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As the Diet moves into the second half of its 150-day regular session, Prime Minister Junichiro Koizumi’s administration appears headed for more difficult times, politically and economically. The first half ended without a major hitch. The fiscal 2003 government budget — the most important legislative item of the session — cleared the legislature as scheduled before the new fiscal year started on April 1.

It comes as a great relief that no financial panic, or “March crisis,” occurred at the end of the month when most Japanese companies, including banks, closed their books for fiscal 2002. The bad news is that the Nikkei stock average tumbled below 8,000 — its lowest fiscal yearend finish in 21 years. The index dropped 27.6 percent in the 12 months to March 31.

The 2003 financial year is off to a bumpy start. The economy, stuck in a quagmire of deflation, will deteriorate further if the war in Iraq drags on. If that happens, stock prices will probably continue to fall, barring drastic action to support them. Unemployment, already at a record level, could go up higher still. As a result, the government will likely come under pressure to boost spending, its crushing debt burden notwithstanding.

Political prospects are equally uncertain. The outcome of unified local elections this month, including gubernatorial polls in Tokyo and 10 other prefectures, will affect national politics as well. Mr. Koizumi, his popularity waning, is fighting an uphill battle in pushing his reform agenda. As president of the Liberal Democratic Party, the prime minister faces a party leadership election in September.

All this and more makes it likely that the situation in the second half of the Diet session will be turbulent. Already the ruling and opposition parties are bracing for tough debates on security and other major issues. Normally they call a “political truce” in the Diet during this period of local election campaigning. With crisis lingering both at home and abroad, though, this is certainly no time to sit on the sidelines.

The most crucial issue is how to protect Japan against a foreign military attack. The question most likely will dominate the Diet debates, particularly with the perceived nuclear and missile threats from North Korea. The package on the table consists of three bills, including one that deals specifically with such attacks. A separate bill would revise the law governing the Self-Defense Forces.

The package is an updated version that includes clearer definitions of “military attack situations.” It also includes measures designed to cope with other threats to national security, such as intrusions by armed spy ships into territorial waters and large-scale acts of terrorism.

As expected, the Japan Communist Party and the Social Democratic Party are dead set against the package on grounds that it would spur the “war-readiness” of the Japan-U.S. alliance and open the way for collective self-defense, which is prohibited by the Constitution. The question is how the Democratic Party of Japan, the largest but divided opposition party, can present a unified position. For the ruling coalition, it is especially important to ensure that the package is thoroughly debated, given the wide divergence in public opinion. Trying to rush the debate on account of the North Korean crisis or the Iraq war could be counterproductive. In uncertain times such as these, caution is probably the best counsel.

Another major issue is the protection of government-held personal data. The revised bill is welcome in that it would ease restrictions on the media. The worry is that it might tighten government control over civic organizations. Also, it makes no mention of the guiding principles that defined the original bill, such as using data for specified purposes only. The updated measure may need a fundamental review.

Regarding the Iraq issue, debate on postwar reconstruction, not just immediate humanitarian assistance, is imperative. The government is reportedly seeking new legislation allowing the SDF to provide medical support, transport goods and supply fuel. The plan, however, is premised on a U.N. mandate for Iraqi reconstruction — which is not assured at the moment. For starters, ways of cooperation should be explored within the framework of existing legislation.

The Diet must also discuss financial aspects of reconstruction. One view holds that Japan should pay 20 percent of the total cost — the same share as the nation’s financial contributions to the United Nations. That is debatable, of course. But a large increase in spending is almost certain. Japan should be prepared to take an active role in rebuilding Iraq. That requires early participation in the planning and formulation of an international reconstruction program.

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