Japan’s Good News, Bad News Bears : Economic moves, scandals spell uncertainty

Whenever it comes to economic initiatives, Japan moves with a dazzling speed that stands in sharp contrast to its fumbling approach to foreign-policy issues. That was most assuredly the case last Friday when Tokyo unveiled a record $85-billion spending package that should help restore confidence in a battered financial system engulfed in its worst crisis since World War II.

Ever pragmatic, Tokyo included something for everyone, even foreigners. The hodgepodge of economic initiatives includes billions in new public spending, millions for government procurement of goods from abroad and funds for low-interest loans, even for foreign companies. The spending should help boost Japanese domestic demand for imports.

That’s good news for the United States and Japan’s other trading partners, which have long been urging Japan to buy more from other nations instead of just exporting goods at a furious rate. While that won’t make a big difference in the trade deficit, it will help integrate Tokyo into the world economy.

“The early implementation of this comprehensive program can make an important contribution to increasing world growth and strengthening economic recovery,” Treasury Secretary Nicholas Brady said in Washington.

Just two years ago, Tokyo had engineered a slowdown to cool down an overheated economy. But the move to deflate the so-called bubble economy turned into a bust. Asset values have plummeted, as have stock prices on the Tokyo market, and some banks are on shaky ground.

The economic initiatives toward correcting this include a still-sketchy proposal to set up a corporation that would rescue ailing banks from bad debts, which are estimated to range from $79 billion to $550 billion. The action would be something akin to the U.S. savings and loan bailout.

The Japanese Cabinet adopted a fiscal package based on proposals offered by the ruling Liberal Democratic Party. The goal is to boost economic growth beyond the current 2%, which is short of the 3.5% target set by Prime Minister Kiichi Miyazawa in a move to help pull other nations out of recession. Still, some growth is better than none.

Besides the economy, the LDP’s other preoccupation is the seemingly endless bribery and influence peddling scandals that continue to dog the party. The 77-year-old kingpin of the LDP, Shin Kanemaru, resigned as party vice president last week, becoming the latest casualty. Kanemaru stepped down admitting that he accepted $4 million from the head of Sagawa Kybun, a Kyoto trucking company tied to organized crime. He also said he would resign as the head of the LDP’s biggest faction.

Kanemaru’s real power has long been in facile deal-making behind the scenes. He orchestrated the prime ministerships of Miyazawa and Toshiki Kaifu. Not surprisingly, Miyazawa reluctantly accepted Kanemaru’s resignation. But the old powerbroker is not expected to be the last to fall in this latest scandal. Miyazawa’s own future may depend on who else is implicated.

The LDP’s grip on political power in Japan has endured despite past episodes of corruption. This time may be no different. But if Kanemaru’s fall loosens his grip on the party, the United States could encounter a different Japan, one less willing to go along to get along.