A Chequer-Board of Nights and Days

Quoth Dan Drezner on Junichiro Koizumi's electoral victory:

From a U.S. perspective, this is a huge win. A staunch U.S. ally has been re-elected, and if Koizumi's proposed reforms [aimed at privatizing the postal system] are implemented, then Japanese growth could finally escape its 15-year doldrums. Since Japan is a natural market for U.S. exports, a growing Japanese economy would be a very good thing.

The Economist agrees:

EVERYBODY knows what is going to happen next. Junichiro Koizumi told the public repeatedly and emphatically that he wanted the election on Sunday September 11th to be about one issue: Japan Post. This giant receives subsidised postal-savings deposits and life-insurance premiums from tens of millions of Japanese citizens through its 24,700 branches, and thus controls a staggering ¥330 trillion ($3 trillion) in household financial assets. Mr Koizumi, the prime minister, wants to privatise it, and billed this election as a referendum on his idea. Japan’s voters have now given him overwhelming support, electing members of his two-party coalition to 327 of parliament’s 480 seats. Some time this autumn, the new parliament is expected to approve Mr Koizumi’s most cherished reform.

Japan’s stockmarket leapt on the news. The Nikkei rose by 1.6% on Monday, adding to the 7% that it had gained in the month leading up to the vote as the economic outlook grew brighter and as Mr Koizumi’s lead in opinion polls widened. Investors also applauded revised economic figures that were released on the same day, showing that GDP grew at an annual rate of 3.3%, more than previously announced, in the second quarter.

The election victory was a stunning vindication for Mr Koizumi, who clearly knew what he was doing when he decided to dissolve parliament’s lower house in early August. At the time, 22 members of his own Liberal Democratic Party (LDP) had just voted against postal privatisation in the upper house, helping to defeat his plan. Although he could not dissolve the upper chamber, he called a snap election for the lower house, and withheld LDP support from the 37 members of the party who had voted against postal privatisation in that chamber. He then recruited high-profile candidates from across Japan, including many well-known women, to take on the LDP’s rebels in their own districts.

[. . .]

The privatisation plan that Mr Koizumi has put forward would take effect over the course of a decade, beginning in April 2007. Peter Morgan, an economist at HSBC Securities, reckons that a privatised Japan Post would sell roughly ¥200 trillion of Japanese government bonds (JGBs), as it shifted its assets towards direct loans to companies and consumers (as well as, more modestly, towards Japanese equities and foreign assets). The impact of such a shift would be softened somewhat by banks and other investors, who would no doubt rejig their own portfolios to accommodate the postal giant’s metamorphosis, and snap up many of those JGBs in the process.

Many reformists would wish for a lot more. They want to see a faster privatisation schedule, for example, and Japan Post’s banking and life-insurance arms scaled down and made subject to more stringent competition rules before they are unleashed on the private sector. Besides its obvious pension and health-care problems, Japan would also benefit from further reforms to its other public financial institutions and its tax code, as well as a convincing devolution of power to local governments.

Still, by the standards of Japan’s recent history, the privatisation of Japan Post would represent a big step forward, politically as well as economically. For the first time in many years, a Japanese leader has picked a genuine fight over an important issue and refused to compromise. And the voters have rewarded his courage.

A pity that the courage to press for free-market reforms is not contagious. I suppose, though, that we will have to take our victories where we can find them.