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Much of this shifting direction can be traced to the arrival of one man: Junichiro Koizumi. Since becoming Prime Minister in 2001, Mr. Koizumi has introduced a new populism and nationalism into Japanese politics, giving the country greater confidence and a willingness to engage on the world stage. He has pledged to revise Japan's constitution, removing the pacifist restrictions that made it unique in the world. He has been willing to clash politically with North Korea and China. He has signed onto the U.S. missile defence system and has sent Japanese troops to foreign combat zones.
Domestically, his populist style has helped ensure that "reform" is the new Japanese buzzword. And he has forced the long-ruling Liberal Democratic Party to respond to the public mood. Despite decades in power, the LDP is now compelled to portray itself as the party of reform. "We are changing politics!" proclaims the latest LDP brochure. "Our job is to change Japan."
On the economy, too, Mr. Koizumi has tackled Japan's powerful bureaucracy and promised a new agenda of "reform without sacred cows" -- the kinds of reforms supported by the younger generation of business leaders. On these issues, however, the Prime Minister's record is much more mixed.
Certainly his policies have helped encourage more openness and efficiency in the economy, cutting wasteful public-works spending and reducing excess debts, especially in the banking sector where non-performing loans have been drastically reduced.
While Mr. Koizumi cannot claim all the credit, it is true that, following years of stagnation, Japan's economy is finally beginning to rebound. Its growth for 2004 was 2.7 per cent -- the best performance since 1996. Its banks are increasingly healthy, its corporations are more efficient, deflation is ending, personal consumption is rising, and money-losing "zombie" companies are finally dying off. Land prices in central Tokyo increased last year for the first time in 17 years, indicating an end to the property-value collapse that has plagued Japan since the 1980s.
"Japan is on the verge of showing vitality in its domestic economy for the first time in a decade," said Richard Jerram, chief economist at the Tokyo office of Macquarie Securities. "I think its banking system is basically solvent now, and that's extremely good news. The prospect is that the domestic economy will be much stronger now."
As the economy revives, Japan's younger entrepreneurs are increasingly willing to throw open their doors to global competition and corporate takeovers.
The cyber-tycoon, Mr. Horie, has become the symbol of the new era.
"His popularity among young people is shocking to the older generation, who see him as an Americanized capitalist," said Mari Miura, a political scientist at Sophia University in Tokyo. "In the past, there was lifetime security and you had a job until you died. Now you need to have mobility skills. People feel that they don't have to be loyal to their bosses any more. They feel that their income depends on their performance now. That's why they like Horie. He is challenging the establishment and he doesn't seem to care about social norms."
The most celebrated of Mr. Koizumi's reforms is his plan to privatize Japan's vast network of postal services, including the postal savings system -- essentially the biggest financial institution in the country. However, the postal privatization seems to be largely driven by political factors, rather than a genuine desire for economic reform, since Mr. Koizumi knows that the privatization would weaken his political foes. The postal system and its rural employees were the main stronghold of a rival faction of the ruling party, and Mr. Koizumi is determined to defeat it.
Moreover, the privatization plan has been weakened and delayed by strong opposition within his own party. He has repeatedly compromised with his opponents, watering down the reforms and pushing back the schedule to the point where some of the postal reforms will not be completed until 2017.
"I don't think he is a true believer in neo-liberalism or markets," Ms. Miura said. "His primary motive was to destroy the rival faction in the LDP. In reality, the postal system isn't likely to change very much."