Japan's prime minister is incapable of understanding the economy

After his surprise talks with North Korean leader pushing up his support rate, Japanese Prime Minister Koizumi Jun'ichiro reshuffled the cabinet on his own. But he cannot get rid of apprehension about two things: the failure of his "structural reform" policy and the parliamentary by-elections to be held on October 27 for two House of Representatives seats and five House of Councilors seats.

In an unusual move, Japan's three major business organizations will meet at a Tokyo hotel on October 17 to renew their determination to prop up the Koizumi Cabinet and its structural reform efforts.

Prime minister's office wanted it

A Japan Business Federation official said, "We are holding this meeting at the request of the prime minister's office. Mr. Koizumi is afraid of the breakdown of structural reform and possible defeat in the by-elections. The prime minister's office wanted to demonstrate business leaders' unanimous support for the Koizumi Cabinet as a means of unifying the governing Liberal Democratic Party."

Many LDP members of parliament are insisting that measures to boost the economy must be given priority over the structural reform. More importantly, discontent with the Koizumi Cabinet's economic policy is growing day by day. Despite high approval rates for the Koizumi Cabinet, the prime minister's office has a deep sense of crisis.

Koizumi's "reform" is on the verge of complete failure. The average share price of 225 issues has fallen below the critical line of 9,000. It was around 8,600 after the cabinet reshuffle. The stock market is at the lowest since the burst of the bubble. Japan Business Federation Chair Okuda Hiroshi said, "This is an emergency."

Market watchers call it a "Takenaka shock." Takenaka Heizo, minister in charge of economic, fiscal and financial policy, has declared that "companies in bad shape will be forced out." By this he meant that more tax money could be used to help major banks speed up the disposal of non-performing loans.

Write-offs of bad loans will cause massive corporate bankruptcies, which will leave more workers without jobs and further slow down the economy. It is due to fear of this vicious circle that the stock market has plunged.

Government has no economic growth scenario

In the past, disposal of bad loans pushed up share prices. Immediately after the establishment of the Koizumi Cabinet, the stock average was a record 14,425. Commercial newspapers reported that "expectations for the structural reform have contributed to uplifting the market."

The state of affairs has reversed. The real economy in the past year and a half explains clearly how the Koizumi Cabinet's economic policy and structural reform policy have reached an impasse.

Koizumi shock

What was described by business circles as a "Takenaka shock" is in fact a "Koizumi shock." Overt and covert criticism is increasing of Prime Minister Koizumi for being unwilling to even attempt to understand the state of the economy.

Koizumi has much confidence in Takenaka, but a securities analyst has this to say:

"When Mr. Takenaka makes a decision, he always tries to ascertain what U.S. economists are saying. Falls in share prices are a sign that tells us how risky it is for Takenaka to use American methods to asses Japan's economy.

An official in the Cabinet Office said, "Neither the prime minister nor the chief cabinet secretary or his deputy understands the problem of bad loans."

It was on September 12 that Prime Minister Koizumi promised U.S. President Bush that Japan will speed up the disposal of bad loans, as advised by Takenaka. Three days later, when he returned to Tokyo, he met with Yanagisawa Hakuo, minister in charge of financial policy at the time. After the meeting, Koizumi said, "Write-offs of bad loans is making steady progress. Mr. Yanagisawa will work out concrete measures to speed up the disposal."

A government official said, "Mr. Koizumi will not listen more than 15 minutes to officials briefs. He always urges briefing officials to state a conclusion first. After that, he won't listen. His favorite phrase is 'I'll leave it to you'."

Prime Minister Koizumi doesn't care for the real economy. He does not understand the economy. So he can continue calling for the structural reform to be promoted above everything else. This is precisely the source of the present crisis. (end)