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Nakasone's fortunes go down when the yen goes up. Japanese leader's woes fuel power struggle within his party

By Daniel SneiderSpecial to The Christian Science Monitor / May 15, 1986



Tokyo

At the moment, the political fortunes of Japanese Prime Minister Yasuhiro Nakasone can be easily charted -- they fall when the value of the yen rises. When the yen rose quickly at the close of last week's Tokyo summit, Mr. Nakasone came under sharp attack for failing to convince his fellow summiteers, particularly President Reagan, of the need to halt its climb. His opponents in the ruling Liberal Democratic Party (LDP) moved quickly to block his plans to call an early election for the lower house of the Diet (parliament). Such elections are thought to be essential for Nakasone to hold on to power past the end of his term as party president in October.

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Throughout the past week, Nakasone has clearly been on the defensive in the Diet, promising to take steps to aid businesses suffering from the high value of the yen, which makes Japanese exports more expensive. The prime minister's falling fortunes encouraged his potential successors as party leader and prime minister to declare their intentions openly. Foreign Minister Shintaro Abe, for one, told a meeting of party faithful that the ``time of Mr. Nakasone has passed.''

Nakasone, however, is a seasoned veteran of political combat and shows no sign of relinquishing power easily. When the dollar rebounded yesterday following remarks made by US Treasury Secretary James Baker indicating satisfaction with the current value, Nakasone grabbed the credit: ``I believe [my] individual talks [with President Reagan at the summit] are having an effect on the foreign-exchange markets,'' he told reporters.

But foreign observers, having a difficult time understanding why Nakasone is on the defensive, are asking questions:

Why is the yen's rise so controversial when Japan still enjoys a huge, and growing, trade surplus and enviable conditions of low inflation and unemployment and continued growth?

Why should Nakasone be in trouble when he enjoys very high personal popularity in opinion polls?

The impact of the strong yen is only beginning to be felt here. Its effect on Japan's overall trade balance has so far been offset by the impact of cheaper oil and other raw materials and by the fact that the value of the majority of Japanese exports has risen in dollar terms (though not in yen terms).

But economic growth has already begun to slow, and fears of a recession are widespread. Domestic growth has not yet compensated for a slowing of exports, particularly of those goods made by smaller firms which do not have the profit margins to absorb the exchange loss. According to one recent private survey, there have been 114 bankruptcies of such firms due to the yen rise since October, 42 of them in April alone.

This poses special problems for the conservative LDP, dependent as it is on businesses for the funding of day-to-day operations and election campaigns. LDP members of parliament report that businessmen are reducing their contributions.

Many of the hardest-hit firms are located in smaller cities and semirural areas, which are the LDP's traditional strongholds. The postwar allocation of parliamentary seats gives disproportionate weight to votes in such areas over urban centers, an arrangement that has strongly favored the LDP.