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SPECIAL
Saturday, Feb. 4, 2006


Report on Japan

A NEW SUN RISING

Structural reforms are lifting Japan out of years of stagnation. But the most dynamic force may be a new generation willing to throw out the old rules. GEOFFREY YORK REPORTS FROM TOKYO

Anyone seeking a symbol of the new Japan need look no further than a swashbuckling spike-haired 32-year-old cyberspace tycoon named Takafumi Horie.

Japan's business establishment loathes him. Television audiences adore him.

He drives a blue Ferrari, wears black T-shirts and jeans, performs on quiz shows, collects comic books, writes bestsellers on how to get rich and infuriates the business elite by violating the traditional protocol against hostile takeovers.

Mr. Horie dropped out of Tokyo University and created his own Internet company when he was 23. Within seven years, he had earned his first $100-million (U.S.). His company, Livedoor Co., reported sales of $294-million and profits of $54-million last year, primarily through Internet services and DVD rentals.

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Japan's young generation made him an instant hero when he launched a brash bid to set up a franchise in the exclusive Japanese baseball league last year. Young fans saw him as a bold reformer who would rescue the baseball league from financial ruin. But the baseball moguls refused to let him enter the league.

Last month he returned with a vengeance, stunning the corporate establishment with a bid for control of Fuji TV, one of Japan's leading broadcasters. Backed by financing from the U.S.-based Lehman Brothers investment bank, he used a series of secret off-hours trades to purchase 40 per cent of Nippon Broadcasting Systems, the largest shareholder in Fuji TV. The broadcasters fought back bitterly with a "poison pill" defence, issuing new shares that diluted Livedoor's stake.

The struggle for Fuji epitomizes all the conflicts and tensions of today's Japan.

On one side are the young Japanese entrepreneurs who see Mr. Horie as an icon of change in a stodgy corporate world. They are pushing for new competition and reform in Japan's slow-moving economy, opening the doors to globalization, foreign investment, new technology and fresh blood to challenge the cozy elites who traditionally control industries through cross-holdings. On the other side, Japan's older business leaders have been outraged by Mr. Horie's rude tactics and secret manoeuvring. They denounced him for "stepping into other people's homes without taking his shoes off." They alleged that his takeover bid was "an act of terrorism." And they accused him of allowing foreign financiers to gain influence in a strategically important industry.

Behind this clash is a deeper struggle between two visions of Japan's future. One vision is the confident, new Japan: taking an active role on the world stage for the first time in 60 years, sending troops to Iraq, seeking a seat on the United Nations Security Council, winning global influence through its pop culture and technology, aiming to send astronauts to the moon, opening up its economy, challenging the U.S. for dominance in the auto industry, and even supplying the hottest new superstars for American baseball teams.

The other vision is more anxious and angst-ridden. This is a country that obsesses over the possibility of future decline. It worries about its dropping birth rate and its aging populace. It broods over projections that its population will decline by 20 million in the next 50 years. It frets over the dramatic rise of China and the nuclear threat from North Korea. And it expresses its insecurities through an increasingly nationalistic class of politicians who oppose foreign investment and demand patriotic education in the schools.

Nobody should expect either of these two visions to gain the upper hand. The only certainty is that fundamental changes are under way, and they will have profound implications for the world.

Japan remains the second-biggest economy after the United States, a crucial force in Asian security and a key trading partner of Canada. Its emerging new identity will shape not only the global economy but also the potential for military conflicts in Asia.

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Why did the magician's inquiry get nowhere? Too much smoke and mirrors. Jerry Kitich, Hamilton, Ont.