Critical Battle Ahead in Japan

The Japan Times Online

With 125 votes against 108, Prime Minister Koizumi lost the critical vote in the Upper House of the Diet of Japan for bill to reform Japan Post. In July, he very narrowly secured the bill's passage through the Lower House.

Now, Prime Minister Junichiro Koizumi has deceided to dissolve the Lower House and seek a new election, probably in mid-September. He will go into that election with his LDP party divided over the wisdom of this particular reform.

It's a daring and important move. For all its success during past decades, the structure of the Japanese economy needs reform, and the virtual monopoly the gigantic Post Office has on cash transfers in the economy is very much part of what needs to be changed.

But as always there are deeply entreched interests keen on preserving the status quo. These have now rebelled with the help of the leftist opposition and parts of the Liberal Democratic Party. There were significant defections also in the vote in the Lower House.

The election battle will be a battle for the soul of the LDP and for the future of reform in Japan. It's been somewhat jokingly said that the LDP is neither liberal, nor democratic or a party. It's certainly a very broad coalition including those favouring a heavy government and state guidance on most issues and those that want a leaner government and a more pronounced market economic course.

Now Koizumi will take this battle to the voters. He's unlikely to allow the LDP dissidents to stand for the party, which means that they in many cases might well stand against the party. He can take losses and still survive - but there are limits to it.

Japan is the second largest economy in the world that is gradually coming out of a decade of economic stagnation. What happens there affects us all.

The elecion - September 11? - will result in either an acceleration of reforms under a continued Koizumi government and a reformed LDP, or complete political gridlock with obvious negative economic consequences.

September will then be the month with key elections over key economic issues in two key global economies - Japan and Germany.