Intensive debate is under way ahead of the governing Liberal Democratic Party’s presidential election next month to choose the successor to Prime Minister Junichiro Koizumi. At issue is how to assess the reform policies of Koizumi — now the third-longest reigning prime minister in the postwar years — and how to tackle the remaining tasks.

Among the daunting challenges awaiting the incoming administration are restoring fiscal health to the nation amid falling birthrates and an aging population, and improving Japan’s diplomatic relations with its Asian neighbors following Koizumi’s repeated visits to the war-related Yasukuni Shrine over the past five years.

Candidates for the LDP presidency should present clear visions on issues set to have a major impact on the nation’s future, and propose feasible solutions. In late July, three candidates — Chief Cabinet Secretary Shinzo Abe, Foreign Minister Taro Aso and Finance Minister Sadakazu Tanigaki — participated in an open debate in Tokyo.

Former Chief Cabinet Secretary Yasuo Fukuda, previously considered the strongest rival to top contender Abe, has dropped out of the running. This has stirred concern that debate over diplomacy toward Asia will lack focus.

A week after Fukuda announced his decision, Tanigaki entered the race, apparently counting on support from Fukuda loyalists. Tanigaki lacks a strong support base in the LDP.

The most important economic challenge for the incoming administration is restoring fiscal health to the nation.

Last month the Koizumi administration announced this year’s basic policies on economic/fiscal management and structural reform. It declared that Japan stood at the starting point of a “decade of new challenges” as a result of Koizumi’s five-year reform drive.

The polices serve as guidelines aimed at encouraging the incoming administration to continue Koizumi’s reform campaign. They call for achieving equilibrium in the primary balance of the budget, involving both the central and local governments, by fiscal 2011. Expenditure cuts of 11 trillion yen to 14 trillion yen and a revenue increase of 2 trillion yen to 5 trillion yen through tax hikes are envisaged from fiscal 2007 to 2011.

Strong resistance to expenditure cuts is likely to come from within the LDP as the 2007 Upper House election approaches. Koizumi’s retirement is expected to increase the pressure.

The 2006 policy guidelines call for steadily decreasing the ratio of outstanding central and local government debt to gross domestic product toward the mid-2010s, but they fail to set specific numerical targets, reflecting political pressure against reduction.

Tanigaki said the consumption tax should be raised from the present 5 percent to at least 10 percent as early as possible in the mid-2010s. He added that consumption-tax revenue should be limited to supporting social security programs in anticipation of rising pension and medical-care costs. That’s a bold proposal amid criticism that designating a tax for a specific purpose will lead to rigidity in government finances.

Koizumi has refrained from commenting on whether to raise the consumption tax. So has Abe, although he has called for stepped-up efforts to cut expenditures. Aso remains cautious on raising the tax, saying only that a close watch is needed in the immediate future on the growth of tax revenues.

Abe has established a council for creating a “society with diverse opportunities” but has failed to present a grand vision for a new Japan, including basic economic and fiscal policies and large-scale reform.

Regarding diplomacy, Aso said it should always be based on national interests and fundamental rules, noting that the United Nations Security Council had unanimously adopted a Japanese-proposed resolution that condemned North Korea’s missile tests July 5.

If Japan is to have more influence in multilateral diplomacy on the basis of the Japan-U.S. alliance, its relations with China, Russia, South Korea and other players will become increasingly important. That has become the crucial diplomatic challenge for the incoming administration.

For his part, Abe refuses to say whether he will visit Yasukuni if elected prime minister, but like Koizumi, he says it is a matter of “personal belief.” Still, it came to light last week that he secretly visited Yasukuni Shrine in April.

In a recently published book, Abe wrote that Japan and China have mutually benefited from their expanding economic relations and that political disputes would be disadvantageous. He said the two nations should establish the principle of separating politics from economics as a way of stabilizing their relations.

I doubt that Abe’s idea of separating politics from economics is viable. In China, the Communist Party is almighty; Japanese investments and business activities in China and other forms of economic cooperation are impossible without its intervention.

In announcing his candidacy for the LDP presidency at a news conference, Tanigaki said it was “abnormal” that no summits have been held in recent years between Japan, on one hand, and China and South Korea, on the other. Acknowledging that the problem stemmed from Koizumi’s Yasukuni visits, he declared that he would refrain from visiting the shrine if elected prime minister.

With a new Japanese administration taking over next month, the Chinese leadership has expressed willingness to improve relations with Japan. The change of government will give Japan a good opportunity to mend ties with China and South Korea.

The next prime minister should not miss a golden opportunity to establish normal relations with the leaders of both countries and hold frank discussions with them on Asia’s future.

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