We list some of the headaches facing Japanese Prime Minister Yukio Hatoyama, elected with such hope for “change we can believe in” just 5 months ago:1. Ichiro Ozawa [picture]. Politically brilliant, Ozawa in 2003 made over the Democratic Party of Japan (DPJ) into Japan’s main opposition party, after leaving the Liberal Democratic Party (LDP) ten years earlier and engineering the LDP’s brief, spectacular, departure from power in that year. Ozawa is the individual most responsible for the DPJ’s resounding election victory last August. The victory was big partly because Ozawa was smart enough to make Hatoyama the premier-designate, while he stayed in the background. But as DPJ secretary general today, Ozawa is still too visible, due to his latest brush with scandal over a shady 2004 land deal, currently under investigation. Ozawa: can’t live with him, can’t live without him.
2. Hatoyama’s tail. Ozawa’s problems would cause the DPJ less heartburn if it weren’t for Premier Hatoyama’s own troubles with old-style financial subsidies. Hatoyama is struggling to explain how he legally absorbed large gifts from his mother over several years into his government-monitored campaign fund. It all looks sooo LDP.
3. U.S. bases. The Japan-U.S. military realignment agreement of 2006 saved the U.S. marine air base in Okinawa at densely-populated Futenma with a plan to move it to the more remote USMC Camp Schwab in Nago. But on Sunday, Nago elected a new mayor who campaigned against the town's base-friendly incumbent, specifically pledging to prevent the move. Hatoyama unfortunately during last year’s national campaign made a similar promise to Okinawa—elect him, and he would renegotiate the 2006 agreement. Right now, Hatoyama has a big U.S. relations problem, the kind Japanese prime ministers usually strive hard to avoid.
4. Shrinking country. Japan’s Health Ministry reports the country’s population decline is accelerating. To October 2009, births are 22,000 less than in 2008 and deaths are 2,000 more. Deaths are their highest since 1947 and recorded the 9th straight yearly increase. Japan's population shrunk by 75,000 last year, 1.46 times the 2008 decrease. This trend will continue to accelerate, since the rising death rate is accompanied by a decline in the number of childbearing women. Japan's population will dip below 100 million in 2046, below 90 million in 2055 and down to 44.59 million in 2105. The labor force and consumer markets will shrink, while social security costs for medical and nursing care services and pensions will grow substantially. Hatoyama’s administration plans to increase the child allowance and expand child care facilities, but paying for these counter measures means reworking the budget, executing tax reform and extracting money from business enterprises—not easy political tasks.
5. Non-competitive services. As Bill Emmott said in his Times article, governments have neglected the service-sector deregulation necessary to help that 70% of Japan’s economy.
Here, at least, there is room for optimism. Hiroshi Makioka from Bain & Company’s Tokyo office, is watching Japan’s service sector modernize in response to customer demand for more value for the money. Consumers will change when and how they shop in their desire to stretch their yen. Mostly smaller and medium-sized retailers are spending money and time to keep up with fast-changing customer needs, adding employees who talk with customers. putting managers on the floor, searching out new, less expensive products overseas, working with manufacturers on products and designs that meet specific customer needs, bringing sales to customers where they are, increasing delivery efficiencies, and building company cultures devoted to beating the competition.
The good news is Japan’s private sector seems to be moving ahead, not waiting for a Tokyo political miracle.
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