Japan’s Latest Election

July 13, 1998 – By the time you receive this letter, the outcome of Japan’s election will be known. Up for grabs is the majority of seats in the Diet’s upper house.

The election result is being widely viewed as a test of Prime Minister Hashimoto’s popularity, and therefore it probably will measure the durability of the mandate by which he rules. His tenure is not at stake, however, because the Prime Minister is elected by the lower house. Barring some unexpected event or unforeseen calamity, Mr. Hashimoto will be around for a few more years.

So this election is not about Mr. Hashimoto’s longevity in office. It’s about government rule. The important point is that the election result will provide some indication of whether or not Mr. Hashimoto is ruling with the broad and willing mandate of the Japanese people. A solid loss of his party’s position in the upper house will of course lead to the obvious alternative interpretation – that Mr. Hashimoto is seen as the beleaguered captain of the sinking ship otherwise known as the Japanese economy. ‘Herbert Hoover’ Hashimoto, some wags are already calling him.

It is not an enviable position for any politician to be in, but Mr. Hashimoto has no one to blame but himself – and the long list of Prime Ministers who preceded him. Most of them were responsible for creating the bubble economy that led to the financial excesses of the late 1980’s. The others followed in the wake of the collapse. They held the office of Prime Minister in the 1990’s, and all of them – including Mr. Hashimoto – have been unable to deal with the inevitable bust that followed hard on the heels of the unsustainable late 1980’s boom.

As a consequence, Mr. Hashimoto’s political party is doing poorly in the polls. It is therefore scrambling hard for votes to avoid what some observers say is an election that has the potential to turn into a rout.

It need not have been that way, but Mr. Hashimoto and his predecessors have failed in one important way. They lost sight ofwhat makes a government good. It is not the constant meddling in economic matters. It is not the interference routinely exercised in the financial markets. It is not the backpedaling and the changing of direction based on perceived political priorities of the moment. And good government surely isn’t going to result from listening to, and then following the self-serving recommendations of the IMF, OECD or other outside influences, including US Treasury Department pooh-bah’s, Robert Rubin and Larry Summers, whose primary concern is to secure the interests of the big US banks. No, good government is not going to be reached that way.

Good government comes from the opposite end of the spectrum – by letting the Japanese people live their lives and run their businesses with as little government interference as possible. It is a very simple proposition, but it should be obvious why it works. After all, it wasn’t the Japanese government that made Japan the second greatest economic power on the face of this earth. It was the Japanese people who accomplished this tremendous achievement, and it was achieved notwithstanding the roadblocks put in their path by the Japanese government. But now those roadblocks – taxes, onerous regulations, wasteful government spending, market interference, etc. – are becoming ever more numerous and tougher to hurdle.

What’s worse, the current government has been turning its back on what has been the backbone of Japanese economic strength over the last three decades – a strong Yen. As the Yen rose threefold from the 1960’s, Japanese economic might grew along with it. A strong Yen was also one factor why Japan became the leading creditor nation in the world, much like the United States was leading creditor when the Dollar was strong. Japanese capital replaced, and then superseded investment from other industrialized countries in one country after another.

But now ‘Herbert Hoover’ Hashimoto has watched the Yen nose-dive from ¥80 to the Dollar to ¥140 in a little more than three years. With it declined the global purchasing power of the world’s greatest nation of savers. For example, in April 1995, ¥800,000 purchased $10,000 or Dm 13,500. Now, however, ¥800,000 only purchases $5,700 and Dm 10,300.

How has a weak Yen helped the Japanese people? Obviously, it hasn’t. The economy is worse than it has ever been, and the purchasing power of people’s savings have declined. When has a weak currency ever helped the people of any country? Never, as far as I can tell. When will the Japanese political leadership learn that a weak Yen is not a solution?

We just don’t know when, if ever, Japan’s political leaders will realize the folly of their actions. Unfortunately, given the seemingly endless stream of economic proposals supposedly designed to stimulate the Japanese economy, the prognosis for responsible economic leadership does not look promising.