Kaifu Aims To Calm the Waters

NEW Japanese Prime Minister Toshiki Kaifu hopes to find a refuge from political crisis at home when he visits the United States this week. With the careful coaching of the Japanese bureaucracy, the relatively inexperienced young premier has spent hours preparing to head off what many Japanese officials see as a disturbing rise of anti-Japanese sentiment in the US.

At the same time, Mr. Kaifu comes in search of political legitimacy, the kind that comes from a high-profile summit with President Bush, photogenic appearances elsewhere in the US, and visits to Mexico and Canada.

When Kaifu and President Bush meet Friday in Washington, the Japanese hope the theme will be ``global partnership.'' The Japanese want to stress those areas where the two allies can act together positively - tackling problems such as third-world debt, the global environment, aid to Eastern Europe, peace in Cambodia, and relations with China.

But the president may not be prepared to fully cooperate with this upbeat agenda. With Congress in a increasingly anti-Japanese mood, Mr. Bush may stress the need for clear and urgent actions to resolve the seemingly intractable problem of Japan's massive trade surplus with the US. The American focus will probably be on US-proposed talks to reform the economic structure of both countries. The first round of these talks begin Sept. 4-5 in Tokyo.

The premise of the talks - called the Structural Impediments Initiative (SII) - is that the nearly $50 billion trade imbalance is partly the product of both countries' deeply imbedded structural problems. Japanese officials say they strongly support the talks. But privately they express concerns that the issues are highly complex and difficult to solve, and worry that political pressures for quick results cannot be met.

Too, Japanese officials say the ruling conservative Liberal Democratic Party (LDP) is in no position to make promises as it faces its most severe challenge in decades from a rejuvenated Socialist Party-led opposition. Economic reforms could come with a high political cost, such as changes in the distribution system that would hurt small shopkeepers who traditionally support the LDP.

Kaifu's Cabinet is the product of political crisis - the unprecedented defeat of the ruling conservative party in elections for the upper house of parliament at the end of July. Kaifu has been criticized from the start for being a ``disposable Prime Minister,'' handpicked by the party bosses with the expectation he would not last beyond elections expected as early as this fall for the more powerful lower house. And while the 58-year-old politician was chosen for his relatively energetic and clean image, his government was hit almost immediately with a sex scandal which forced the resignation last week of his chief Cabinet secretary, Tokuo Yamashita.

Publicly, Japanese officials say Kaifu is a vibrant young leader who has sufficient backing from his party and the government bureaucracy to consistently carry through traditional conservative policies, particularly the alliance with the US. But privately, a US official reports, Japanese officials have not been hesitant ``to remind us that they have a rather precarious situation now.''

The LDP already paid a price for previous liberalization measures in the upper house elections. The Socialist victory, resulting in an opposition majority for the first time ever, was won in part with appeals to conservative farmers angered at decisions to open Japan's markets to foreign farm goods.

Some observers compare the opposition control of the upper house to the US's Democratically controlled Congress. In both cases, they say, a protectionist opposition is pressing the government.

``The government and the ruling Liberal Democratic Party cannot take drastic measures to reduce the economic frictions because of the protectionist nature of the Japan Socialist Party's agricultural and distribution policies,'' the pro-government Yomiuri Shimbun argued in an editorial on Mr. Kaifu's trip.

Japanese officials tell their US counterparts that ``if you want to see the real protectionists in Japan, just get us out of office,'' the US official says. But even the Yomiuri called on the government to ``abandon the optimistic view that Washington will restrain from criticism out of consideration for Japan's domestic situation.''

The talks are scheduled to take place every two months, with an interim report due in the spring, followed by a final report to both governments by next summer. The White House, the US official explains, ``would certainly want to try to pin [Kaifu] down a bit,'' on his commitment to this process.

The SII is a two-way agenda, modeled on the so-called ``yen-dollar talks'' in the mid-1980s, which led to the liberalization of Japan's capital markets, including the entry of foreign firms into the stock and bond markets.

US officials say this kind of approach is called for because other efforts to resolve the trade imbalance, such as tackling the problems of specific industries and the massive devaluation of the dollar against the yen, have been ineffective.

The US has pinpointed six ``impediments'' which it says create the trade problem. The American list includes: Japan's high savings rate; the complex distribution system which makes entry of foreign goods more difficult; the gap between high prices in Japan and low prices abroad; land-use policies which favor farmers and hold back domestic development; the close linkages between members of corporate groups; and stock-holding practices which keep out outside investors.

The Japanese have their own agenda of US problems which they say make the US and American companies less competitive. These include the low savings rate; the need to restrain consumption and reduce indebtedness; the emphasis on short-term profits in American corporations; waste of corporate funds for mergers and acquisitions; the lack of education and training for workers; and low levels of research and development investment.

The Japanese government worries that the Bush administration, under pressure from Congress, will push too fast for concrete results, as early as in the interim report this spring.

``The issues are very serious so we cannot easily envisage a quick fix,'' says Foreign Ministry official Mitoji Yabunaka. In recent months Japanese officials have grown concerned with the rising criticism of Japan in the US. They point to polls showing that Americans see the economic threat from Japan as a greater danger than the military threat from the Soviet Union, as well as a shift in opinion among policymakers away from free trade in favor of government intervention to ``manage trade.''

Kaifu's emphasis on `global partnership' is an attempt to counter this anti-Japan trend. In the next few days, officials say, he will propose joint cooperation to deal with acid rain, protection of tropical forests, and other environmental problems. Following up on Japanese pledges at the Paris summit earlier this summer, Mr. Kaifu likely will announce in Mexico plans to provide $1 billion in aid earmarked for curbing pollution.

He opens his visit today in San Francisco before heading to Washington. His US trip ends with a visit to Boston, which includes a gathering with prominent academics and throwing out the first ball at a Red Sox game.