Prime Minister Yoshiro Mori faces an uncertain future after surviving a no-confidence motion against his Cabinet in the Diet last month. Koichi Kato, a leading dissident in the ruling Liberal Democratic Party, and fellow rebels had vowed to vote for the opposition-sponsored motion, but they changed their minds at the last minute in the face of threats by LDP leaders to expel them from the party. The motion was defeated when the rebels abstained.

As Mori reshuffled his Cabinet last week, New Komeito and the New Conservative Party — the LDP’s coalition partners — moved to distance themselves from the unpopular prime minister. Furthermore, an LDP group led by former Prime Minister Ryutaro Hashimoto is reportedly agitating for Mori’s replacement. The moves emerged after power broker Hiromu Nonaka resigned as LDP secretary general. Hashimoto is now special minister in charge of administrative reform and Okinawan affairs in the Cabinet. The political situation is extremely volatile.

The United States is also plagued by utter confusion over its presidential election. The political chaos in Japan and the U.S. has dented the reputations of the world’s leading powers. The confusion reflects the fact that politics in both countries centers on domestic issues.

While the U.S. continues to enjoy economic prosperity, Japan is plagued by economic uncertainties. Japan’s economic outlook for fiscal 2000, which ends next March, has improved, with corporate earnings for the half year to Sept. 30 having registered considerable gains. But it is uncertain if prosperity will continue in fiscal 2001.

To be sure, corporate demand for bank loans for investment is steadily recovering. Many companies have boosted their self-financing capabilities through stepped-up restructuring efforts and accumulated depreciation expenses. Companies are also trying to reduce interest-bearing debts in order to improve their consolidated financial statements. Corporate demand for bank loans has grown less slowly than in past phases of economic recovery. Still, the steady growth in demand for loans indicates that capital spending is increasing.

Corporate investments in information technology are increasing — not only for IT software and hardware, but also for facilities needed to introduce IT in manufacturing and distribution industries. In this field, the rapid pace of technological innovation makes it difficult to predict product demand. Small industries, in particular, are often unable to make quick decisions on large investments.

Many experts predict that the Japanese economy will slow due to external factors, such as concerns over slower U.S. economic growth, high oil prices and a fall in the value of the euro. Despite the improved earnings expected in fiscal 2000, companies are unsure about their performance in fiscal 2001.

Even though capital spending and exports are growing, consumer spending is slumping. Companies are not sure about consumer demand for products. Consumer spending is dampened by public anxieties over the pensions program, the medical-care system, care for the elderly and future tax hikes. Improved corporate performance has resulted from stepped-up restructuring efforts. Companies continue to cut back on employment. Workers’ income has shown little growth. Most people respond by tightening their purse strings and increasing savings. Financial assets held by individuals are increasing, and the Japanese savings rate remains high.

This is in sharp contrast to the U.S., where the savings rate is practically zero. Consumers go on spending sprees by going into debt. The U.S. government, companies and banks use Japanese and other foreign funds to keep the economy booming.

Japanese politicians have a duty to inform the public of the nation’s economic prospects and visions of future fiscal systems. Plans for specific reforms are especially needed to help the public make plans for the future.

The growth rate in Japan’s gross domestic product in fiscal 1999 was revised upward in November to 1.4 percent from the earlier estimate of 0.5 percent. The revision resulted from the adoption of a new base year and a new calculation method for national accounts. Under this method, for example, spending on computer software is counted as part of capital spending. Many experts predict that Japan’s economic growth in fiscal 2000 under this new method will reach about 2 percent. However, growth in exports and public expenditures is likely to slow from the previous year. Business spending will be mixed, depending on the sector. Consumer spending will be a decisive factor in putting the economy on a recovery track of 2 percent growth.

If consumer spending remains slow due to uncertainties over structural reforms, politicians will bear a heavy responsibility. Public-works spending no longer has the power to boost the economy; a step-up in such spending will eventually lead to increased tax and social-security burdens in relation to national income.

Economic policies should no longer center on pork-barrel projects, as they have in the past; they should focus on ways to encourage a management revolution through the introduction of IT and on drastic reforms, especially fiscal reform. However, it will be difficult for the Mori administration, with its dismally low public-approval ratings, to execute such major reforms.

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