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WebMemo #840 on Asia

September 15, 2005

Going Postal in Japan: A Mandate for Reform

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On September 11, Japanese Prime Minister Junichiro Koizumi's ruling Liberal Democratic Party (LDP) won a landslide victory in general elections, creating the largest LDP majority in the Lower House since 1986. Japan's Upper House had rejected Koizumi's proposal to privatize the postal office, including its saving and insurance systems, precipitating this early election and now Koizumi's mandate on the issue. As well, LDP will continue its nearly unbroken half century in power for at least four more years. While Koizumi has reiterated his vow to step down as party leader and prime minister when his term ends next September, there is historical precedent for extending his term, as Prime Minister Yasuhiro Nakasone did after winning an overwhelming victory in 1986.

This past election may prove to be the most important in Japan's post-war history. This is not due to Koizumi's achievement of a resounding public mandate to push ahead with his reform agenda, but rather his transformation of the domestic political arena. Koizumi severed ties with several of LDP's once-loyal voting blocks, including the post office association, the agricultural cooperatives, and the construction industry. He also gambled that he could afford to alienate rural voters, who remain largely opposed to reforms, but rallied record support from the young, urban, and unaffiliated voters who had long been dismissed LDP as stodgy and unappealing. To achieve these gains, Koizumi had to expel those within his own party who opposed reform and embrace change to modernize the LDP's image.

The party's transformation-as well as its new ideological platform and prominent deployment of several charismatic female politicians-jolted many Japanese out of political apathy. Ironically, the opposition Democratic Party of Japan (DJP) actually had the more radical and reform-minded agenda, with a bolder approach to cutting government spending and controlling government debt. Yet Koizumi skillfully orchestrated public debate to focus on postal system reform, defining the choice for voters simply: for LDP or against reform.

Postal reform is not a trivial task, and, if successful, will have profound consequences for Japan's political and economic landscapes. The Japanese postal system does far more than deliver mail: with more than $3 trillion in deposits and a workforce of 380,000, it is also the world's largest public bank and serves as the primary insurance provider for Japanese families. The postal system's huge reserves have long been a slush fund for old-guard LDP members to finance questionable projects and patronage. This borrowing has led public debt to balloon to 170 percent of GDP for the better part of a decade, the highest among developed economies.

His efforts to privatize the postal system indicate that Koizumi is entering the next and larger phase of a broader reform agenda. In his current plan, which has been considerably watered down, Koizumi proposes splitting the banking and insurance businesses from mail delivery in 2007 and selling the banking and insurance services in 2017. While he now has the clear public mandate to move forward with these reforms, implementing them will be slow and arduous.

The immediate response to the election has been a strong boost in confidence among domestic consumers and foreign investors, with the Nikkei stock index surging to a four-year high the day after the election. Unlike in the 2003 elections, the powerful Japanese business lobby unequivocally supported Koizumi's reform agenda, including plans to open markets and shrink government.

But the implications of Koizumi's victory-beyond postal reform and the shakeup of the political dynamics in Japan-are less clear. Koizumi's greatest challenges may now lie ahead, as he will have little excuse for failing to push ahead with major reforms, such as revamping social security in the world's most rapidly aging society and ensuring the continued turnaround of the Japanese economy. He will also have to address weighty foreign policy challenges, which went largely unmentioned during the campaign, such as China's growing influence and assertiveness in the region, the ongoing nuclear standoff with North Korea, tense relations with South Korea, and the revamping of Japan's own security and defense policies. Koizumi has positioned himself to address these tasks as perhaps Japan's most powerful and charismatic post-war leader. What he will accomplish in this new and complex political environment remains to be seen.

Balbina Y. Hwang, Ph.D., is Policy Analyst for Northeast Asia in the Asian Studies Center at The Heritage Foundation.

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