A Japan That Can't and Won't ... but Might

Nag, nag, nag. Every time you open the paper these days, someone else is carping at Japan to juice up its economy.

US officials jab at Japan in shifts. Last week it was Alan Greenspan's turn, with leaders of the free world singing along in Group-of-Seven-part harmony.

The chorus: Asia is a brittle tinderbox of political unrest (Indonesia) and economic fragility (everywhere else), and a strong Japanese economy is essential to keep the region from going up in flames.

The lyrics: Japan isn't doing a thing.

The counterpoint: That's not going to change.

At least, not soon. Not because Japan disagrees with the US - some politicians here favor tax cuts and hefty public spending, and they're not blas about Asia. They watch the region like a hawk.

But Japan won't, because it can't. More to the point, Prime Minister Ryutaro Hashimoto can't.

Mr. Hashimoto is boxed in by legislative constraints and political rivalries that could make any move to stimulate the economy his political suicide.

Last fall, the Diet (parliament) passed fiscal reform that commits the government to reducing national debt: The 1998 budget must be is less than last year's. It also slaps spending caps on various parts of the budget. Public works spending, for instance, must decline by 7 percent.

If the pompadoured prime minister suddenly decided to cut taxes and start spending, he'd have to get parliament to revise this law. Then he'd have to redo the budget.

Given that the fiscal year starts in 29 days, that's a dicey proposition.

It would also be a hard sell. Budgets are treated like holy writ. Once written, politicians are loath to fiddle.

As it is, the unfinished 1998 budget is almost a month behind schedule - an embarrassment for Hashimoto.

The prime minister is already in an awkward position. Fiscal reform has been one of Hashimoto's central themes. Last spring he hiked the consumption tax from 3 percent to 5 percent, suspended a previous income tax cut, and effectively raised health-care fees.

Loosening the purse strings would be an admission that these reform measures were a mistake and leave him vulnerable to rivals, especially those in his own party.

All this means nothing will likely happen before the fiscal year ends. But there is a wild card in the stock market.

Japan's troubled banks own millions of shares of stock as part of the capital they are required to maintain. Sinking stock values could drag that capital below required levels before the fiscal year ends on March 31. So it's crucial that the market stay high enough to keep the banks healthy. If it heads south, politicians will scramble to get the economy moving.

There's also an escape clause. Once the budget is set, lawmakers can pass supplementary budgets not subject to spending limits. Already, Hashimoto hints at up to 9 trillion yen in tax breaks and public-works spending to be unveiled in April.

So the US and others may eventually get what they want, but they'll have to wait. Japan hears the chorus, but it marches to its own beat.