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Junichiro Koizumi


Is he for real? That's the question business and political leaders in Washington and Europe are asking about Japanese Prime Minister Junichiro Koizumi. A series of ineffectual Premiers has bounced in and out of office for a decade, while the Japanese economy has sunk into the mire. Is Koizumi the man who will finally pull Japan out? Barely two months after Koizumi rose to power, this much is sure: He is deadly serious about leading the most profound transformation of Japan's economic model since World War II.

In recent weeks, Koizumi, 59, and his economic policy team have been outlining a massive overhaul of government spending, tax policies, and the banking system. If these proposals ever turn into real policies, Japan will suffer years of depressed growth, deflationary pressures, and spikes in bankruptcies and layoffs before the economic crisis disappears. That's on top of Japan's current triple whammy of excess debt, excess capacity, and excess labor. "It will take a tremendous amount of energy to reincarnate an ailing economic system that is 50 years old," says Honda Motor Co. CEO Hiroyuki Yoshino. "It would come with a lot of economic pain."

That's why the special interests aligned against Koizumi's reform push are so strong--despite his 80% approval rating among voters. To keep companies afloat and workers employed, Japan spends about twice as much on public construction per capita as other industrialized nations. Its $300 billion public works budget isn't that far from what the Pentagon spends on defense.

Along come Koizumi and Economic & Fiscal Policy State Minister Heizo Takenaka talking about axing some $40 billion in regional public works spending. They want to get rid of wasteful central government subsidies that cover about half the principal and interest payments on local government bonds. They are even pushing for means testing for government health-care spending on the elderly. In rapidly aging Japan, such expenses are devouring the budget.

These kinds of proposals would have amounted to political suicide for Premiers stretching back a decade. But none of them enjoyed the public adulation of Koizumi--and the Premier is taking his reformist platform directly to the people. More than a million Japanese citizens, for instance, registered for an e-mail magazine that the Prime Minister's staff has launched to discuss public policy issues and Koizumi's views on where society ought to be heading.

It's not clear what the allure is of this Japanese pol with the Beethoven hairdo and a fondness for heavy metal music, sumo stars, and opera singers. But it is working. Koizumi's Liberal Democratic Party will likely keep the majority it was expected to lose in the tightly contested Upper House election in late July. Walk around any neighborhood of Tokyo these days and you will see Koizumi posters plastered everywhere.

Besides promising an economic fix, Koizumi is determined to renew Japan's optimism and pride. He is hawkish on security issues, even suggesting that Japan revise its constitution to give the military a more active role, together with the U.S., in providing security for the region. That, plus his reform drive, suggest that Koizumi will get a very warm welcome from President Bush when they meet June 30 at Camp David. But Koizumi is sure to infuriate Beijing and Seoul, who keenly remember Japan's war-time past, if he sticks to his plan to pay a visit in August to the Yasukuni Shrine, where Japan's World War II dead--and war criminals--are remembered.

Koizumi is likely to see his popularity fall later this year as he tries to push through the Diet an austere budget that caps spending for the first time in a decade. And there is a real chance that Koizumi's enemies inside the LDP could dump him in a party leadership race set for this fall.

But even if he goes, Koizumi has shifted the national discourse. Though he may end up a transitional figure who fails to lead the revolution Japan needs, chances are this flamboyant character will be remembered as the man who started it.


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