Prime Minister Yasuhiro Nakasone experienced a significant setback in regional elections Sunday as voters clearly opposed his plans for a 5 percent sales tax. His party, the Liberal Democrats, failed to recapture two important governorships - Hokkaido and Fukuoka - from the Socialists. In voting for 2,670 prefectural assembly seats around the nation, the Liberal Democrats lost 105 seats while the Socialists picked up 71 and the Communists 33. The Liberal Democrats still hold a majority in most prefectural assemblies. But their seat total - 1,382 - is their worst showing in 20 years.
Mr. Nakasone is already in political trouble because of the yen's continued steep rise on international markets. This has caused near panic among manufacturers and demands for a massive government program to stimulate domestic demand.
Externally, Japan is under severe pressure from Washington to reduce a $52 billion dollar surplus in trade with the United States. Nakasone is planning to visit his friend Ronald Reagan in the White House at the end of the month, hoping thereby to take some of the heat out of recent exchanges between Washington and Tokyo and to put US-Japanese relations in a broader perspective. But Sunday's election results weaken him at home at a time when he needs all the support he can muster.
Conversely, the results strengthen the opposition parties, especially the Socialists, who fought their first campaign under a woman leader, outspoken Takako Doi.
Communist gains were also significant, because this party, although indubitably Marxist-Leninist and therefore shunned by most other opposition groups, concentrates on regional ricebowl issues close to voters' daily concerns.
The sales tax was the dominant feature of the campaign. Liberal Democrat leaders frankly admit that their advocacy of this tax not only cost them votes but led to a near revolt in their ranks.
Although officially the party says any member who speaks out against the tax is subject to discipline, almost every candidate distanced himself or herself from it. No one asked Nakasone to come and campaign on their behalf, lest he raise an issue that most of them wish he had never brought up.
In remarks to journalists yesterday, Nakasone admitted that the sales tax was to blame for the defeat. But he stopped short of promising that it would be withdrawn. The tax is designed to help reduce the country's accumulated budget deficit.
Political observers believe that it will have to be shelved, at least for the next year or so.
The government's immediate goal is to get the 1987 fiscal year budget passed before Nakasone leaves for Washington April 29. The budget has been bottled up in committee, where the opposition parties have used every parliamentary trick in the book to delay proceedings and thus prevent the sales tax bill from coming to the floor.
Until this budget is passed, the government cannot get around to compiling a supplementary budget specifically designed to pump up the domestic economy and free manufacturers from being so export oriented.
Such a supplementary budget has long been demanded by Washington and by Japan's other trading partners, as well as by domestic manufacturers, whose overseas orders have declined sharply as the yen steadily rose against the dollar.
In short, Nakasone needs to be able to take a convincing domestic economic package with him to Washington. What compromise will he, or the Liberal Democrat Party strategists, be willing to reach with the opposition parties to make this happen? What deal would the opposition accept?
Meanwhile, US Special Trade Representative Clayton Yeutter has expressed the opinion that the sales tax will have a dampening effect on Japanese consumers, thus hampering the domestic economic growth that Japan needs in order to wean manufacturers from their export orientation. Nakasone was irritated enough to sharply rebut Mr. Yeutter. He must now be casting about for some way to back away from the sales tax without appearing to abandon it altogether.