The first year of the 21st century has been plagued by terror, confusion and instability. The Sept. 11 terror blitz in the United States changed long-standing perceptions about the world, civilization and war overnight. Toward the end of the year, the U.S.-led allied forces succeeded in their retaliatory military campaign, while a temporary lull prevailed in the volatile Middle East. However, it will take a long time to heal the wounds inflicted upon the world by the terrorist attacks.

For the past year, Japan has experienced turbulence and chaos. Last April, Prime Minister Junichiro Koizumi took power, ending a long rule by the governing Liberal Democratic Party's old guard that had fostered strong public distrust of politics. The change was widely perceived as a revolution in the ruling camp. Since then, the Koizumi Cabinet has enjoyed sky-high popularity ratings. However, Koizumi's reform agenda is being stymied by the LDP old guard and is threatened by the ongoing recession. Japan now faces the prospect of a simultaneous economic slowdown with the United States. A worldwide depression is a real possibility as well.

Nevertheless, the Koizumi administration is likely to retain political leadership for at least the coming half year for the following reasons:

First, Koizumi's unique politics have received strong public support. There are no real contenders for his job. Koizumi's succinct, clear remarks appeal to voters. He has qualities that are lacking in old-guard politicians who speak vaguely to hide their true intentions.

Second, the other political parties suffer from their own serious problems. The LDP's coalition partners, New Komeito and the New Conservative Party, are small and do not have the strength to influence LDP politics. The four opposition parties -- the Democratic Party of Japan, the Japan Communist Party, the Social Democratic Party and the Liberal Party -- have sharp ideological and policy differences and are unlikely to join forces to fight the LDP. The DPJ, the top opposition party, is plagued by irreconcilable policy differences among members. DPJ leaders Yukio Hatoyama and Naoto Kan have no leadership skills. There are no powerful politicians, either in the LDP or in the opposition camp, who are capable of replacing Koizumi. He will likely remain at the helm of the government for some time.

The focal issue in Japan for the first half of the new year or so will be economic fluctuations. The recession continues to worsen and there is widespread speculation that Japan will face an economic crisis toward the end of March, when the fiscal year ends. An ordinary Diet session, opening in January, will conduct intensive debate on the government budget in February and March. Should the nation plunge into turmoil at that time, a sudden economic meltdown could ensue.

Even if it successfully tides over economic difficulties at the end of the fiscal year, the Koizumi administration could face more problems in the months to June, when major companies announce their annual financial performance. Former Prime Minister Yasuhiro Nakasone, the doyen of LDP politicians, predicts: "Japan's economic and political situations from March to June will be volatile." The Koizumi administration is likely to face its moment of truth in April, when it celebrates its first anniversary.

The international situation will require even closer scrutiny. Since the Cold War ended with the collapse of the Soviet Union, the U.S. has dominated the world, but the Sept. 11 attacks exposed America's vulnerability. In the wake of the terror blitz, China has increased its influence in international affairs.

In commenting on the attacks, China expressed its "understanding" of U.S. military retaliation against the terrorists. China neither opposed nor backed U.S. action, while Japan and West European countries promised military and other support to the U.S. The comment demonstrated China's readiness to fulfill its responsibility as an equal of the U.S.

China's new policy stance reflects two problems. On the one hand, China has trouble controlling rebellion by Muslim minorities in its western regions. On the other hand, China cannot give wholehearted support to the U.S. retaliation. China feels that in the long run, the U.S. could alienate the Arab world and China's neutral stance could win international approval. In fact, the international community already appears to support China's moderate policy direction.

Beijing joined the World Trade Organization on Dec. 11, six years after the WTO was established. It is highly significant that a giant market of 1.3 billion people has joined the global free-trade system. China's new membership in the WTO will likely have both positive and negative effects on the country. At the same time, it will have major effects on trade and the economy of the world. China will have increased influence on the global economy and politics. Many pundits believe that the major international players in the 21st century will be the U.S. and China.

What role should Japan play in the new world? For thousands of years, Japan has never been free of Chinese influence. Japan has also had close relations with the U.S. for more than two centuries. The biggest challenge for Japan in the 21st century will be to build strong relations with both China and the U.S. I hope that the nation's leaders and public will show deep insight and a strong determination on this important issue, which involves both politics and the economy.