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Prime Minister Junichiro Koizumi took office in April 2001 pledging to introduce ambitious reforms to shake the Japanese economy out of its decade-long malaise. By year's end, he had made little headway in his plans to slash government spending, deregulate the economy, privatize or eliminate dozens of state companies, and force banks to dispose of bad loans. Koizumi faced staunch opposition to the changes from conservatives within his own party, while tumbling industrial production, plunging exports, and weak consumer demand pushed the Japanese economy into its fourth recession in a decade in the third quarter.
If carried out, Koizumi's plans could throw hundreds of thousands of Japanese out of work in the coming years. For now, however, most voters seem to be behind the prime minister. Koizumi, 59, led his Liberal Democratic Party (LDP) to its best election results since 1992 in the July upper house elections, gaining a popular mandate for his agenda.
Following its defeat in World War II, Japan adopted a U.S.-drafted constitution in 1947 that provided for a parliamentary government, renounced war, and ended the emperor's divine status. Created through a 1955 merger of two conservative parties, the LDP dominated Japanese politics during the Cold War and presided over the economy's spectacular postwar growth. Successive governments spent massively on public works projects to benefit the LDP's rural stronghold as well as its corporate backers, who funneled both legal and illegal contributions back to the party. Bureaucrats, meanwhile, imposed costly regulations to protect small businesses, which overwhelmingly supported the LDP.
The LDP's only spell in opposition in the post-War era came after it lost the 1993 lower house elections. The party's drubbing followed a string of corruption scandals in the late 1980s that brought down Prime Minister Noburu Takeshita and other top LDP politicians. After a fractious reformist government collapsed, the LDP returned to power in 1994 as the head of a three-party coalition. Taking advantage of the opposition's failure to form a coherent and credible agenda, the scandal-ridden LDP won 239 out of 500 seats in the 1996 parliamentary elections and formed a minority government under Ryutaro Hashimoto.
Hashimoto and his immediate successors, Keizo Obuchi and Yoshiro Mori, did little to arrest mounting economic problems stemming from the collapse of Japanese stock and real estate prices in the early 1990s. The crash left Japanese banks saddled with tens of billions of dollars worth of problem loans and diminished the value of property and other collateral backing the loans. The Asian financial crisis that began in 1997 further weakened the banking system and cut into exports. Companies responded by sacking tens of thousands of workers, which in turn helped weaken consumer spending, which makes up around 60 percent of gross domestic product (GDP). Consumers also cut spending in response to a sales tax introduced in 1997 and over fears that they will have to rely on their own savings for retirement should the government's swelling public debt and Japan's greying population overwhelm the state pension system.
Though the banks' problem loans were dragging down the economy by choking off lending and eroding consumer confidence, the government did not push the banks too hard to foreclose on bad debts because it feared this would lead to widespread corporate bankruptcies. Instead, it introduced at least a dozen stimulus packages in the 1990s worth a total of around $1 trillion that failed to jumpstart the economy while jacking up Japan's huge public debt.
Despite the economy's continuing woes and Prime Minister Mori's deep unpopularity just two months after succeeding Obuchi in April 2000, the LDP won 233 seats in the June 25, 2000, elections for the 480-seat lower house. The party formed a governing coalition with the New Komeito and New Conservative parties, which together won 38 seats. During the campaign, the government pledged to continue spending heavily on public works until the economy rebounded. The main opposition Democratic Party, which promised deregulation and fiscal tightening, won 127 seats. Turnout was 62.4 percent.
Dogged for months by government and party scandals and accusations of incompetence, Mori resigned in early April 2001. Enjoying the strong support of the LDP's rank and file, Koizumi, who formerly held the health and telecommunications portfolios, won an April 24 party primary and days later was named prime minister.
The LDP's conservative mainstream faction opposed Koizumi's reforms because they would scale back the public spending and red tape that benefit the party's core constituency of farmers, small businesses, and the construction industry. Construction accounts for ten percent of all jobs in Japan. Moreover, while tending to support Koizumi's calls for change, most ordinary Japanese did not have a feeling of urgency about the economy and therefore were hardly clamoring for radical measures. The unemployment rate reached 5.4 percent in the fall, a post-War record but still low compared to other rich countries.
Economists, meanwhile, warned that Koizumi's reforms would likely make matters worse before they improve. They said that cutting government spending and forcing banks to get rid of bad loans, at a time when Japan already suffers from deflation and weak consumer spending, could lead to more corporate layoffs and make Japanese even more hesitant to spend. This in turn could cause prices to drop further, making it even harder for indebted Japanese companies to repay bank loans.
Koizumi, however, argued that only painful structural reforms could revive the economy. His supporters noted that the government's monetary tools were limited given that interest rates were close to zero and the central bank was reluctant to print more money. Similarly, the government had little room to increase spending given its high level of debt. Fueled by rising health care and social security costs for the country's aging population, Japan's public debt is around 130 percent of GDP, the highest among wealthy countries.
Koizumi's hardest and most important reform task appeared to be restoring the banks to health so that they will be more willing to lend money. Japan's banks officially have 150 trillion yen ($1.2 trillion) in bad loans on their books, although Goldman Sachs suggests that the true number could be as high as 237 trillion yen. Almost as troubling, the banks' capital bases include 45 trillion yen in equities, meaning that Japan's falling stock market has cut into bank balance sheets. The benchmark Nikkei index closed for the year at 10,543, down 23.0 percent for 2001 and far below its peak of 38,915 in December 1989.
Koizumi won solid public backing for his efforts to revamp Japan's economy and politics with the LDP's victory in the July 29 upper house elections. The party won 65 of the 121 seats contested, more than double the 26 taken by the main opposition Democratic Party. He largely failed, however, to capitalize on his victory by setting out details of his plans.
Japanese can change their government through elections and enjoy most basic rights. The lower house of parliament has 300 single-member, simple-plurality districts and 180 party-list, proportional-representation seats. The upper house has 152 single-seat districts and 100 seats chosen by proportional representation. Despite recent reforms aimed at curbing the power of the bureaucracy, policy generally is still shaped by senior civil servants rather than elected politicians. The bureaucracy has in recent years been hit by numerous scandals and operates with little transparency. The Berlin-based Transparency International's 2001 Corruption Perceptions Index ranked Japan 21st out of 91 countries, with a score of 7.1 out of 10. The top-ranked and least corrupt country, Finland, received a 9.9.
Japan's judiciary is independent, although some procedural rules may make it harder for defendants to receive fair trials, according to the U.S. State Department's February 2001 report on Japan's human rights record in 2000. The criminal procedure code allows police and prosecutors to restrict a suspect's access to counsel during investigation and bars attorneys from being present during interrogations, even after indictment. Human rights groups say that in practice suspects have little access to counsel. Bar associations, human rights groups, and some prisoners also say that police occasionally use force to obtain confessions from suspects. Appeals courts have in recent years thrown out some convictions that were based on forced confessions.
Foreign and domestic human rights groups have criticized Japan's penal system for subjecting prisoners to severe regimentation and dehumanizing punishments. Amnesty International in June criticized Japan's treatment of death row inmates, including the practices of notifying condemned inmates less than two hours before they are to be executed and not informing family members until after the execution takes place. The government restricts access by human rights groups to prisons and detention centers.
The Japanese press is independent though not always outspoken. Exclusive private press clubs provide major media outlets with access to top politicians and bureaucrats. In return, journalists generally do not report aggressively on the condition of troubled companies and banks and other sensitive financial issues.
Japanese companies frequently track women into clerical careers and otherwise discriminate against female employees, according to the U.S. State Department report. In addition, reports in recent years by government agencies and the Japanese Trade Union Confederation suggest that sexual harassment in the workplace is widespread. The law bans both discrimination and sexual harassment on the job, but authorizes only light sanctions for corporate violators. A 1998 survey by the prime minister's office found that one in three Japanese women experienced some form of physical abuse at home. Women also frequently complain of being groped or otherwise molested on crowded trains. There is also growing concern in society over teenage prostitution and the practice of girls dating older men for money.
Japanese of all faiths worship freely. Buddhism and Shintoism have the most followers. In the wake of the 1995 terrorist attacks in the Tokyo subway by the Aum Shinrikyo cult, parliament amended the Religious Corporation Law to give the government greater oversight over the operations and financial affairs of most religious groups. The law applies only to religious groups that register voluntarily as "religious corporations, " but most do register in order to receive tax benefits and other advantages.
The three million Burakumin, who are descendants of feudal-era outcasts, and the tiny, indigenous Ainu minority face unofficial discrimination in housing and employment and social ostracism, the U.S. State Department report said. The government funds programs aimed at improving the social and economic status of both groups. The 636,000 ethnic Koreans, most of whom were born in Japan, face unofficial discrimination in housing, education, and employment, the report added. Koreans and other ethnic minorities born in Japan are considered to be legal foreign residents and are not automatically Japanese citizens at birth. Instead, those seeking citizenship must apply for naturalization and submit to an extensive background check.
Japanese trade unions are independent and active. The International Labor Organization has criticized a ban on joining unions or striking by members of the armed forces, police, and firefighters. Civil servants cannot strike, and they face restrictions on bargaining collectively. Around 22 percent of all Japanese workers belong to trade unions. Nongovernmental groups accuse employers of exploiting or discriminating against foreign workers, who often cannot speak Japanese and are unaware of their rights, according to the U.S. State Department report.
China, South Korea, and other regional countries frequently protest passages in Japanese history textbooks that try to justify the country's occupation of other Asian countries before and during World War II and downplay the imperial army's wartime atrocities in occupied countries. These abuses included forcibly using tens of thousands of women as sex slaves. The education ministry must approve all textbooks and has censored textbook passages that it considers too critical of Japan's wartime record.