Sunday, January 4, 2009

Before the deluge

After an abbreviated recess, the Diet will reconvene today for its 2009 ordinary session.

The situation facing Aso Taro, his party, and his country is dire, and growing darker by the day. The latest development is the tent village — is it appropriate to call it an Asoville or Aso-mura? — that has been growing in Hibiya Park, populated by unemployed temporary workers with nowhere else to go. From Monday the unemployed will relocate to four sites in the Tokyo area, but after next week it is unclear what will happen to them. Asahi reports that the denizens of the temporary village will be demonstrating at the Diet on Monday.

A crowd of unemployed workers sleeping in Hibiya Park, living on emergency food aid: it is with this backdrop that the LDP approaches what may be its final Diet session (for now) as Japan's ruling party.

Mr. Aso, in a press conference Sunday, did his best to remain positive, as is his wont. Far from heeding Franklin Delano Roosevelt's 1933 warning about "[denying] the dark realities of the moment," Mr. Aso insisted once again on speaking of a bright future while ignoring the ever bleaker present.

"The future," he said, "is built by us. We build. The future is bright...I want to build a bright Japan for all the people."

He insisted that the supplementary budget containing a second stimulus package must be passed before the end of the fiscal year. He repeated that he is not thinking about calling an election until the second 2008 supplemental and 2009 budgets are passed. He said that it is appropriate for the LDP to discuss a future consumption tax hike, following the restoration of economic growth. Finally, he concluded by saying that he is not worried about the possibility of rebellion by LDP malcontents, that he even understands their grievances.

It increasingly appears like Mr. Aso's anodyne remarks are intended not so much to reassure the public as to reassure himself. Perhaps it's working; maybe Mr. Aso really believes that a brighter future is right around the corner.

The reality, of course, is that it increasingly appears that not only will Mr. Aso preside over the continuing disintegration of the Japanese economy, he may also preside over a disastrous general election for the LDP and the disintegration of the LDP. Watanabe Yoshimi, the man in revolt, appears to be steeling himself for a break with the party. Speaking to his koenkai in Tochigi over New Year's, Mr. Watananbe told his supporters that he remains opposed to the government's two trillion yen payment plan and, moreover, that if the government does not continue to reform the bureaucracy — his pet issue — he is resolved to leave the party and place himself at the head of a popular movement. It remains to be seen whether Mr. Watanabe is bluffing. I'm inclined to believe he's not. Indeed, it appears that Mr. Watanabe may be setting the table so that it appears that the Aso government is to blame for his leaving for failing to accept his conditions (including an immediate dissolution of the lower house followed by a general election). The pertinent question then is whether anyone will follow him out of the LDP, or, failing that, whether a popular movement will materialize around him.

Unfortunately I'm pessimistic about both. The LDP's would-be defectors appear to have been sufficiently restrained by the party, at least until after a general election. As for the other alternative, would Mr. Watanabe be able to repeat Hosokawa Morihiro's feat of channeling popular discontent into a new micro-party that could propel him to power? Mr. Hosokawa's Japan New Party formed in 1992 and competed in upper house and local elections before the 1993 general election. Mr. Watanabe will have far less time. Would he be able to find enough candidates, not to mention enough field supporters, to make his movement into a factor in the post-election landscape? The presence of the DPJ will further complicate matters, potentially dampening enthusiasm that might otherwise have bolstered his movement.

In the meantime, Mr. Watanabe — along with Nakagawa Hideano and other reformists — will continue to agitate from within the LDP. Mr. Nakagawa began the year by declaring his belief in the need for a political realignment, and rejected all talk of a consumption tax hike. Discontent within the LDP will only grow in the coming months, whether or not Mr. Aso is prepared to address it.

Ozawa Ichiro is undoubtedly heartened by the news surrounding the start of the new Diet session. He reasserted the importance of putting the people's livelihoods first and, in a deft move, criticized both the government's delay in introducing a new stimulus package and the content of the stimulus package on offer. His point that a new stimulus package should reflect the DPJ's concerns too is a salient one, if only because the DPJ, as the master of the upper house, should be involved in the drafting of such an importance piece of legislation. The LDP still has not learned that the divided Diet means that consulting with the opposition should occur before the introduction of legislation. Of course, doing so would probably mean cutting side payments to important LDP and Komeito constituencies. (But the DPJ is the only party playing politics with an issue of national importance...)

Mr. Ozawa also voiced his approval of Mr. Watanabe's remarks before launching into an extended criticism of Mr. Aso's remarks. Addressing Mr. Aso's declaration that the key words for the Diet session are "security" and "vitality," Mr. Ozawa said, "While saying these words, the true figure of the Aso government is that by doing nothing for three months it created a political vacuum. I think the people really understand this. Therefore it's impossible for the people to be deceived by this word play."

In response to a question from a journalist, who wondered why Mr. Ozawa is spending so much time on rural districts, Mr. Ozawa reasserted the importance of the DPJ's campaigning in longtime LDP strongholds in rural Japan. He believes that the DPJ's message of opposition to market fundamentalism, competition, and the inequalities "that have resulted from globalization" can succeed across Japan — although he declined to offer specifics for what the DPJ is promise in place of these enemies.

For now, however, it seems that the DPJ will not be penalized for doing little more than campaigning on the basis of the insecurities, the grievances, and the anger of the Japanese people. The DPJ is setting the public agenda; the LDP is now talking of "protecting the people's livelihoods," not unlike Mr. Ozawa's "The people's livelihoods first." The party owns the issues that matter most to the public, and as the economy worsens may even appear to be a reliable steward of the economy compared to the LDP.

The DPJ should not be too upbeat. If current trends continue and if the DPJ wins this year's election, it may come to regret taking power thanks to a historic economic crisis that appears far from finished in Japan, not to mention everywhere else.


Anonymous said...

While your recent writings are correct in their criticism of Aso in my opinion, I think that we need more acknowledgement of the fact that the current Japanese recession is due mainly to a financial disaster of American origin (I mean, do we blame Iceland?). It was not caused by the LDP and even if there was a decisive leader with vision, there is certainly no "quick fix" to a problem that lies mainly outside of Japan's borders. How can they stimulate demand for Japan's exports (the hardest hit areas) when a cash-flush totalitarian state like China seems to be having no luck? It is not a matter of public optimism or confidence in government either - Chinese have polled highly in both areas and are still tanking badly.

One measure that could be taken is to stop the march of the yen, but that would no doubt antagonize the US and could be counterproductive.

Even if an ideal Japanese government descended from heaven, it is quite possible that there would still be a rough few years to ride out. This is a consequence of international connectivity, something that has brought cultural richness but which has also shown that it can blow up.

Anonymous said...


Whilst i agree with some of your points, i don't think one can call this a "financial disaster of American origin". Japan's economy is an export economy. If one takes the US out of the equation, would there still be a problem. Yes, but not a major would still be able to make profits.

The main problem has been banks around the world being run by "non-background bankers" who were all too willing to 1) copy the US get rich quick policy of short term high gain, at high risk (this is not banking policy, it is a 'speculators' MO) and 2) buying into those US banks to get a "slice of the action" (if said bank goes down, ergo so do they).

If banks around the world did "business as usual", the current economic crisis would be wholly a US one.

"..This is a consequence of international connectivity.." is only about trying to copy a 'formula' from another country in getting rich, quickly! It has nothing to do with cultural richness, other than financial!

Anonymous said...

By "Cultural Richness" I mean all of the other sides of globalization - exchange of people and ideas, etc.

I think that you are correct - it is not just the "fault" of the US, but also of people going along with the US system.

However, the US govt. is also guilty of promoting that system and in some cases, forcing it on others. Just check out some of the shockingly arrogant 年次改革要望書, all written from the point of view that less regulation and less thinks like... well, automaker bailouts are the only rational choice.

The press is also complicit. Let's not forget that 5 or 6 years ago, Citibank was being hailed by many American commentators as either a model or a savior for Japan. Now it has come off looking worse than many of the Japanese zombies of the 1988-1993 period.

Finally, there are many allegations that US financial institutions effectively hid the risk of sub-prime lending from Iceland and Japan, among other victims. I think that we can expect more information about this to come out in the coming months.

Noah said...

I agree that the current recession is global and not of the LDP's making (although China and Europe certainly share some complicity with America!).

That doesn't mean the LDP should be let off the hook. They were never sufficiently punished for the disaster that was '90-'02, for the mountain of debt with which they saddled the national finances, for their endemic corruption, or for the incomplete nature of the Koizumi-era reforms. Their performance over the past two decades has ranged from mediocre to horrendous. Any excuse to give them some time in the wilderness is a welcome one.

Anonymous said...

other Anon.
yes i realised you were talking about "other" issues. I just don't accept the link related to financial, but, it shall be written as such i'm sure. Any excuse to ignore the world around as a reason not to "integrate" itself globally.

Agreed the US Govt, is shockingly complicit to the point of forcing others to comply.

US Financial institutions either 1) have no regulations or 2) is it does it is weak and not being enforced. (Enron all over again..)

The US seems to hold itself up as a the beacon for "freedom", in the sense of no regulations....often labeled as "liberalism", gesss!!!!..(rolling ones eyes).

The crash in Japan during the previous decade made banks rethink their strategy and ensure some regulation. Hence The banks here are regulated, to an extent, in the same way that banks are in the EU. Had the US banks etc been "open and honest" then the EU and Japan would not have followed, period. Regulation is seen as stifling growth, in the US mind set.
Don't hear so many voices shouting this aloud now...

Tobias Harris said...

We could argue for years about the problems in the US financial sector and the Ponzi scheme Wall Street essentially foisted on the world.

Japanese were right to feel a certain amount of schadenfreude as they watched US investment banks explode, having been on the receiving end of all too many lectures from US bankers and their colleagues at the US Treasury.


To lay Japan's crisis simply at America's doorstep?

First, it is too simple to look at US 年次改革要望書 and blame the US for the supposed results. Anything that resulted from them depended on sympathizers within the LDP. If there is blame to be distributed, why should the US receive more blame than LDP politicians who embraced neo-liberal reforms? Moreover, did those politicians really need US requests to seek a reform agenda? The US looks like a convenient scapegoat, complete with paper trail.

As I've argued here before, the financial crisis is only exacerbating problems that have already existed in Japan, problems that should have been fixed but weren't and are now difficult to fix in light of prevailing conditions. Japanese officials were content to let economic growth after 2001 speak for itself, assuming that — to borrow from Nakagawa Hidenao — a rising tide would fix everything.

Yes, Japan, like just about every country in the world barring North Korea and a few others, was taken in by Wall Street. But as Noah said, that's letting the LDP off far too easily for leaving Japan more vulnerable to a shock emanating from the US.

Anonymous said...

"that's letting the LDP off far too easily for leaving Japan more vulnerable to a shock emanating from the US."

Sure, but nobody's letting the LDP off here at all. You have about 50,000 words devoted to LDP incompetence in the past few months. Far, far less concerning the Wall Street foisting, which is a crucial issue for Japan as well.

"If there is blame to be distributed, why should the US receive more blame than LDP politicians who embraced neo-liberal reforms?"

Not more blame, perhaps, but why not equal blame?

The LDP left structural flaws, yes. However, the crisis is not just hitting Japan - China, Russia, South Korea, Taiwan, Singapore = and that's just the neighborhood. UK, Canada, Mexico, Iceland.... the list goes on. So we are supposed to place the majority of the blame on each and every one of those local governments for buying into a US dominated global economic system rather than tracing problems back to the source - irresponsible practices in the very economy that was promoting itself aggressively as a world model and asserting, at every turn, its leadership as well as pressuring other economies for change in things like the 年次改革要望書 which have always had the threat of punitive measures hanging over them (see US arbitrary auto quotas in the 70s and 80s)?

Anonymous said...

Don't forget that the LDP has had an awfully long time to put Japan's economic house in order and has failed to do so. This leaves less available for individuals, and the BoJ, to work with when a shock such as this occur, regardless of where they come from.

And as Eichengreen has so eloquently demonstrated, financial shocks come from different and unpredictable places each time; all we know with certainty is that, like the next Kanto Earthquake, one will come.