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Japan: a failed state in the making?

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On Friday 21 May, we asked the question “For how long can Hato survive?”  Like most demises, the end came more quickly than anyone imagined, with Prime Minister Yukio Hatoyama announcing his resignation two days ago on Wednesday 2 June. 


It seems likely that Finance Minister Kan will be elected the new Prime Minister.  But looking further ahead, Japan may be entering into a period of longer term social and political instability, with unpredictable consequences.

Hato’s demise is a sad story.  Last September, when the Democratic Party of Japan (DPJ) was elected, there was much hope and promise regarding political reform and modernization.  Real democracy seemed to have at last come to Japan.  But Hato was not the right guy for the job.  And with the wheeling and dealing Ozawa behind the scenes, it was just a matter of time before things came unstuck.

Prime Minister Hatoyama had none of the qualities that are necessary for political leadership.  He was inept at communicating and persuading his Japanese citizens of what he wanted to do.  He was a bad manager of his staff, and certainly did not appoint the right people.  Chief Cabinet Secretary Hirano was a disaster. 

And Hatoyama was completely indecisive, a bad characteristic for a position which requires decision making.  Indeed, he did not even know what he wanted.  He was a nice guy who wanted to be agreeable to everyone.  He did not understand that words have meaning

To what extent was the US responsible for Hato’s demise?  At first, the Americans were not helpful.  Not long after the election, they bullied into Tokyo, pushing Hatoyama to give up on his promises to renege on the previous government’s agreement regarding the US forces on Okinawa.  They did not seem to realize that the DPJ was a political party that was totally unprepared for government.  Until assuming power, it had no access to inside confidential information. 

But by November, the Americans could see that there were problems.  They started to back-peddle, and willingly entertained the idea of the Japanese government making counter-proposals.  But despite his promises, Hatoyama was not capable of coming up with the goods.  Ultimately they signed up to Hatoyama’s agreement a couple of weeks back, in part to be helpful to a wobbly ally.  But it was the beginning of the end.

Where does this leave us?  Hatoyama will disappear to an elder statesman role.  Kan will likely win the Prime Minister’s position.  In theory, Ozawa is also resigning as Secretary-General of the DPJ.  But it is quite likely that he will still be pulling the strings in the background.  His election organizing skills are without rival, although it is not clear that his old tactics of using interest groups to deliver votes, and buying votes will work.

The 10 July Upper House elections will be a test case.  If the DJP wins enough votes, it could form a coalition with other parties like the Komeito and the Minna no To.  This would allow it to continue governing.  With time, it would gain experience and may be start to govern effectively.  But the DPJ does not have a credible strategy for tackling the country’s major challenges.  And Japan’s tradition of intercenine political infighting does not give reason for hope.  Kan will be the fifth Japanese Prime Minister in the four years since Koizumi left the position.

Another scenario is that the DPJ wins only about 40 seats.  It may not be able to form a coalition with a smaller party.  The DPJ being a minority in the Upper House could encourage instability and pressure for a general election.  Since the LDP is now splintering into smaller parties, and still lacks all credibility, the result of a general election could be indecisive, and lead to a weak coalition government.

Relations with the bureaucracy have become a mess.  The DPJ declared war on the bureaucrats, and Kan seems more anti-bureaucrat than Hatoyama.  But the bureaucrats are necessary for expert advice and implementing policy.  Government will be greatly hampered until this relationship gets fixed.  Could the bureaucrats seek to regain power if weak, unstable coalitions are governing Japan?

So the prospect is for continuing and worsening political instability.  This is not a good thing when many problems have to be tackled. 

First, Hatoyama’s agreement with the Americans on Okinawa was irresponsible and seems untenable.  Citizen protests in Okinawa are only becoming stronger.  This agreement will not hold. 

Second, the whole US/Japan Alliance needs to be reviewed.  It was conceived at a time when the Soviet Union was a threat, and when Japan’s neighbours feared a return to Japanese militarism.  Now the key is managing the China/Japan/US triangle.  Japan and the US need a strong partnership that allows them both to engage with China, but to also hedge against possible risks of instability in China.  Japan also needs to assume greater military responsibilities. 

Hatoyama’s quest for more independence from the US never made sense.  And it is not clear that the Japanese people, who are frightened of North Korea, would want to drop the Americans.  Who should the Japanese trust the most, Obama or Ozawa?

The US and Japan need to establish a strategic dialogue, like the US has with China.  Obama and Hilary Clinton take Japan seriously, Japanese paranoia about American neglect and disinterest is wrong. 

But its effectiveness would be limited by the revolving door of prime ministers.  At least in China, the US has stable dialogue partners.  Ultimately, the three have to work together.

On the economic side, Japan’s public debt just keeps growing.  And the long term current account surplus will switch into deficit in the coming years.

All of this suggests tipping points in the future.  Continued political instability, and inability to solve long term economic and political problems could provoke populism in politics and capital flight from Japan’s wealthy enterprises which now do most of their business outside the country.  Japan’s healthy foreign exchange reserves would not stand up well in the face of a stampede.

Japan’s descent into open crisis may well be, like the fall of Hatoyama, much more sudden in the coming than many predict.  But that could be the beginning of real reform and modernization.