US Criticism of Japan Weakens Would-Be Reformers

THE turmoil in the wake of the resignation of Prime Minister Morihiro Hosokawa raises many questions about the Japanese government's stability. But what matters most is the next government's commitment to political and economic reforms critical to improving Japan's relationship with the United States.

Mr. Hosokawa's resignation, the direct result of a financial scandal, ends the meteoric career of a politician who will be most remembered in Japan as the popular leader of the coalition that ended the Liberal Democratic Party's (LDP) 38 consecutive years in power. In the US, he will be remembered as the first Japanese leader to make deregulation a politically acceptable concept in that society. This contains the seeds of a more cooperative and fruitful long-term relationship between the US and Japan. While the resignation of the prime minister will not likely undermine that legacy, a return to power by the LDP likely will.

Hosokawa's coalition, incapable of action well before he resigned, was weakened more by the lack of policy consensus among the disparate member parties than by the prime minister's financial scandal. The coalition encompassed all Japanese parties other than the LDP, from far-left socialists to conservatives on the right. Their only point of agreement is that they do not want the LDP back in power.

Regardless of who is prime minister, the anti-LDP coalition will remain divided on nearly every major issue, keeping any coalition government from stimulating the economy through tax cuts, addressing simmering trade disputes, or deregulating the country's financial markets. But the desire to keep the LDP out of power did spark one successful initiative - a major electoral reform bill that will take effect at the end of this year.

Tsutomo Hata was eventually chosen as prime minister after a 17-day process of difficult negotiations only to see the coalition's largest party, the Socialists, withdraw their support the following day, underscoring the level of disagreement and tension.

Japan will continue to be saddled with weak political leadership, at least until elections can be held under the new system late in the fall.

It would be naive and potentially dangerous for President Clinton and his trade advisers to expect any major initiatives from the next lame-duck government. Continuing the policy of constant criticism of Japan will weaken domestic support for the new reform government.

Most Japanese want to see good relations with the US. They see constant US criticism as an indication that their government is not doing its job, even if the party in power supports the changes the US advocates. American criticism also unsettles stock and currency markets, hurting the Japanese economy and the government that leads it. Hosokawa suffered the political fallout from these attacks. This is no way to treat dedicated reformers in Japan, even if they are too weak to act.

It is possible that Hosokawa's resignation will eventually bring about a stronger government more capable of resolving Japan's economic troubles, particularly its trade disputes with the US. The LDP and old Socialist Party have already begun to dissolve. The current coalition government includes over 100 former LDP members, including a dozen who just recently defected.

The coalition's leading strategist, Ichiro Ozawa, appears determined to replace the coalition's socialists with additional reform-minded LDP members. His recent creation of the large new Kaishin conservative party, seen as central to this effort, prompted the Socialists to withdraw from the Hata government.

The weak, shifting political alliances in Japan are caused by the ongoing political realignment. While it might be easier to deal with a decisive Japanese government, the political changes are good news for the US. Only under a new political order can the entrenched bureaucracy that has held US-Japan relations hostage to a protectionist ideology be swept away.

The old guard LDP members who oppose political realignment in Japan still hope to use the current crisis to stop the evolution toward deregulation. They are totally dependent on the Japanese bureaucracy for policy ideas. If restored to power, they won't dramatically weaken the same bureaucracy to which they are beholden. Progress on new political and economic reforms will come to a halt.

The Clinton administration, not recognizing that Japan is changing from within, is taking the wrong path to open the Japanese economy. True reform cannot be forced from the outside, but if the US supports those in Japan who advocate reform and deregulation, the post-Hosokawa government will more likely be committed to deregulation and market access for American exports.