The Man In Charge

Japanese have a saying about angling for mudfish. "You may catch one under a willow tree," it holds, "but not a second at the same spot." Prime Minister Junichiro Koizumi characteristically ignored that folk wisdom last week--and hauled in a second catch every bit as tasty as the first. On Saturday he repeated the risky one-day trip to Pyongyang staged in 2002 to free five Japanese citizens abducted in the 1970s, returning this time with five of their children in a deal that could improve ties with Kim Jong Il's isolated regime and bolster Koizumi's already impressive job-approval ratings. "I came here to change hostility into friendship and opposition into cooperation," he declared during a press conference in Pyongyang.

Critics say he went there to change the subject. The trip was suspiciously well timed to divert attention from a troubling pension-funding scandal that has forced his chief cabinet secretary to step down. Even the prime minister's allies acknowledge that, in part, the visit was staged to pump up his numbers ahead of parliamentary elections this summer. And why not? Koizumi's audacity only underscored how Japan's silver-maned leader now stands head and shoulders above any real challenger--and why his Liberal Democratic Party-led coalition is set to triumph at the ballot box in July. "Koizumi is not a man of deep thoughts," says respected political commentator Takashi Tachibana. "But he has a strong will and he is good at making snap decisions. Whenever there is a poll, those who support him say they do so 'because there is nobody else'."

With two years left in his term, Koizumi finds himself in an unprecedented position. His can-do style has inspired near hero-worship (most notably among his huge constituency of middle-aged housewives). Japan's GDP has expanded by about 6 percent over the past six months--fruits of his "no-pain, no-gain" reform efforts, he claims--impressing even the international-ratings agencies. The emerging pension scandal has claimed two of his most prominent rivals, even as Koizumi has mended factional divisions within the LDP. The prime minister has achieved a degree of control over the Japanese political system that would have been unthinkable just a few years ago. His challenge now is to craft a legacy for himself as the architect of Japan's resurgence--both economically and as a key U.S. ally in East Asia.

Koizumi has in effect become the most "presidential" of Japan's modern leaders. He's made himself indispensable in the electorate's eyes by wrestling policymaking away from the bureaucrats and into his own office. To fix his Pyongyang trip, for example, he called upon an old LDP ally, Taku Yamasaki, to broker a deal with North Korean counterparts in China. Reportedly, Yamasaki hinted that his boss would seek to normalize diplomatic relations with Pyongyang before his term ends. To the North, that timetable promises an expected $10 billion in reparations for Japan's colonial occupation of the Korean Peninsula. Left out of the loop, the Foreign Ministry bristled; one unnamed diplomat told the Asahi Shimbun newspaper that Koizumi's trip "leapfrogs the scenario of events we had envisioned."

Similarly, Koizumi has arrogated much more economic decision making to his office than his predecessors. Legislation once flowed in the opposite direction in Japan: ministries and powerful LDP committees hammered out bills, then presented them for lawmakers and the prime minister to rubber-stamp. That made the P.M. expendable even in a culture averse to radical change. Koizumi doesn't handle every detail of complex issues--few of which he understands, say colleagues--like reforming debt-laden banks and failing state corporations. But he has deputized hard-charging ministers and protected them from LDP stalwarts accustomed to cabinets stacked with yes men. The best example: chief bank regulator Heizo Takenaka, who has pushed Japan's megabanks to clean up their books with stringent new accounting rules. The LDP's old guard has lobbied for two years to oust him, but to no avail. "The credit [for Koizumi's economic successes] goes to the fact that he lets the 'brains' work and does not change their policies," says Takahide Kiuchi, a senior economist at Nomura Securities.

The strategy is dangerous: Koizumi has no one else to blame if things go wrong. But it seems to be working. The Nikkei index is up roughly 50 percent since hitting historic lows in March 2003, largely because of his government's efforts to shore up Japan's wobbly financial system. Exports are expected to post double-digit growth this year, mostly to China. Companies like NEC and Toshiba have begun to invest in Japan again, building huge factories to produce high-end technology for the home market. For the first time in five years analysts are forecasting an end to deflation in Japan, along with a modest rise in interest rates--now pegged at zero. Even consumers have started spending again, which suggests widespread optimism and promises strong GDP growth into 2005.

Many Japanese credit Koizumi with no less than masterminding a revival of Japan Inc., which they fear will be derailed if he leaves. That has helped him to wiggle free of the ongoing pension scandal. Over the past few weeks dozens of top leaders--including Koizumi, a handful of his ministers, leading opposition figures and scores of parliamentarians--have admitted they did not pay into the national pension system for varying periods of time. (Koizumi missed payments for almost seven years.) Yet while several of them--including both opposition leader Naoto Kan and his presumed successor--have been forced to step down, only 13 percent of respondents to a Kyodo News Agency survey said Koizumi should resign in atonement. Nearly 60 percent thought he should stay on.

In the past, even the whiff of scandal surrounding a prime minister so long in the tooth--Koizumi has held power for 37 months--would have set rival LDP factions jockeying to dethrone him. The press would have begun biting, and soon the embattled leader would have fallen on his sword. A candidate proffered by one faction or another would then enter the revolving door at the prime minister's residence.

Now the LDP itself has been transformed, driven by the all-encompassing need to win elections. Koizumi's popularity has allowed him to sideline shadowy rivals in the party, either by pressuring them to quit or by strictly implementing LDP retirement guidelines that bar candidates over 73 years of age from running on the party ticket. Thus, he has managed to put scores of younger lawmakers into office. They, in turn, owe him their loyalty, which he has called upon to push through reforms opposed by the old guard and to safeguard his handpicked cabinet. In short, the atrophied factions now lack the power to topple Koizumi so long as he remains popular. For the first time, public opinion is a powerful force within the LDP.

Kan's Democratic Party of Japan is in much worse shape. Although it picked up 40 seats in Lower House elections last fall, the party has since failed to flex its muscles in any meaningful way. On the issue of pension reform, for example, it did little more than denounce the government's proposed fixes without offering up its own. And in April DPJ leaders unwisely sought to score political points by blaming the plight of Japanese civilians taken hostage in Iraq on Koizumi's decision to deploy the Self-Defense Force there. Koizumi stood firm, and when the hostages were freed, polls showed his popularity to be greater than any prime minister since Shigeru Yoshida in 1951.

Worst perhaps, for a DPJ that touts clean government, was Kan's resignation. His presumptive successor, Ichiro Ozawa, disclosed his own missed payments and declined the post three days later. The one-two punch blindsided many voters who had held the DPJ to a higher standard. "The Democrats are completely unreliable," says Masako Hosoi, a 35-year-old art consultant. "How can I now say they're any different [than the LDP]?"

Ironically, some analysts argue that the biggest political risk facing Koizumi today is this lack of a viable opposition. Indeed, he managed to attain the prime minister's chair in the first place only because, as a maverick from the party's radical fringe, he appealed to voters ready to dump the LDP mainstream for failing to reverse a decadelong economic slump. In a Faustian bargain, LDP stalwarts declared themselves "reformers" and backed Koizumi's candidacy as a means of clinging to power. Robert Alan Feldman, Morgan Stanley's chief economist for Japan, says that dynamic has changed. "The fact that the opposition has become so weak gives anti-reform LDP folks room to attack Koizumi," he warns. "The wolf isn't at the door anymore."

Even if he manages to fend off such attacks, though, Koizumi faces more intractable challenges. Feldman, among others, warns that Japan has entered a "complacency phase" in its economic cycle that could be followed by disappointment. Without a new reform push, he argues, profits at Japanese firms will likely slump in 2005 as GDP growth slows to a projected 1.1 percent, down from an expected 3.7 percent this year. That outlook suggests the need for more corporate downsizing, greater efforts to shut down failed companies in crowded industries like retail and construction and renewed vigilance to prevent banks from bailing out longtime clients with loans that will never be repaid. Japan's rapidly graying population, too, demands more clarity on a pension system seen by many on the verge of insolvency.

And even though his Pyongyang gambit seems to have worked, the greatest danger to Koizumi may lie in foreign affairs. If SDF personnel in Iraq--deployed to a combat zone for the first time since World War II--are killed, voters could turn their opposition for the war against the prime minister himself. "At this point there is nobody within the LDP who could challenge Koizumi," says a senior party insider, "but his popularity could collapse if SDF members are killed or injured in Iraq."

That risk may be acceptable for a leader looking to cement his place in history. With the date of his retirement party already announced, Koizumi is striving to create an emboldened Japan that regains some of its economic might, stakes out a greater role in regional diplomacy and--when the need arises--deploys its formidable Army to pursue national interests. With the SDF deployed in Iraq, diplomacy with North Korea making headway and Japan's economy outperforming expectations, Koizumi--love him or hate him--is undeniably on his way.

The Man In Charge | News