When Japanese Prime Minister Yasuhiro Nakasone ate lunch with more than 20 U.S. congressmen last week, he offered new assurances that Japan would shrink its swollen trade imbalance with the United States. He told the congressmen he was going to adopt the recommendations of the blue-ribbon, Maekawa commission, which calls on Japan to make a fundamental shift toward an import-oriented consumer economy.
Not all the congressmen were convinced. Sen. Lloyd Bentsen (D-Tex.) asked one particularly sensitive question: Would Japan follow these policies after Nakasone steps down? The prime minister answered it would, and pointed across the table to Foreign Minister Shintaro Abe. "My successor, such as Abe, surely will follow," Nakasone said.
Earlier this month, Finance Minister Noboru Takeshita met with Treasury Secretary James A. Baker III and appealed for help with a new political problem he faces at home. "As the yen has appreciated," Takeshita told Baker, "my popularity has sunk." Baker replied, "I'm sure your popularity will rise again if you boost Japan's domestic consumption." Both agreed that the yen-dollar rate should be stabilized, and Takeshita implied the present ratio of 180 yen to the dollar should be the bottom line. Baker refrained from any commitment on yen-dollar rates.
Like Baker, Takeshita has been acclaimed for his role in the September accord among the leading industrial nations to intervene in currency markets and suppress the dollar. But the resulting appreciation of the yen has since boxed the finance minister into a political corner. Japan's small- and medium-sized industries, which depend upon exports and enjoy disproportionate political clout, have been screaming lately, and many have been pointing an accusing finger at Takeshita. For the first time in his long political career, he was not invited to a political campaign speech of one of his faction members, whose constituency happens to cover the Tajimi area in central Japan, which is known for its porcelain exports.
Just after his meeting with Baker, Takeshita disclosed to me that he had made an abortive move to swap jobs with Abe during Nakasone's cabinet shake-up late last year: "Abe told me, 'I can't understand currency issues. I won't take your job.' So it didn't happen." Though Takeshita spoke half jokingly, his envy of Abe's position, and the exasperation he felt as finance minister, was quite visible.
Whether or not the Tokyo summit in early May is a success will have an enormous impact on the political futures of Nakesone, Takeshita and Abe, and on the Japanese political landscape as a whole.
Nakasone has a hidden agenda to call for Lower House elections in June to accompany Upper House elections already planned. He hopes that "double elections" will lead to a larger voter turnout, which is likely to favor the ruling party and LDP factions that support him.
When Nakasone mentioned Abe as the next prime minister during the meeting with the congressmen, he was paying lip service to LDP rules limiting a prime minister to two terms. No one doubts Nakasone will challenge this rule and bid for a third term, and nothing will be more crucial to the challenge than a successful summit.
From the start, the economic summit has held special meaning for Japan. Since Japan's self-destruction in World War II, Japan has always been treated as a late-comer in international economic forums like the International Monetary Fund. In a way, this has suited Japan's catch-up strategy, because it has gained from the liberal and multilateral trade and currency system. Now that Japan has emerged as an economic power, it must engage itself as a responsible partner in the system, sharing the burdens of sustaining it. The summit provides a good opportunity for Japan to begin tackling new assignments.
On the other hand, Japan has anticipated the summit with some trepidation, for it knows it will be criticized for its trade surplus, its closed markets and more generally as a destabilizing factor in international economic peacekeeping. The other western economic powers have come to recognize that the "Japan problem" cannot be solved in forums without Japan's presence. And they have learned that because of Japan's cultural inclination to avoid losing face, a summit is the best diplomatic vehicle for putting pressure on Japan.
As Japanese leaders realize, the summit provides ammunition to the government in persuading domestic constituencies to open markets, revalue the yen and boost domestic demand. No one is better able to handle this job than Nakasone.
A protester of Gen. Douglas MacArthur's occupation policies and a self-proclaimed Japanese de Gaulle, Nakasone is generally regarded as a nationalist in Japan. Though liberals have called him a "dangerous hawk," most Japanese consider him an able defender of Japanese interests in the international arena. His efforts to open markets in Japan, however painful to some Japanese sectors, have for the most part won public support. Nakasone has successfully exploited his image as a nationalist to convince people that his policies of increased imports, deregulation and foreign aid are all in Japan's national interest.
In addition, much of Nakasone's unprecendented popularity can be ascribed to his image in Japan as a world statesman, well demonstrated in the last three economic summits. Nakasone is changing the image and definition of political leadership in Japan. The Japanese business community has gradually adjusted itself to the global economy, and now international expertise has become an indispensible qualification also for Japanese political leadership.
The last time Japan hosted a summit was in 1979 under the leadership of late Prime Minister Masayoshi Ohira. An archrival of Nakasone, Ohira was a philosophical, genteel and fatherly figure, well liked and respected. But Ohira lacked something in which Nakasone is well endowed: theatrical talent. He was a quintessential consensus politician, trained during his civil servant years and factional political life. An international summit is the last place where Ohira would do well.
At the 1979 summit, the topic of the day was how to cope with the severe oil-price escalation that followed the Iranian revolution. When it became apparent on the first day that Ohira was not presiding over the summit well, West German Chancellor Helmut Schmidt confided to his aide that he might as well pack up and go back to Germany.
In the early morning of the second day, Ohira was informed that the United States, British, West German and French leaders would meet secretly in Tokyo in their own "summit within a summit" to discuss strategic issues. The four explained to the prime minister that the meeting was NATO-related, and Japan was therefore not invited. A dispirited Ohira told his chief of staff that he did not feel like eating breakfast. The summit ordeal was a culture shock for Ohira, leaving him feeling naked and incapable of exercising the chairman's authority. Nakasone didn't miss the chance to criticize Ohira's peformance, which no doubt contributed to his aspiration to be a world leader.
As a new summit approaches, Nakasone seems to be confident that, with the support of President Reagan, he can avoid Ohira's fate and translate Japan's economic power into international leadership. Emerging leaders such as Takeshita and Abe hope to follow in his footsteps.
Yet, Nakasone will face a formidable task at the summit. Aside from the divisive terrorism issue, he must persuade the other leaders that his new strategy to reform the Japanese economic structure will be translated into effective policies in a timely fashion to benefit the other leaders. The other leaders, however, may not be easily satisfied with these measures; they may press the prime minister to further appreciate the yen, relax fiscal policy and open more markets. On these fronts, Nakasone will face increasing political dilemmas.
The rapid appreciation of the yen has not only had a deflationary impact on Japan's economy, but also has eroded the LDP's power base of small- and medium-sized export industries. However, the LDP cannot provide a large special loan program as part of traditional "compensation politics" to these marginal exporters anymore. The huge budget deficit and foreign governments' objections to export subsidies will not permit it. The only option is to prevent further appreciation of the yen through market intervention.
However, the economic windfall created by falling oil prices could give Nakasone a rare political opportunity. The benefits consumers could gain from lower energy prices and a higher yen could mobilize them behind Nakasone if he can override the vested interests hurt by the rise of the yen.
Nakasone also faces mounting pressure from bureaucrats and fellow politicians who want to prevent him from further market liberalization after the recent series of open market measures. Japan's tariff is the lowest in the world and its import quota is almost removed. Many of the remaining obstacles to market access are institutional. Some, such as Keiretsu (in-house buying preferences) and Shitauke (company-subcontractor loyalty) are historical or cultural.
The much publicized MOSS (Market Oriented Sector-Specific) trade talks are now in limbo because the Japanese government rejects auto parts as an agenda item after shelving the original U.S. proposal to include wine and alcoholic beverages, processed food products, chemical products and emerging technologies. In the case of wine, the Ministry of Finance lobbied the U.S. Treasury to exclude it from the list reasoning that it directly hits Takeshita's political allies. The lobbying effort paid off. Though the State Department included wine in the list, it was given a low priority and was effectively dead-on-arrival in Japan.
As Nakasone told the congressmen last week, "the biggest two barriers to market access in Japan are the bureaucrats' and LDP politicians' vested interests."
The close "Ron-Yasu" relationship between the two nation's leaders, again demonstrated in Nakasone's invitation to Camp David, surely will remain the prime minister's greatest political asset. However, too much dependence on Reagan and the Ron-Yasu ties may diminish the true meaning and effect of the asset domestically and internationally.
Anxiety is already growing in and outside Japan over the perception that the United States and Japan may try to settle major international economic issues among themselves. After Baker and Takeshita reportedly agreed in their meeting last week to stabilize the yen-dollar relationship, Britain's Chancellor of the Exchequer Nigel Lawson responded that the yen should be appreciated further. It was also in this context that the European community suspected a secret cartel between U.S. and Japanese semiconductor manufacturers to share in Japanese markets.
It would be a very dangerous course for either Japan or the United States to seek any sort of bilateral U.S.-Japan framework. Frustrated by the trade imbalance, the United States is moving toward bilateral and sectoral approaches like the retaliatory trade sanctions and the MOSS negotiations. Such a course would, in the long run, undermine a multilateral and nondiscriminatory system.
Japan must share more of the burden of economic peacekeeping and growth. It must help revitalize the ailing trade and currency system and guide it in a liberal, multilateral and nondiscriminatory direction. The summit is the best framework for Japan to cope with world economic issues and the "Japan problem."
Nakasone surely can make a difference this time.