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Economic revival is the main theme of the 150-day regular Diet session that opened on Monday. One of the first items to be discussed is a supplementary spending package for fiscal 2002 designed to shore up the sluggish economy. Prime Minister Junichiro Koizumi’s policy speech, scheduled for delivery on Jan. 31, is expected to focus on economic measures, including steps to reverse deflation.

But diplomatic issues will likely steal the show, depending on how the crises over North Korea and Iraq develop. Pyongyang continues to rattle the nuclear saber in open defiance of international nuclear nonproliferation agreements, while Baghdad is bracing itself for a possible U.S. invasion. If war comes, Japanese support will become a subject of heated debate both inside and outside the Diet.

It is also likely that in the heat of economic and diplomatic debates, the perennial issue of political reform will be put on the back burner. However, eradicating political corruption remains a pressing priority. Last week’s Supreme Court conviction of former Construction Minister Kishiro Nakamura is a fresh reminder that the Diet has yet to establish stricter standards of political ethics.

Economically, by far the most important piece of legislation is the government budget for fiscal 2003. To avoid disruptions in the spending schedule, it is essential that the budget pass before April 1 when the new financial year begins. With public debt reaching crisis proportions — 140 percent of the gross national product — problems in budget and tax reform as well as local finance should be discussed in detail.

Once the budget is enacted, the focus of attention will shift to other key bills, including those designed to defend the country against direct military attacks and to safeguard personal data held by government offices. These measures, left over from the previous regular session, should be thoroughly debated. With Lower House members concerned about a possible snap election later this year, the going could get rough in the last few months of the session, which will close in late June unless it is extended.

Deflation — a continuous decline in the prices of goods and services — will dominate economic debates, and not only in the Diet. At his New Year’s press conference, Prime Minister Koizumi stressed the need for the government and the Bank of Japan to work together to reverse the trend. And at last week’s Liberal Democratic Party convention, he said beating deflation is his highest domestic priority.

An antideflation package now in the works features a bill to set up a semipublic body that would support heavily indebted businesses deemed to have reasonable chances of recovery. The “industrial revitalization corporation,” now expected to start in May, would buy problem loans from selected creditor banks in an integrated effort for bank and business restructuring.

Meanwhile, there is talk of a “March crisis” — a rush of corporate bankruptcies at the end of fiscal 2002. Difficulties in this critical period can be reduced, however, if preparations for the revitalization process are started early on. For example, debt-laden businesses can be screened beforehand to determine, even if informally, their eligibility for recovery assistance. Those that have passed the preliminary test would be effectively assured of survival.

The deflation debate looms as an economic-policy showdown between the Koizumi administration and opposition parties, which blame it for the worsening slump. Given a round of local elections in April, as well as the possibility of a Lower House election later in the year, the mood for confrontation will likely heat up. But the conventional tactics of debate boycott would be self-defeating.

The difficulty for Prime Minister Koizumi is that he also faces opposition from within his own party. With a party presidential election set for September, anti-Koizumi members will likely step up their demand for a more expansive economic policy. The prime minister has already dropped his 30 trillion yen cap on bond issue. The test for him is to present a reliable road map for structural reform, including a blueprint for debt reduction.

As for diplomatic concerns, the Iraqi and North Korean standoffs call for not only a vigorous debate but also a suprapartisan response. The same goes for the long-pending issue of Japanese nationals kidnapped by North Korea, a major roadblock in Tokyo-Pyongyang talks on normalizing relations. Last year’s special autumn session was widely criticized for its poor performance, including absenteeism among the legislators. The current session, it is hoped, will restore the Diet’s prestige as the nation’s highest deliberative assembly.

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