalist
• 1981 to 1982 Visiting Fellow of John F. Kennedy School of Government, Harvard University
• 1993 Jefferson Fellow, East-West Center in Hawaii
• 2002 to 2003 Visiting Scholar of Washington University in St. Louis

Publication

• Author: American Conservative Revolution (Chuo-koron in Tokyo, 2004)
• Co-author: Objection to Japan (Kanki Shuppan in Tokyo, 1997)
• Editing and Translation: Trap of the Depression by Paul Krugman (Original edition is Japanese and published by Chuo-koron 2001)
• Editing and Translation: Bankruptcy of Super Power by Stephen Roach (Original edition is published by Chuo-koron, 2003)
• Translation: Minding of America by Robert Reich (Japanese edition by Toyo Keizai Shinposha, 1984)
• Translation: Japanese National Railway by Hiroyuki Kasai (Global Oriental in the UK , 2002)
• Contributed many articles to Chuo Koron, Shokun, JIJI Press World Affairs Weekly (they are leading magazines in Japan), USA Today, World Times and others