Paralysis continues to hurt Japan Election: Rebuke to do-nothing economic orthodoxy leaves it entrenched for now.

July 15, 1998

VOTERS in Japan's normally quiet election for the upper house of parliament sent a piercing message to the country's largely hidden leadership. They agree with foreign bankers and governments and with the conference of Japanese and U.S. business leaders now gathered in Tokyo.

They want Japan to stimulate consumerism through tax cuts, even at the cost of deficit budgets. They want a more open economy with real competition. They want reform of banking and business, even if some banks and corporations fail to survive.

But the reduction of Liberal Democratic strength in the weak upper house and the sudden emergence of the Democratic Party, organized by a Liberal Democratic defector, do not achieve this reversal of economic policy. The Liberal Democratic Party still controls the powerful lower house and, therefore, the next government. It has prevented change and has not necessarily altered its collective view since Sunday.

Prime Minister Ryutaro Hashimoto, accepting blame for the electoral setback as a repudiation of his own abilities, resigned. Refreshing as this may be to Americans, the symbol is confused. Mr. Hashimoto resigned either for failing to give the Japanese people the reforms they need, or for failing to protect his Liberal Democratic colleagues from such demands. Which is not clear.

The Liberal Democratic Party factions will now bargain until they have chosen Mr. Hashimoto's successor. Meanwhile, faceless bureaucrats in both the party and the government control the inertia that prevents change. They were not defeated on Sunday.

Some observers, however, do think the voters' and foreign bankers' messages were heard. The Japanese stock market actually went up following the election, in the belief that a tax-cutting stimulus package is now inevitable.

One is certainly needed. Japan is the world's second biggest economy. Its investment is needed to bring Thailand, Malaysia and Indonesia out of recession. Further contraction in Japan would dampen the U.S. economy.

Just as foreign governments were urging the United States during the Reagan years to curb budget deficits, they are now urging Japan to undertake some until economic activity revives.

There is no assurance that Japan's next government will do that. What there is, however, is greater clarity and unanimity in the advice being offered, which is a good sign.

Pub Date: 7/15/98

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