Economics is Politics in Japan

John de Boer (University of Tokyo & GLOCOM Platform)

The international media greeted Minister Takenaka's plan for economic reform in Japan with universal disappointment. The Washington Post characterized the proposal as "substantially diluted" and "watered-down" (Akiko Kashiwagi and Peter S. Goodman, October 31). James Brooke of the New York Times claimed that the government had settled for a "muddling-through" approach to its weak banks (October 31) and the Singapore Straits Times called it "too little, too late" (Kwang Weng Kim", October 31). These claims of disdain were also reflected in the attitude of credit rating agencies with S&P calling the package a "step back", Moody's complaining that it was "still too vague" and Fitch labeling the proposal a "damp squid". The sense of disappointment overseas is great in part because of the high hopes created by bold statements issued by Minister Takenaka a week earlier to magazines such as Newsweek where he said that, "no bank was too big to fail". It is fair to say that outside of Japan the plan has been met with a strong vote of no-confidence towards Japanese leadership.

The truth is that most media sources expected to be discouraged. On 28 October, as the publication of the proposal was being held up by both internal and external opposition, William Pesek Jr. of Bloomberg News wrote an article in the International Herald Tribune entitled, "Maybe Japan just isn't ready for change". In that piece Pesek featured comments that questioned Japan's sense of urgency to change. He pointed out how corrupt politicians, bureaucrats and companies colluded to maintain the status quo and virtually wrote Prime Minister Junichiro Koizumi off as a force for reform by stating that, "Koizumi - like the revolving door of prime ministers before him - convinces everyone he's serious about ending Japans malaise", however, "each time, his efforts are mired in back-room deal making and compromise". The understanding is that Koizumi ultimately bowed to the LDP bigwigs and shelved his reforms. On 27 October, Howard French and Ken Belson of the New York Times explained Koizumi's problem as follows. "A political elite that has held near monopoly power for a half century dreads the banking reform because they seem sure to push many of the ruling party's biggest corporate donors out of business". With the Japanese middle class still relatively comfortable, French and Belson, predicted a watering down of Takenaka's plans as a result of political pressure even before it was released.

Even the op-eds featured in the New York Times seem to fall in line with the French-Belson argument with contributors Akio Mikuni and R. Taggart Murphy also emphasizing the "old routine" that has characterized Japan for the past 50 years. According to them, the US seems to be growing tired of it all. "It's an old routine" they stressed, "that goes back half a century: a sudden show of resolve in Tokyo to do whatever it takes to fix whatever problem that worries the US - complete with "reformist" ministers and bold policy pronouncements. In time, both the policy and the minister are forgotten and Japan returns to business and politics as usual" ("Would Reform Ruin Japan?", NYT, 29 October). Following this, James Brooke, also of the New York Times, wrote an article that focused on the case of Daiei in order to illustrate the politics of economic reform. He claimed that, "in the US, this retail chain (Daiei) would probably have gone the way of Woolworths and Montgomery Ward by now. But in the land of economic harmony (Japan), Daiei's major banks have been encouraged by politicians and government officials to keep it going at all cost" (29 October). Along with this statement appeared a comment issued by Merrill Lynch Japan's chief economist, Jesper Koll, that labeled Japan, "a loser's paradise, a country where inefficiencies are rewarded". According to Brooke there are thousands of "Zombie companies" in Japan. These 'Zombie companies' "neither have good balance sheets nor operating performance. All they have is solid, old-style feudal lords who can get access to more revolving credit due to their political connections and their club memberships".

The conclusion given by these sources is that Japan's economy is in "far worse shape than when Koizumi's supposed revolution began" (Pesek, October 28). That after so many about-faces "the biggest unknown is just where Koizumi's head and heart lie" (French and Belson, 27 October). The US media seems to be convinced that the Japanese PM prefers strategic retreats and that at the end of the day Japan's economic situation will simply get worse. When bold action was necessary Japan settled on taking "baby steps" (Brooke, November 1). The sense of disappointment overseas, particularly in the US, is high and most have already written Koizumi off. The estimate is that at present no body can do the job.

Article:

• James Brooke, "Japan Settles for Baby Steps to Help Banks Buried in Debt", The New York Times, 1 November 2002
• Kwan Weng Kim, "Koizumi's economic rescue package 'too little, too late'", The Singapore Straits Times, 31 October 2002
• "Disdain greets Japan reform plan", BBC, 31 October 2002
• Akiko Kashiwagi and Peter S. Goodman, "Japan Unveils Bank Reform Proposal", The Washington Post, 31 October 2002
• Akio Mikuni and R. Taggart Murphy, "Would Reform Ruin Japan?", The New York Times, 29 October 2002
• James Brooke, "Japan's 'Zombie' Businesses Live On", The New York Times, 29 October 2002
• William Pesek Jr. "Maybe Japan just isn't ready for change", International Herald Tribune, 28 October 2002
• Howard French and Ken Belson, "Showdown over Japanese banking reform", The New York Times, 27 October 2002