Japan's Mr. Nice Guy Is All Smiles in the U.S.

But will he have the last laugh?
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Editor's Note: As part of our expanding international coverage, we introduce John Neuffer's Behind the Screen column on the machination of Japanese politics and its influence on the world's second-largest economy. Neuffer, who works for the Mitsui Marine and Fire Research Institute, has years of experience in Japan and incomparable access to politicians, bureaucrats and businessmen. His commentary, always as entertaining as it is insightful, is widely read not only on the trading floors of Tokyo but also in the halls of Washington. His debut on TSC is timely as Japan struggles to recover from its deepest post-war recession -- and shows signs of succeeding.

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TOKYO -- As Japan's Prime Minister

Keizo Obuchi

traverses the U.S. this week, he will undoubtedly be pinching himself. When he became Japan's premier last summer, the press at home and abroad pronounced him dud on arrival. Viewed as a bumbling party hack, Obuchi entered office as one of the least popular prime ministers in a Japan beset by a shrinking economy and growing unemployment.

Nine months later, the leader is on a roll. He has imposed a degree of stability on Japanese politics not seen since 1993 when his ruling

Liberal Democratic Party

(LDP) was thrown from power for a year. By shrewdly co-opting opposition parties, he has pushed key legislation through parliament with relative ease, including this year's budget, which in March won approval in record time. The man has proven he can deliver.

Even the economy, which has stubbornly resisted recovery, seems to be coming around. That's helping Japan's Mr. Nice Guy to garner approval ratings close to 40%, nearly double his ratings last summer. Not bad for a man who I once said had "all the political pizzazz of cold pizza."

Prominent among the goodies the prime minister will give to President

Bill Clinton

is the news on the economic front. Although he's unlikely to announce any new spending, he can point to massive stimulus packages and a $500 billion rescue program for Japan's sick banks. That may help to convince the markets the worst may be over for this troubled economy. Since the start of the year, the benchmark

Nikkei

average has risen roughly 25%. Bank shares are up more than 40%.

Obuchi will also announce a plethora of small deals intended to show he's serious about opening Japanese markets. Those include agreements to further deregulate the economy and improve the foreign direct-investment environment in Japan.

He'll also likely tell the president Japan will take a higher profile defending Asia, something the U.S. has been pushing for, and commit a nice chunk of change for the Kosovo refugees.

Trade hawks in Congress can holler all they want about allegations of Japanese steel dumping and the growing bilateral trade imbalance that reached $64 billion last year. With the U.S. economy in great shape and unemployment at historic lows, the vast majority of Americans don't perceive Japan as an economic threat and could care less about congressional grumbling over trade friction.

Furthermore, Clinton is consumed by the war in the Balkans and not in the mood to pick a fight with a close ally. In diplomatic parlance, Obuchi has lots of deliverables for a president who is yearning to give some good news to the American people about his foreign policy.

To Obuchi's credit, he's playing America like a harp. In a

New York Times

opinion piece published in the

International Herald Tribune

, he told the U.S. foreign policy establishment exactly what it wanted to hear: "Japan is quietly becoming a different country from the one most Americans think they know."

And he will also win the hearts of Middle America over the weekend when, in a carefully crafted media moment, he tosses out the first pitch at a Chicago Cubs game at Wrigley Field. What a guy.

Although the summit is shaping up to be a diplomatic love fest that will win the prime minister points back home, political prospects for him are anything but certain.

For starters, the great don of Japanese politics, former Prime Minister

Noboru Takeshita

, has been in the hospital for the past month suffering from "back pain." His aides say it's nothing serious, but the tabloid weeklies speculate he's on his last legs. Should the 75-year-old Takeshita, who has protected and advised Obuchi, depart the political scene, the LDP could erupt into a divisive cat fight that undermines the prime minister's power base.

And getting Japan's economy to positive growth remains Obuchi's greatest challenge when he returns to Tokyo. Some indicators suggest the economy is close to the bottom. Last Wednesday, the Japanese government announced that industrial output in March easily exceeded expectations, posting a 2.2% gain. A day later, however, statistics showed purchases at large retail stores posted a year-on-year drop of nearly 8% in March. Most politically damaging: the unemployment rate has jumped to a postwar high of 4.8%.

These figures scare the living daylights out of Obuchi who must run this September for re-election as president of his party. If he can't get the economy turned around by then, the LDP could very well dump him. Although he refuses to admit it yet, that's why Obuchi will almost certainly opt for another major spending package this autumn. He'll need it to fill the gaping hole created when the stimulus measures in this year's front-loaded budget run out.

Even as unemployment rises, partly because corporate Japan is in the midst of a restructuring binge, the LDP is working just as furiously to keep inefficient sectors that support the party, like agriculture and construction, on life support with pork-barrel spending and cheap public lending.

How does Obuchi play the game? Spend taxpayer money like crazy. This will offset the negative short-term impact of corporate restructuring, mitigate Japan's deflationary spiral and keep the construction companies afloat. Of course, that ensures that when Japan returns to growth, it will be incremental, at best. But Obuchi knows if he abandons his party's traditional backers -- even though they are prime targets for restructuring -- he's toast.

If he pulls it off, he may prove nice guys don't always finish last.

John F. Neuffer is a longtime observer of Japanese politics and provides occasional commentary for

TSC

. He publishes an in-depth roundup of Japanese politics at

Behind the Screen. This column is exclusive to TheStreet.com.