The Perils of Naoto Kan

By Tasker, Peter | Newsweek International, July 12, 2010 | Go to article overview

The Perils of Naoto Kan


Tasker, Peter, Newsweek International


Byline: Peter Tasker

The new leader's risky economics.

A change in leadership in Japan passes almost un-noticed these days, but the ascension of Naoto Kan to the role of prime minister could have a long-lasting impact on the strategic landscape.

Kan is the fifth Japanese prime minister in four years. He takes over from Yukio Hatoyama, who resigned after botching the sensitive issue of the relocation of the U.S. military base in Okinawa. Kan, a much wilier politician, will not revisit that particular tar baby of an issue. His pragmatism has already boosted support for the Democratic Party of Japan, which had plummeted thanks to Hatoyama's Hamlet-like indecision.

Most likely the DPJ will chalk up a decent result in the July 11 Upper House election, and Kan will prove more durable and effective than his hapless predecessors. That is exactly the problem. For if Kan gets his policy priorities wrong, he will create huge frictions with the U.S. and endanger the relationship that has been crucial to regional security for the past half century.

The reason has nothing to do with security policy, on which he has said little, and everything to do with his "Kansian" economic policies. When the DPJ won power last autumn, its economic program consisted of increasing domestic demand through big child allowances. The party also favored a stronger yen, which would bump up the purchasing power of Japanese households.

What Kan is now proposing is almost the reverse. In his short tenure as minister of finance, he appears to have been "turned" by the powerful mandarins who run Japan's economic policy and has morphed into a fiscal hawk. Now child allowances are likely to be capped at half the proposed amount. Worse, there is talk of doubling the consumption tax while cutting taxes on company profits. Younger lawmakers are also talking about engineering a depreciation in the yen-dollar rate to 120, even though tighter fiscal policy and aggressive monetary easing (also part of the Kan agenda) would deliver the weaker yen that Japanese exporters crave.

The debt hawks justify their position by citing the Greek crisis. In reality, there is no comparison between the two countries. Whereas half of Greek debt is held by foreigners, Japan is entirely self-financing. True, the ratings agencies have been uttering dark threats, but remember that they also rated subprime junk as triple A. …

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