Nakasone feels heat on both sides of Pacific

As he prepares to visit Washington tomorrow, Yasuhiro Nakasone must feel like a man passing from the proverbial frying pan into the fire. The heat is coming from legislatures on both sides of the Pacific. An unruly Diet (parliament) has forced Mr. Nakasone to abandon, for now, a dearly held tax-reform plan in order to gain passage of the government's 1987 budget.

Still reeling from that blow, Nakasone will be met in Washington by a US Congress ready to pass the toughest trade protection laws since the 1930s. The White House should be able to head off the most protectionist aspects, but is resigned to a trade bill with some provisions it does not favor.

As Japan and the United States head towards conflict over trade, the images of these legislatures asserting themselves contains an important truth: The limits of political leadership of both Nakasone and President Reagan are being vividly demonstrated. On both sides of the ocean, there also seems to be a mutual incomprehension of domestic forces that determine the environment in which policy is made.

In Japan, there has long been disbelief in the powers of Congress. The weakness of their Diet has perhaps encouraged the Japanese to view all power as resting with the executive.

For years, US officials have warned that if Japan did not open its markets, the administration would not be able to control protectionists in Congress. Until now, Tokyo has been able to count on the Reagan administration's commitment to free trade to contain Congress's impulses. And for the last 4 years, Nakasone has depended on his personal links to Mr. Reagan to avert real trouble.

Even now, there is hope that Reagan will act. Nakasone, his advisers say, still believes Reagan may lift the April 17 tariffs on Japanese electrical goods, imposed to counter Japan's alleged violation of a pact on semiconductor trade. And they still count on the White House to stop, by veto if needed, anti-Japanese trade legislation. Only in recent days have influential Japanese come to realize the extent of congressional ire.

``The intensity of the feeling in the US Congress over the trade issue is something I've learned,'' said diplomat Sadako Ogata, after attending the Shimoda Conference, a gathering of US and Japanese policymakers held near Tokyo last week.

The problem of an inaccurate US perception of Japanese political dynamics may be even more acute. The US tendency has been to focus on the figure of Nakasone, an unusually charismatic and forceful prime minister by Japanese political standards. He has eschewed the low-key, consensual role usually adopted in favor of an almost presidential posture.

Americans are comfortable with this role, but Japanese are not. ``For a long time, Japan was criticized for not having a face to represent Japan,'' says Professor Ogata. ``Now we have a face, but the face and body don't necessarily go together.''

The scene played out in the Diet last week illustrates that comment. Despite winning the largest election majority in postwar history last year, the ruling Liberal Democratic Party could not prevail over opposition parties. Nakasone was determined to pass the budget (which he needs passed so he can present new economic plans in Washington), but without conceding on his tax reform. The tax plan is a key pillar of his conservative vision of ending budget deficits, promoting deregulation, and restoring national pride.

But opposition parties have reaped political gains from their campaign against the plan, particularly the inclusion of a new sales tax. Ruling-party members, including possible successors to Nakasone when his term ends in October, finally forced him make a deal with opponents.

Parliament's deadlock over the budget, which lasted several months, reflects a debate in government and other power centers, such as business. There is a deep split between those who favor fiscal austerity (cutting government spending and the national debt) and those who want to expand spending to counteract the economic slowdown. The outcome of this battle is key to the trade dispute with the US.

Americans and Japanese agree that the long-term solution to trade imbalance is for Japan to shift from a system dependent on exports for economic growth to one based on domestic demand, especially increased consumer spending.

How could Japan increase domestic demand? The Nakasone administration's conservative fiscal policy, which has kept budget growth near zero, has depended on private investment, low interest rates, and proposed corporate and income tax cuts (to be balanced by the sales tax). The real source of this policy is not Nakasone, but the powerful Ministry of Finance.

Fiscal expansionists say that without more government spending (thus increasing the budget deficit), there is no way to stimulate the economy. This view is held by the Ministry of International Trade, the Finance Ministry's powerful rival. The two bureaucratic power centers, with their political and business allies, are seen as far more important to Japanese policy than Nakasone is. Indeed, to many Japanese Nakasone himself is becoming an obstacle to settling the issue.

Says business leader Yotaro Kobayashi, ``Rapid realization is growing, both on the part of government and business, that an expansive fiscal policy is necessary.''

Nakasone takes to Washington a supplementary budget plan for about 5 trillion yen ($35 billion) to spur the economy. But the actual amount of new government spending is not yet determined. The Finance Ministry wants to water down the plan; the Trade Ministry wants 7 trillion to 10 trillion yen in real new spending.

The consensus at the Shimoda meeting was that the problems between Japan and the US were not in fact ``sectoral,'' as former US Secretary of State Cyrus Vance put it, referring to issues such as computer chips. They are ``structural,'' like the US budget and trade deficits.

And political realities in both nations make these issues even harder to resolve.