Ozawa and Obama

Ozawa and Obama. By Michael Auslin
The likely success of the Democratic Party of Japan in this year's general election could mark a new era in Japanese politics and have a significant impact on the Obama administration's relations with its closest Asian ally.

Wall Street Journal Asia, January 6, 2009

After seeming to get back on track earlier this decade, Japan once more faces a host of intractable problems, from a paralyzed political system to an economy again officially in recession. Like its American counterpart, the Japanese electorate wants change, and the likely success of the Democratic Party of Japan in this year's general election could mark a new era in Japanese politics and the end of over half a century of Liberal Democratic Party rule. A DPJ government will not only lead to new policies, but may have a significant impact on the Obama administration's relations with its closest Asian ally.

For over two years now, the LDP has been unable to resolve Japan's economic and political challenges. Having lost control of the Upper House of Parliament in 2007, and on its third prime minister in as many years, the LDP will be hard-pressed to retain its majority in the powerful Lower House. An election must be scheduled no later than September, but with current Prime Minister Taro Aso's popularity in the 20% range, the LDP might be forced to call elections earlier, and an electoral defeat could lead to its dissolution. Should the LDP manage to keep a majority in the Lower House, the current political deadlock will continue, with the two parties splitting control of Parliament and unable to agree on any but the most basic legislation. This would paralyze most of Japan's foreign and domestic initiatives, and impoverish the country at home and abroad.

Ichiro Ozawa, head of the DPJ, is waiting impatiently. Mr. Ozawa has spent the past two decades trying to defeat the LDP, largely through populist measures such as reforming the tax code, improving social services, and distancing Japan from U.S. foreign policies -- in particular those related to the war on terrorism. For example, he has repeatedly expressed a desire to work more closely with the U.N. on international issues and avoid becoming entangled in U.S. global military activities.

Mr. Ozawa's policy preferences cause concern among "strong alliance" proponents on both sides of the Pacific. He is also seen as more pro-China than recent Japanese leaders, who have continuously, if quietly, balanced the economic benefits of closer Sino-Japanese relations with concern over Beijing's growing political influence and military strength.

Even if he wins, however, Mr. Ozawa will not have carte blanche to impose new foreign and domestic policy. The DPJ is riven with factions. Younger foreign policy "hawks" are uneasy with their leadership's call for closer cooperation with the U.N. or with China. Others are skeptical that the DPJ's plan for massive stimulus spending to jumpstart the economy will work any better than the LDP's failed pump-priming in the 1990s. Moreover, should the Democrats falter once they take power, young politicians across the political spectrum may find it more appealing to join forces, thus radically altering the Japanese political landscape.

Even if Japan's voters deliver a clear verdict in elections, whoever wins faces a tremendous economic challenge in 2009. Christmas news that manufacturing output plunged more than 8% in November underscores the bleak prospects for the coming months. The global slowdown has reached Japan's leading exporters, such as Toyota, and the knock-on effect on Japan's numerous domestic suppliers to multinationals will have widespread impact throughout an already fragile economy. Much of Japan's job growth the past decade was through temporary employment. Those workers are now being laid off in droves, putting pressure on social services.

Without a firm government policy to lower taxes and recover the reform mantle wielded by popular former prime minister Junichiro Koizumi, Japan's economic gains of the early decade are at risk, and the country may be facing yet another "lost decade." Combined with America's own extended slowdown, the world economy will be profoundly weakened by the problems plaguing its two largest economies.

The Obama Administration needs all the help it can get to shore up the global economy and ensure stability around the globe. Mr. Obama will undoubtedly find many areas of common interest with a potential Ozawa government, but both should learn from ineffective policies pursued during Japan's recession in the 1990s. Both will do well to recognize that their trans-Pacific partnership can be a powerful tool for solving some of the vexing problems they face, but only if both act resolutely.

Tokyo and Washington should jointly push for free trade to stimulate economic growth, set an example by lowering tax rates, promote development of new energy technologies, and commit to maintaining stability in Asia's common areas. Doing so will help both Japan and its American partner weather a year of living dangerously.

Mr. Auslin is a resident scholar at the American Enterprise Institute.