£ /OUÖO

JPRS-JAR-87-004

9 JULY 1987

FOREIGN

BROADCAST

INFORMATION

SERVICE

JPRS Report—

East Asia

Japan

055

OTIC QUALITY INSPECTED 6

REPRODUCED BY

U.S. DEPARTMENTOF COMMERCE

NATIONAL TECHNICAL

INFORMATIONSERVICE

SPRINGFIELD, VA 22161 iO

Af3
JPRS-JAR-87-004

9 JULY 1987

EAST ASIA

JAPAN

CONTENTS

POLITICAL

Toward LDP Coalition Government of Five Conservative Parties

(SENTAKU, Jan 87) !

Three Political Pacesetters of 1987 Examined

(SENTAKU, Jan 87) 8

LDP Comprehensive Agricultural Policy Research Council Discussed

(SENTAKU, Jan 87) n

Generation Change in Zoku Members Reported

(SENTAKU, Mar 87) 19

ECONOMIC

'Japan Money' Implicated in Higher Yen Trend

(SENTAKU, Feb 87) 27

Postal Saving System Said Heading for Decline

(SENTAKU, Feb 87) 34

/7310

- a -
POLITICAL

TOWARD LDP COALITION GOVERNMENT OF FIVE CONSERVATIVE PARTIES

Tokyo SENTAKU in Japanese Jan 87 pp 58-61

[Excerpts] Referring to the overwhelming victory in the double elections,

Prime Minister Nakasone stated, »304 seats represents the start of the 1986

order; the LDP has spread its wings to the left, widening its support as far

as the middle-of-the-road right." This victory has resulted in a major shift

from the 1955 setup—which pivoted around the confrontation between the LDP

and the JSP«to an era of conservative party rule in a controlled society,

bringing about major changes not only in Diet operations, but in various

aspects of the policy-making process as well.

In this process, attention is being drawn to the enlargement of factions that

can influence policy determination, and from the organizational standpoint,

they have begun to change from groups which are "units to which power is

apportioned" to the actual standing of a political party.

Because of party enlargement, it is only natural for the factions to become

enlarged, e.g. the Tanaka faction, which is the largest* of all, has an upperlower house membership total of 140 which greatly exceeds the 127 members of

the JSP, the largest minority party, and the 89 members of the Miyazawa

faction, the 87 members of the Nakasone faction and the 84 members of the Abe

faction are greater than the 82 members of the Clean Government Party. Even

the minor Komoto faction with 34 members ranks alongside the Japan Democratic

Socialist Party.

Tanaka Faction Organized Like A Political Party

That a change in quantity will cause a change in quality is not limited only

to the laws of nature.

It is no exaggeration to say that the structural change of the various

factions occurred rapidly as their sizes expanded and the factions began to

reorganize as "political parties."

As in the past, the factions were devoted to strengthening their internal

structure, and like the Tanaka faction (Mokuyo Club) during the period when

the former prime minister was healthy, the factions were nicknamed "general
hospitals" for striving to systemize issues from the recruitment of young

politicians to processing petitions.

But with the faction leader stricken with illness, it is not an easy task to

maintain the unity of the faction's 140 members who are involved in the

confrontation of the Takeshita and Nikaido groups.

Even among the various factions which allocated the traditional year-end

allowance, the Tanaka faction became a topic of conversation for awhile with

its change of practise. In the past, the former prime minister exerted a

strong influence, like a "single proprietor in business," and "higher echelon

donations" were made by Tanaka and some of the key officials, but during the

year end last year, the faction officers-, including president Nikaido, and

former cabinet members adopted the joint responsibility method. The fact that

the former prime minister's supporters, who were afraid of others becoming

estranged from Tanaka," gave each Diet member a separate envelope containing

11 „ "

n ln additi°n to the year-end allowance, substantiates the shock from

the "modernized" use of the faction's funds.

This applies not only to funds. During the research meeting in September, the

members established bylaws which were likened to party rules of a political

party, established a vertically proportional organization of a president,

permanent secretariat and general secretariat, and arranged for the formation

of an advisory council consisting of elders. Furthermore, Tatsuo Ozawa was

held over as the chief secretary, but the three posts of "general council "

policy" and "general affairs" were established under the general secretariat.

^rÜi-1! n? denying that difficulty was encountered in the attempt to

"n^m ,

d0minfioi\b

J

tne Takeshita group" in the newly established

permanent secretariat," resulting in the selection of Keizo Kobuchi of the

2

1lta «^P as its chairman and Ganri Jamashita of the anti-Takeshita

Son? aS deputy oilman, but in order to manage a large organization of 140

£as arisen^ *

3trUCture similar to a

"Political party headquarterspace.

KOChi Ka± (MiyaZawa faction> which "supports Miyazawa" is also keeping

iLiÜIi 8eneral.1

ni«efcin8 on 6 November, five committees, namely »policy,"

general council," "finance," "organization" and "liaison and public

relations," were established, and the faction is organized so that its overall

^TJTrZlSS11 b!

deliberated b

y

th* "seven magistrates," consisting of the

Ya^LSwt °

haa7en and the two elders, Kuniyoshi Saito and Ichiro

lamauchi (lower house) who are in charge of "general matters." With the

appointment of Eisaku Sumi, who passed away recently, as the chief secretarv

chanSrVi„a3 the "facti°

n

*

3

^cretary general," the faction Sas aiming to

change its organization from a «Kyoto nobility group," consisting mostly of

bureaucrats, to a fighting group.

Y

*^L?ht

r hand

'

the Se±Wa Kai'Whlch c

o

n

3"ted of members who were strongly

oresSent J^nf ^^ mini3ter Fukuda durinS

tn* •« when Fukuda was Its president, has undergone a generational change to become the Abe faction, and
the positions of mediators and chief secretary have been newly created. As

mediators, Mutsuki Kato, Yoshiro Mori and others who hold cabinet or party

positions were omitted and Takashi Hasegawa. Masajuro Shiokawa (incumbent

Minister of Education) and Toshio Horiuchi (upper house) were selected.

Hiroshi Mitsuzuka, who has been elected six times and is regarded as a man of

action, was selected as chief secretary.

Immediately after his appointment, Mitsuzuka declared, after the manner of the

Tanaka faction:. "We aim to change the faction into a 'general hospital.'"

From the standpoint of factional structures, the differences are small whether

it be the Nakasone faction which is the faction in power or the fast declining

Komoto faction.

Rush To Form "Horizontally Proportional Organizations"

Appointments to positions within the factions strengthened the vertically

proportional organizations, but regarding horizontally proportional

organizations, such as by number of successful elections, the rush to form

small groups within the factions has been conspicuously noted.

As a result of the faction increasing by nearly 20 members during the double

elections, the "Nanoka Kai," which was formed by those elected to the lower

house after 1969 and which served as the nucleus of the Tanaka faction, is

progressively dissolving, with such formations as the "Hifumi Kai" consisting

of members elected from one to three times and the "Isshin Kai" consisting of

members elected from four to six times.

Stirred by these movements, the young upper house members formed the "Iroha

Kai," and a network of small groups, both vertically and horizontally, is

being formed, such as the "Wakatake Kai" for lower house members elected for

the first time and the "Sakae Kai" for members with cabinet experiences.

The same movements were observed in other factions. In the Miyazawa faction,

lower house members elected one to three times formed the "Suiyo Kai" and

those elected four to six times the "Daiju Kai." In the Abe faction, members

with cabinet experience have their "Juichinichi Kai," those elected for the

first time the "Hachijuroku Kai" and the "Tanjo Kai" by months, for those with

birthdays in the same month.

Even in the Nakasone faction, the young Diet members have their "Sansei Kai,"

but what has truly drawn the attention of this faction is the activities of

Michio Watanabe who has formed the supra-faction, "Onchi Kai," with the

Nakasone faction as the core. This group started off with 30 members in 1980,

expanded suddenly to 48 members during the 1986 double elections and with the

recent addition of Takehiko Endo and Hiroko Terauchi from the Nakasone faction

and Yoshiyuki Hozumi from the Komoto faction, it has a membership of 51. The

number 51 is significant because- it means that the "support of 50 Diet

members," which is required for any candidate to be nominated for the party

presidency, has been attained.
Watanabe has taken a cautious stance with the remark: »Nothing is planned,"

but the movement of the »Onchi Kai» has become the "eye of the typhoon» in

post-Nakasone politics.

Kazuo Tamaki (Director General of Administrative Affairs in the Prime

Minister's Office), who has organized the "Shuseiken," has plans of

penetrating the Komoto faction in preparing for factional reorganization, and

under the "1986 order," the LDP is headed for the "era of factional political

parties« rather than the "dissolution of factions."

Of course, the cry to dissolve factions at one time by the "voice of Heaven"

(former prime minister Ishibashi) has completely died down and the recent

double elections are not the only occasion marking the golden era of the

1 actions.

The presidential preliminary election system which was introduced in 1977

based on Miki's proposal to «dissolve the factions," ironically invited the

nationwide diffusion of factions« (former prime minister Fukuda) and this led

notebenavoided6by ^

Phen°men0n of faction

s becoming political parties could

S^«ntaJ*

a bi??!r l3SUe WaS thS introduction of the system of proportional

lllttlT,\T

Wlth 'restricted ro3ter «hich replaced the nation-at-large

system for the upper house election. Because the recruitment of party members

Iüi,-S°?a?

er °iUb members greatly influenced the order of the ranking of the

c

Caandidd:^S

a^

S

faec

rtio^ C

°

mPetiti°n t0 ~°~" SUP—* < W * "»

Taking into account the struggle among the new leaders for the next

fSE finn7' ? i

ate 1985 the LDP Party ^mbership reached an astounSSg J,otl»,öOO and the party supporters numbered six times the 75,000 of the previous year or 457,000. u>vvu U4 ine

The LDP party members whose number fluctuates depending on whether a

Zlllt ^K^^7 eleCti°

n iS h6ld °r n0t

-

are ca'led "soap bubbL plrty members « but still yet the LDP's organizational strength is overpowering when

::C Wlth the m-o-ty parties which, at best? total SoT 300?S

Even with the competition to gain booster club members by the candidates for

proportional representation, the candidates have gained 3 T 11

exceeded sTtAlltl "£ ^

th*number °f memberS recruited ^24 candidate» exceeded 60 million. Of course, there are cases of overlapping and inaccurate

butIn ihe 2dTX?

e

S

edly/Ub80ribla8 Party memb6rS °r b

°°3t- "ub members station thforL a

fcities of the minority parties being in a state of

stagnation, the organizational machinery of the LDP alone is moving steadily.

Even with the recent double elections, when the various parties with their

limited issues »pitted their strength," the force of the lH, which took

ft'Sned with f

araCteriSt'C aS a DietIDan,3 P0litical «* - ^»2h -

welk !SP and 5«„ nL^1**?0 1 P°

WSr'CrU3hed both the organizationally weak JSP and Japan Democratic Socialist Party, and the Komeito and JCP, which
were said to be well organized political parties, barely held their ground,

giving proof of the LDP's overwhelming victory.

This is to say that the expansion of the LDP's party force, brought about by

the factions being strengthened like political parties, and the increased

acceleration of the factions turning into political parties from this absolute

majority are the overlapping movements of the power structure which the prime

minister called the "1986 order."

Unique Flexibly Structured Constitution of Conservative Party Being Lost

Another phenomenon supporting the change of factions turning into political

parties is the progress of the factional systemization in the rural areas ever

since the introduction of the presidential preliminary election.

Even in the rural areas-, the four faction leaders, "Abe, Takeshita, Miyazawa"

and Watanabe, are competing to form booster clubs, and with respect to

political funds, the trend is to decentralize in the rural areas.

According to the Mainichi Shimbun survey (estimate given in the 14 November

1985 morning issue) on political funds received in the rural districts in

1985, Abe topped the field of new leaders who received funds in the rural

areas with Y180,390,000, followed successively by Miyazawa with Y127,970,000,

Watanabe with Y95,190,000 and Takeshita with Y30,960,000. According to the

records compiled by the Ministry of Home Affairs, Takeshita had topped the

list with Y770 million, but the figures for his support from the rural areas

were small because a good portion of the rural booster club organizations,

established throughout the nation, were not properly reported, and the small

fund was interpreted to mean an advancement in factional organization.

In any case, the Asahi Shimbun statistics for both the urban and rural areas

indicated Abe collecting Y920 million, Takeshita Y800 million, Miyazawa Y650

million and Watanabe Y730 million, and this substantiated the notion that the

qualification of an influential politician was his ability to

raise funds.

This "influence" is poles apart when compared with the days of Shojiro

Kawashima who, besides limiting the amount of contributions, considered the

proper size of a faction to be 25 members.

One of the main reasons given in relaxing the limitation of political funds is

the change in the function of the factions to seek new talent. (Book "Politics

of the LDP" by Seizaburo Sato and Tetsuhisa Matsuzaki.)

In order to scout promising politicians, it was not unusual to have "totally

supported candidates" who were furnished the entire amount of election funds

by the faction, but today instead of "funds," the faction's first task is to

offer "trust and confidence."

Even if the party's formal recognition is pending, a conservative, unattached

candidate will be granted "trust and confidence" as against a "fly-by-night

candidate," when "faction approval" is obtained, and funds will be procured
easily from the "supporters club" which has mobilized the faction's ' fund

network. The analysis of the book is that by having the faction emphasize

trust and confidence" over "money," the limitations on funds is reduced and

the promise of "rewards because of factional strength" is made easier. These

points have been amply proven by the large advances of the new candidates at

the recent double elections.

However, the issue is not the birth of mammoth factions, but the change in the

constitution for political parties from the heavily grown factions.

The secret of conservative rule which had dominated post-war politics, except

for one period, has been attributed to the »flexible structure» of the party's

constitution, based on the union of the gentle factions. It is true that as a

result of the depth of the conservative party strength, which is like the

elastic structure of the super multistoried building designed to absorb the

shock waves of any earthquake, a change in political power attuned to the

times has become a possibility and conservative power has been regenerated.

Although the mammoth growth and change to political party size of the factions

led to the absolute majority of the "1986 order," the occurrence of the

changing quality of the traditional "flexible structure" cannot be overlooked.

Today the assertive right of the elders who served as the lubricant for the

flexible federation of factions," or the "control by the elders" has been

rejected, and the attraction of the casting vote during deadlocks between

factions, which was exploited by the middling factions, has disappeared.

The actual state of the "1986 order," whereby the assertive power of the

minority parties receded conspicuously when the majority party gained a "307

versus 200 Diet seat advantage, has transformed the era of five large

conservative factions into that of five conservative parties.

Uncertainties on the Status of the "1986 Order"

From its implication, the making of a new political order after Nakasone, that

can be predicted even before or after the Venice summit in June, will mean the

reconstruction of a coalition government based on »five conservative parties.»

Still, the shift of power within this switchover from a »union of factions» to

a coalition of political parties" will be experienced for the first time

under conservative rule.

The capabilities of the three men, Miyazawa, Takeshita and Abe, who have their

sights on the post-Nakasone era, are extremely close and at the present

stage, it is extremely difficult to accurately predict a new political power.

Even if Takeshita succeeds in solidifying the Tanaka faction, the "logic of

numbers" alone will not necessarily give the faction precedence because of the

intensification of movements in the Reagan administration, high yen recession

and unemployment issues.
In comparison with Prime Minister Nakasone, who forcibly pushed through the

general reexamination of post-war politics in Japan," the three factional

leaders lean towards consensus politics.

Regardless of who forges ahead in campaigning, the nature of the new politics

will assume a troika arrangement of »Abe, Takeshita and Miyazawa» and a strong

possibility exists of a group leadership organization being established.

The following may depend on the character or the political environment of the

three new leaders, but if among the four large factions (excluding the Komoto

faction from the five large factions for lacking the number to compete in the

Party presidential race) turning into political parties, one faction should

mstable?°0PeratiVe' ^^ ^

foundation of the Political power will become

On the other hand, even though there are advantages to size, if the political

Jf ?! l°nf f

d Stray fr0m the Center of P°wer'ifc wil1 be an extremely difficult task to maintain their great strength.

With Deputy Prime Minister Kanemaru bedridden, there is no one in sight to

steer the troika arrangement, although it is ready to move.

£??! 1

t?ÜJni£e maToth the ni986 order" gets to be, the more the party center

will lack the centripetal force, and it cannot be denied that the development

diffSün*1* leadership to cope with this changeover period is becoming

Si« !' I P°st-

Nakason

e era has uncertainties on the state of the

"1986 order."

9510

CSO: 4105/080
POLITICAL

THREE POLITICAL PACESETTERS OF 1987 EXAMINED

Tokyo SENTAKU in Japanese Jan 87 pp 44-45

[Text] (LDP) Vice President Shin Kanemaru»s health condition is puzzling

After he was transferred from the Tokyo Women's Medical College to the

Juntendo University Hospital, an informer spread a rumor in political

circles that Kanemaru was seriously ill from cancer: "His cancer is

advancing. He had a stomach operation in the Women's Medical College

then part of his prostate was removed at the Juntendo due to the spreading

of the stomach cancer. Kanemaru is in more danger than Tanaka."

On the other hand, there still persists a view, although a bit too

optimistic: That's not so. Kanemaru ran for refuge to the hospital

as he was driven out of his mind by the development of a scheme to prop

up a transitional Kanemaru cabinet, which was intended go bring Kanemaru

mir^An ^ ^ °

r

T

e

T

t0 ?6Str0y a burSeoning Plot to create a transitional Nikaido cabinet. It's only a pllitical illness".

Kanemaru's health condition is first class information that political

l^tT ^

C

?Tet «" than any

thlnSelse> since the progress of his

' out ?o\tTJr?l SCt"

P

°^Cal trends-

If the alleSed —"r turns

HM ? * t- Ka^

ema5U S side s wishful Prospect of returning to his

political duties by the end of January" will be actually impossible and

will tttl^ 7/

an *£° haS influence ov

« the 1987 political situation will step down from the stage.

of fnnTf^ S^°nld hT

en fl6aVe the 8cene

»

who wil1 assume the role °^a

,r

llC"a

l P^emaker after him? Prime Minister Nakasone's will to

continue pitching does not show any sign of weakening. The propaganda

power" ruth V^Z* ^ ^

Wil1 n0t "8et inf^uated with pofitical

17±Z XT i

Y broadcast h

y

sou

rces closely affiliated with the

SIT? S

U eVery°ne kn°WS SUCh a

"««*" is slmply a smoke

screen New leaders on the other hand, are still locked in the phenomenal

triangular struggle without a foreseeable prospect of undoing it!

As one of the post-Kanemaru key men, Michio Watanabe is increasingly

fortifying his drive. "Don't worry. He will not run for the Residential

wfl

X

rt in h?

n6Xt r0Und'H

°

WeVer'the 0NCHIKAI f«*lon has real po^er "

was the usual openess of the Watanabe school. Indeed, the ONOTIKA? a
policy group led by Watanabe, has suddenly expanded to a large family of

51 members after having 10 new and old face candidates elected in the

double elections held last year. His ability to raise political funds

for fiscal 1985 was comparable to the three new leaders, and his 730

million yen outdid Finance Minister Miyazawa's 650 million yen (Mainichi

Shimbun).

On 18 November last year, when a party was held for the No. 2 man of the

ONCHIKAI, Kabun Muto (former agricultural minister), to celebrate the

publishing of his book, not only Miyazawa, Secretary General Takeshita

and General Council Chairman Abe, but also Policy Research Council

Chairman Masayoshi Ito, former Minister of MITI Toshio Komoto and others

were anxious to make an appearance. It was quite obvious that they did

not come to the party for Muto to observe the social graces but to make

a "love call" to Watanabe who stands behind Muto.

Watanabe's position was further strengthened by his announcement to pass

up the opportunity to run for president in the next round. Watanabe is

no doubt thinking of acting as a person who at the climax, will, make

the winning hit by picking out one of the three-man race of Abe, Takeshita

and Miyazawa. This is what Nakasone did more than 14 years ago; he played

a decisive role to establish the Tanaka administration by siding with

Kakuei Tanaka's faction at the final stage of the Tanaka-Fukuda war.

When that takes place, the Nakasone faction as usual will be greatly shaken,

but predictably it will follow the lead of Watanabe for fear of splitting.

If everything goes according to expectations, Watanabe will ask for the

post of General Secretary as a reward and presumably he intends to go

[for the premiership] "one after the next." Watanabe declines to comment

on the three new leaders.

"I cannot tell who acts like an elder brother and who acts like a younger

brother."

He cleverly keeps equal distance from the three of them and will

concentrate on enhancing his own value for a while. However, considering

Watanabe's hitherto intimate association with the HIROIKEKAI (Miyazawa

faction) and Miyazawa's most advanced age with a shorter service expectation, it is certain that Watanabe has an item to collude with Miyazawa

as his first target.

However, even for Watanabe, Nakasone's retirement date is difficult to

read. Now that the political power of Kanemaru is unsteady, Chief

Cabinet Secretary Masacharu Gotoda, the second key man, is rightfully

the staunchest right wing power steering the timing of the ending.

Gotoda himself has no reservation about candidly saying, "I am the Chief

Cabinet Secretary chosen to ring down the curtain."

It was also Gotoda who laid a condition to Kanemaru and Takeshita last

summer when the party president's tenure extension issue provoked a dispute

within the party.
"For the sake of saving the Nakasone government from dishonor, please

contain the length of the extension to one year."

That in itself does not necessarily make him a supporter of early retirement.

It is known that Gotoda is concerned about the insufficienct competence

of the new leaders.' However, recently he was heard to say: "I don't mean

to hurt Take, but Miyazawa is after all, the best choice, judging from

his ability. There's a big difference."

However, it is uncertain how much he expressed his true feeling by this

remark. Placing himself in Nakasone's shoes. He even appears to'be

deploying a tactical plan to disturb the three-headed race. Said Nakasone

at the end of last year as he entered the fifth year of his administration,

in response to a question regarding his will to stay in power, "I cannot

tell when I will get tired, but a politician must be a die-hard. Besides

(I) have an excellent guide."

Everyone admits that Nakasone meant Gotoda as the person who plays the

role of his guide. The Nakasone-Gotoda three-legged race is getting

stronger. Furthermore, Gotoda strongly sympathizes with the Nakasone's

charting for "the overall settlement of accounts for postwar politics."

It should be nobody but Gotoda who serves as the strategist to make a

frontal breakthrough if a chance for reextending Nakasone's tenure comes

in sight.

The third key man, something of a lightweight compared to the other two,

is Policy Research Council Chairman Ito who is the only one without

presidential aspirations among the three top-ranking officials of the

party. Ito is close to Nakasone. During the personnel reshuffle of

last year, Nakasone appointed him to one of the three top positions,

ignoring the Miyazawa faction's wishes. Indeed, it is hard to see what

brings good luck. Now, Ito has proven himself to be invaluable as an

interface between Nakasone and Miyazawa.

In the past, Ito was Masayoshi Ohira's trusted confidant and at the same

time a foremost man of iron will in political circles. Adverse relations

between Ohira and Miyazawa were literally inherited by Ito. Additionally,

Ito experienced the disgrace of resignation from the office of Foreign

Minister under the Suzuki administration due to Japan-U.S. problems.

That scenario was written by Miyazawa who was then serving as Chief

Cabinet Secretary.

Nevertheless, the confrontation between Miyazawa and Ito has been

virtually mended through exhaustive efforts by Koichi Kato (former Director

General of Defense Agency) and others. Recently Ito has been frequently

meeting with Miyazawa and even gives the impression that he is investing

his last passion as a politician in nurturing the Miyazawa administration.

What kind of political struggle scenes will be painted by Watanabe, Gotoda

and Ito from New Year's Day to early spring? There are several key men on

the second team, which makes it more difficult to have clear vision on

this matter.

8940/9190

CSO: 4105/075 10
POLITICAL

LDP COMPREHENSIVE AGRICULTURAL POLICY RESEARCH COUNCIL DISCUSSED

Tokyo SENTAKU in Japanese Jan 87 pp 126-129

[Text] The Comprehensive Agricultural Policy Research Council sits right

in the middle of the LDP agricultural policy, proud of its authority.

A little over 240 Dietmen belong to this research council. There are 48

research councils to the Policy Research Council which bears the

responsibility of the LDP policy decision making organ. The size of the

Comprehensive Agricultural Policy Research Council is next largest to the

Tax System Research Council which has 260 members. The number of the Tax

System Research Council members has been increased temporarily for the

review after next year of the large scale tax reform. Taking this

situation into consideration, the Comprehensive Agricultural Policy

Research Council is actually the largest policy design group in the LDP.

The Comprehensive Agricultural Policy Research Council has quite a history

as well as numbers. The first chairman of the Research Commission on Rice

Price (established in 1968), the predecessor of the Comprehensive

Agricultural Policy Research Council was former Prime Minister Kakuei

Tanaka. Heisuke Tanba, who has been the chairman for a long time until

today, despite interrupted service, was acting like a Director-General

under Tanaka. Every LDP strongman, namely Takeo Fukuda, Shintaro Abe

Michio Watanabe, Zenko Suzuki, and the late Ichiro Nakagawa, have had'the

experience of serving as Minister of Agriculture. These facts together

show the importance of agriculture for the LDP Dietman, and outline the

central position of agricultural policy as a support of the long-run

conservative administration.

Besides the Comprehensive Agricultural Policy Research Council,

"Agriculture and Forestry Subcommittee" (Genji Kondo, Chairman'of the

subcommittee) and Forestry Policy Research Council (Tsutomu Hada,

Chairman) were established within the LDP Policy Research Council. The

following is their political power relationship: Kondo is one of the vice

chairmen of the Comprehensive Agricultural Policy Research Council, and

Hada is holding a concurrent post of deputy chairman which is the position

next highest in rank to Tanba. Within the organization of the Policy

Research Council, subcommittees are established in response to

governmental organs such as ministries and agencies and standing

committees of the National Diet, and research committees are supposed to

deal with basic policy from a comprehensive view point. However, in

reality, the policy decisions that are made at the Agriculture and

Forestry Related Joint Subcommittee, which combines the three

subcommittees, become the "will" of the LDP Policy Research Council.

11
iTTrZ ?JJ. ^l1

!

VefleClS thS maJ°rit

y °Pinion of the LDP Dietmen, it 1

LYe5

y

1

dlfflc^lt for the Part

y President and the three top-ranking

officials of the party to overturn a decision. In other words, it is how

the discussions are directed'and how they are settled at the -joint

subcommittee that determines Japanese agricultural policy The

Comprehensive Agricultural Policy Research Council sits in the middle of it.

The Hard Core Are Hada, Kato, Okawara, Kaigaki, and Tamazawa

Summer is the time when the Agriculture and Forestry Joint Subcommittee

most shows its energy during the year, when the government sets the

purchase price of rice from the farmers based on the Food Stuff Control

T^I; J; r

peri°d ln which the Producer-price of rice is determined

fr I!6 ComP^ens^.Agricultural Policy Research Council started off

folLv 7«Rr

earGh Commission on Rice Price, rice is the foundation of food

policy in Japan and the root of the agricultural policy in which rice

food'S lL°T third °

f

.

the

.

total agricultural output As the stap?e food for the Japanese, rice is still today close to one third of the

calory intake for the Japanese. Increased production and self-sufficiency

in rice has the history of being national policy in the midst of war

devastation and food shortage.

On the evening of July 31 last summer, a small meeting was held at a

lTZitireStaUVT J? metr°Polit*n Tokyo. The one who invited people to

^,rf S Wu

S

.

th

f

Mlnister of Agriculture Kato, and those who were

S? ^

r

-

H

"

auke

,

Tanba'Tsutomu Hada, Koichi Kato, Taichiro Okawara

££«X° *fkl:

Tokuichiro Tamazawa, Takami Eto, Ryu Sato and MicSo'

5 %£ I.Admin"

trative Vice-Minister Hiroshi Ishikawa from the Ministry

of Agriculture, Forestry and Fisheries, and Director-General of the Sod

ifS3*Iaff° GOt°.als°

at^ended the m

-"ng. One of the peoplf who '

attended the meeting said, »There was a common belief prevalent at the

meeting that bargaining both inside and outside the LDP over the decision

of the rice price in August will become tougher than at any other tJme

Those who were invited to the meeting that day were powerful members of

the LDP agriculture zoku (zoku--a group of Diet members who exercise Jn a

thro^H "

f

-

eld POliCy making e

*Perti*e ^d contacts generally acquired

l^&V?^1Ce SS chairman or vice-chairman of the appropriate Pa?tv

policy^eliberation committee), who were once called Se »IgSculSS

SS ^s^se^ho^t:kin^tnf^Tic?SCL-Ji of

S^.-^^ft^^&-3 Sr?L^SterfÄ ^

ggSrinÄ

Deputy Chairman of the Policy Research Council. Tamazawa who had left

th! ?£ A°f thS ?

irector of Agriculture and Forestry Subcommittee in

w^?* t

Came thS Chairman °f th* Lower House Committee ^"^ ln

Agriculture, Forestry and Fisheries, too, now towers above his colleagues

by thesT^ ;^h t0 S^

Aat *» "» cultural policy i^ÄeT

12
To take leadership at the Agriculture and Forestry Joint Subcommittee

where there are at times more than 300 in attendance and where•hundreds of

opinions come out, the leader must have the power of persuasion and the

drive to persuade politicians with strong personalities. Both Hada and

Kato have served as the Director of Agriculture and Forestry Subcommittee

They are so familiar with the agricultural policy that the top officials

of the Ministry of Agriculture say, "They understand the issue completely

with the same explanation as the officials in charge." They are in line

with the "comprehensive agricultural policy faction" which aims for a

balanced policy that gives consideration not simply to the trend inside

the party, but also consideration to the international situation,

finances, economic environment, and the trend of agricultural

cooperatives. Overtly and covertly, they receive consultations from the

Ministry of Agriculture, Forestry and Fisheries. For instance, when Kato

was the Director-General of the Defense Agency, the gigantic figure of

Hiroshi Ishikawa (then Director-General of the Food Agency) was often seen

among the lobbyists.

However, the discussions within the LDP over the producer price of rice

for 1986 displayed more complications than tacitly expected by the

agricultural potentates in the party, the Ministry of Agriculture

Forestry and Fisheries, and officials of the agricultural cooperatives

The government which aimed for "the reduction of rice producer price after

30 years" purposely released the figure, "6.6 percent reduction in the

original calculation" in order to gain support of public opinion This

figure stood alone and resulted in the leaders being put under heavy

criticism at the Agricultural and Forestry Joint Subcommittee At the

forefront was the hard core question of rice Dietmen who are called "Viet

Congs" or "Apaches" within the LDP.

During the double election campaign immediately before the rice price

debate, a majority of the rice Dietmen who had been counting on farm votes

had given campaign speeches in the election districts, saying "We will

never ever lower the producer price of rice." "We should not lower the

producer price of rice and thus show our appreciation for leading the LDP

to overwhelming victory." Such a "theory" apart from reason controlled the

atmosphere of the joint subcommittee. The Minister of Agriculture

received advice and recommendation for "the reduction of producer rice

price by 3.8 percent" from the Rice Price Council. The proposed price

reduction was turned down during the all night political negotiations

between the government and the LDP from 8 August to the early morning of

9 August, and the producer rice price ended up being left as it was.

Nakasone Who Decided to Review Rice

Rice price is often called a "rice price drama." It is a cynical way of

describing the history of the intertwined stakes of the three parties

namely the government, the LDP, and the agricultural cooperatives over the

producer rice price, yet the producer rice price has settled to where it

should have been. The aim of the Ministry of Agriculture, Forestry and

Fisheries which advised the 3.8 percent reduction in producer rice price

was to retain a slight reduction in the producer rice price with the

understanding of some political factor within the LDP. The comprehensive

13
Economic circles have been under a taboo openly to criticize w« *

confronted him „ich rhe movement for the* Wetter1*"' *"d

As a r^culf- v.^ ,,„„ c J Doycott of Ajmomoto products

^osYcons'uitant^Äf a'aid"-!" ?a

CLaran?h

j

P Smy <^°r£°n. something uncomnetitii. >hfa >, I " national loss to hold onto

boyeott mo^nTeresT/ Ye? ^000*»^ crSle^ l"

Ue *» *»

Roll Back by Zoku Dietmen

Diet, a cabinet decision in a ~lal !

sltuation. Looking toward the

rice, „id, .„e s»ould°„ot UberaliaT" ce^'ant "

b

««

liz«lo„ of

fundamentals of the system «TSTL ; ? "

ant to »"ntain the

statement that "I l^TlZko^T^lll^i «formV* S"°«*

pressure," at Tan.b.ta-kai, tne gmafrllf^.SlTlSIVZLT^'

and Flsheries\„d Se S„i"tr° Ä„Lm^S.".^1^

F

""^

measure after consulation with the LDPT *""" " ^

to

«

k

« <*• best

SetusfofS^^^^S^^??«^ d^ff"Ply *>

^"tbetpo^-L10 alrLuSraho^ ^' ^"'icels"^1

Itself in response to Sanges "

P ?

""" rfter "

fl

<"=«°°. reform

^iefeÄfa ro^fopeÄ °X^lVoT^ ^

by Hada was sent to the Jnited ftatef^ nv

?

°?' ?

e LDP mission headed

and Forestry Subcommittee 2d YoshlrA H°

kawa5a

•

K

ondo from Agriculture

International Bureau went wJth ?iS •

Hayashl' director of the

history of JapanLr^rrpaddy cul?ureSanr;h

and ^?lained *• 2000 year

adjustment. Although t^^diSSS"^.^^^^ pr°

d

-

tion

after the mission went to the United Stat-^ ^ ! "

n lmmediately

of opening the rice market h! 2 •' WaS decided that the issue

of GATT to" startln September in Ur^^f^Sclu ^ J°r the NeW R°

Und

Round is agricultural product«. t*5^ 7'

B

*

cause the fo^s of the New

grabbed hofd of a «UtE^^^LY^»* ""=" h"

Ssfde^hfS'r S ^October "t^'eh^ *"" "«" —«

Research Council Subcommittee on Agricultural* iSY*"^ '

ollt?

as Shin Safcurai pressed „S on S^SrT^,^^^«^ ~*

14
agricultural policy faction also aimed to "alleviate excessive

agricultural protectionism to a degree" by undercutting the myth that the

producer rice price would not go down." However, the leaders of

agriculture and forestry were under strong fire from within the LDP and

they were not able to take the role as moderators. Thus this scenario

misfired. Moriyoshi Sato, the former Minister of Agriculture at the time

ot the rice price dispute last year says,. "Neither Miyazawa nor Takeshita

took any action" to influence the event. At the time of the rice price

disputes in 1985., Secretary General Shin Kanemaru and Chairman of Policy

Research Council Masayuki Fujio called in Viet Congs, who asked for a

price increase, one by one and persuaded them behind close doors

However, last summer, all three new leaders, Abe, Takeshita and Miyazawa

zoku t0 aV°

id any P

°

litical mud and is°lated the agriculture and forestry

As a result, the situation dashed off in the direction that the

agriculture and forestry zoku were concerned about. That was "Unless the

producer price of rice is lowered, the existence of the Foodstuff Control

System may be at stake" (Hada). In September, the U.S. Rice Millers

Association (RMA) filed an action based on article 301 of the United

States Trade Act that the rice import regulation of Japan is an unfair

trade practice. In Japan, Director General of the General Affairs Agency

Tamaoki made a statement that "The government should purchase U S rice

for foreign aid," expressing his desire that administrative supervision

apply a scalpel to how agricultural cooperatives should be. Following

Tamaoki Vice President Kanemaru also dropped the word before he was

hospitalized that "We must reform" although prefacing it by saying "in

order as well to preserve the Foodstuff Control System."

Behind the movement to seek review of the rice policy, there was always a

flickering shadow of Nakasone, who, as Prime Minister, approved the

decision for the producer price of rice to remain as it is. There is an

^nfTf10n at I

ama0kl h3d obtained a

Prior O.K. from Nakasone when he

made the series of statements. The "Maekawa Report", which sought

administrative reform in agriculture, advocated achieving international

B^n^^r11638 and made a strateS

ic arrangement for agricultural reform

Because of coercive action to peg down the producer price of rice the

«S'i?1^

8

T°n*the/

aSS m6dia Tre concentrated on the agricultural policy and of the LDP and rice, so the report waged action for reform is the

chance of a lifetime.

«?HerS

ng RMA'S aCtu°n

' °

ne °f the leaders of agriculture and forestry said, Someone must have notified the United States." He views the

situation as the beginning of the concerted action inside and outside

Japan to destroy the status of rice as a sacred cow by taking advantage of

the flashy administrative method of Nakasone who wants to gain points to

prolong the life of his administration by "the final settlfmen^ofpostwar

S^SS ^ ?VRT

n

"

YaS^ rlati°nShip

-"

Ac*^ly. along the same^S

nt,S?^ °Tf he apan federation of Employers' Association Bunpei Otsuki at the LDP seminar in Karuizawa threw out the comment that "Rice

in Japan is nine times as expensive as rice in California." The Japan

Committee for Economic Development and the Japan Productivity Center also

started to develop "the theory of reviewing the Foodstuff Control System -

almost saying that the United States' demand is the same as theirs.

15
tolerate the U.S. bluff diplomacy? There is no need to visit the United

States.» Hada, et al said, "Unless we go, the United States may consider

that Japan tolerates the liberalization of rice," and tried strenuously to

calm them down. J

The Ministry of Agriculture, also took seriously the change of climate

concerning rice. In the end of November, the Ministry of Agriculture

started a drastic review of the long-term outlook for agricultural policy

upon the "Fundamental Direction of Agricultural Policy for this 21st

Century", a proposal by the Agricultural Policy Council (an advisory organ

to the Prime Minister) which is the most authoritative council on

agriculture.

This mid-term report emphasized the need to 1) review the price policy

including the Foodstuff Control System, and 2) promote the structural

policy of agriculture. For rice in particular, it boldly sets forth not

only a plan to realize a (low) level of rice price which would increase

the share of the nucleus of farm families that hold the future of rice

farming, and the establishment of self-adjustment of rice storage by the

producers' organizations so that the surplus rice will not be a fiscal

burden to the government, but also the need to review the basic framework

of controlling the entire volume of rice as a mid- to long- term gc^l

Almost keeping pace with the Ministry of Agriculture, the LDP is firming a

l^7nJklr°Wf-Zl To ab°

Ut f

°

Ur Pr°ject teams on rice issues such as the Foodstuff Control System, and price and structural policy within the

Comprehensive Agricultural Policy Research Council. Within the LDP there

is a tenacious reaction against Nakasone's style of sweepingly directing

ETSS'S-^ •«•«*••, ?* in ^ & -en to'stand apar? f?om the S

§

Tsnri^ ElS"" W°

Uld Uke t0 ?SS the Str°n

S

rea^ion against Nakasone as

a spring board once more to gather the rice Dietmen at the Comprehensive

Agricultural Policy Research Council to reconstruct rice policy under Xe

leadership of the agriculture zoku Dietmen, and aim to demonstrate the

"supremacy of the party." cne

Five Points to Divine the Fate of Rice

In 1987, the rice issue will enter a new phase. When the proceedings up

to the rejection of RMA's action is considered the first round the

important task of how Japan can come up with a specific rice policy that

of SciTY- S3CreY?w wil1 be *e second phase. To divine the^uture

of rice, it is essential to consider the changes of the LDP policy which

unl^Htates aS

ri

-

ltu"l Policy until now, and LDP polLy tLard the

When the voting results of the double election which led to the LDP's

overwhelming victory are studied, even the agriculture zoku Dietmen such

JatW Itl' «d Sato greatly increase their votes in urban districts

f.*11 H n**1districts. In the long-run, there is great

SnSJri;* ff the,

focus of LDP Policies will shift more toward urban

districts Nakasone's statements on "the 1986 political order" and

f:!^ :r?g

v ^^

election were ^ite symbolic. There is also the

rtllritr. S^p •

Om^'.oue of Nakasone's think tank figures, handed a

ItlZ *% lmS Mlnister' Porting out before the double election the

trend of farm votes to decline as a voting bloc for the LDP.

16
We should also pay attention to the development of trade disputes against

Japan in the new United States Congress in January. If the rise of

protectionism increases as the result of the Democratic majority in

Congress after the mid-term election, an aggressive policy toward Japan

even on the rice issue will heighten. If the Reagan Administration is

weakened by the Irangate Affair, Secretary of State Schultz may come to

exercise leadership as a key figure. Therefore, we must keep an eye on

what Schultz says and does.

The fact that the United States agricultural export slump is severe will

work to strengthen the pressure on Japan. U.S. agricultural exports for

the fiscal, year 1986 (ended September 1986) were down nearly 20 percent

compared with the previous year, and last May, the net agricultural trade

recorded a deficit for the first time since the end of World War II. In

addition, the United States has an annual trade deficit of $200 billion,

and it does not seem to take strong steps toward business recovery. For

the U.S. government which carries such circumstances on its back, the way

for a quick fix of the trade problem is to divert the nation's

dissatisfaction and attention toward "Japan, the foreign enemy."

The Agricultural cooperatives and the Ministry of Agriculture, Forestry

and Fisheries have the view that the maximum rice export capacity of the

United States is one million tons because short grain rice that Japanese

eat as a staple is only grown in California. On the other hand, those

researchers who observed the United States rice paddy cultivation, made a

report that "In Texas alone, the land for potential rice paddies is

several hundred thousand acres."

Based on these premises, the following future developments are in the rice

issue.

- The focal issue for the United States and Japan would be whether the

rice issue will, go on the negotiation table at the New Round Talks.

Minister of Agriculture Kato, who rushed to the United States in December,

showed some flexibility toward the rice issue in that "It is future

issue." However, he simply tried to refrain from stimulating the United

States. He has no intention of responding to the United States. To

change the Japanese attitude, the United States will link'the rice issue

with the beef and orange negotiations which will start in April.

- It is almost certain that the issue of the Foodstuff Control System will

come into play after the administrative reform. Nakasone and LDP farm

zoku Dietmen will carry out a secret feud over how to treat the Foodstuff

Control System. Subtly entwining with the feud is the action of the

Agricultural Policy Council. This council is supposed to hand in a report

which gives the substance of a long-term outlook around November 1987.

Therefore, many people within the LDP see that "Nakasone, who is facing

the end of the Prime Minister's term, is trying to use it as a measure to

prolong his term."

- Against the background of consecutive bumper crop years, it is certain

that the producer price of rice will be reduced in the summer of 1987.

The agricultural cooperatives and rice Dietmen cannot help but accept it.

17
rice used as a raw material for miso and soys^cT s str ng particularly

from the domestic food industry. There is a strong basis for the" belief

export ricTtn'f^T °

f

?* Vn±ted StateS in th*

rice

export rice to Japan for industrial use. *««"!» to

I

f.

th^.Unit

«

d

S

tateS °penly demands that Japan import staple rice and

iLSL ;iatlS

Mtl0n °f rlCe Diet?nen and ^cultural cooperatives '

explode, then the worst case trade clash between the United Stat« and

Vnlt*A

X

l

P

:

SSlhle

-

S0mfa

S

ric^ural cooperative leaders say "If the United States unreasonably puts pressure on Japan, Zenno [National

Federation of Agricultural Mutual Aid Societies Employees'Unions} has

StateSs

at

«°Bec:u:rjtinUe t0 ^ Z* *

COrn *nd S

^-s from ?h un ted btates. Because Japan is the biggest customer for U S farm emorJ, «

It is said that the Minister of Agriculture Keto who visited the united

foTs.lr-restrarnt""^ J,?*"'S""S1""." '»* asked tS United States

the da L-rpL. "£ EoJ-JrSturarX^H haslet" *

UHä?S;:S—---—ÄSrNo Copyright

13078/12781

CSO: 4105/078

18
POLITICAL

GENERATION CHANGE IN ZOKU MEMBERS REPORTED

Tokyo SENTAKU in Japanese Mar 87 pp 56-59

[Text] "Zoku Dietmembers" also caught up in a wave of generational

change.

Four man group of the Soseikai conspicuously rise to the forefront

In "The Liberal Democratic Party Administration," co-authors Seizaburo

Sato and Tetsuhisa Matsuzaki defined the LDP zoku Dietmembers as follows.

"Among those parliamentarians wielding strong influence in a policy area

of a ministerial unit who have had experience as one time Cabinet members

or who are in their first term as cabinet ministers (generally speaking,

leading figure parliamentarians)".

Within the long term power of the LDP administration zoku parliamentarians

have weathered all sorts of changes. The bosses of the older generation

are superceded by and give birth to new bosses. At the end of last year

during the tax system revision and the budget formulation, the old and

new generations of zoku Dietmembers intermingled and conducted their

activities but certain changes could be noted compared to a decade ago.

What is the makeup of the new leaders who, in this mileau of an unprecedented 300 seat parliament, seek to control these "Zoku".

Kajiyama is MITI and Kobuchi is Postal Services

At the end of March last year a party to "Celebrate the Sixtieth Birthday"

of Seiroku Kajiyama (Tanaka faction) was held at a restaurant in Akasaka,

Tokyo. Those beckoned by Kajiyama were, MITI Administrative Vice

Minister Keiichi Konaga (at the time), and all the bureau chiefs of the

same Ministry as well as the officials of the industry groups under MITI

such as petrochemicals, autombiles, cement, electric power, iron and

steel, and paper.

A total of four from the LDP, with the Nakasone faction represented by

Hikosaburo Okonogi (former MITI minister) and Takeshi Noda, while Shinji

Sato and Takashi Tahara were from the Tanaka faction. At the beginning

of his remarks Kajiyama said, "I have asked the attendance of all those

persons with whom I would like to maintain a lifelong relationship." It

was an occasion that gave the appearance as if Kajiyam, had become the new

"Don" of the MITI zoku.

19
Speaking of former I1ITI Dons", they were represented by such as the late

Etsusaburo Shiina, Kakuei Tanaka, Masumi Ezaki and Toshio Komoto. These

were individuals who were deeply entrenched in particular industry

sectors and who, in their rise to their power positions were generally

lone wolf operators. However, the current "new generation MITI zoku"

have assembled along supra party lines and characterize themselves as

comprehending the entire MITI policy spectrum while allocating specific

duties amongst themselves. From about the time Kozo Watanabe (former

welfare minister, Tanaka faction) took over the chairmanship of the trade

and industry committee in 1979, this new wave came into being.

These individuals first target the position of MITI parliamentary vice

minister, next they add to their strength by taking the position of

chairmanship of the commerce and industry committee, and finally they

polish it off with the chairmanship of the commerce and industry council.

By rotating themselves into these positions they soldify their internal

mechanism as MITI zoku. The current core is a four man group which has

Kajxyama at the head with Noda, Tahara, and Hideo Watanabe (currently

deputy chief cabinet secretary, Nakasone faction). Additionallv, from

time to time, in response to current problems, veterans of the ilk of

Kabun Muto (Nakasone faction), Okonogi, Watanabe, and leader class

Dietmen such as Sato, Kaoyu Yosano (Nakasone faction), Shinya Totsuka

kanaka faction) and Shozo Harada (Miyazawa faction) become involved

Kajiyama boasts, "In MITI policy matters, there is nothing that is not

discussed with us before the fact" but, judging from these actors in the

play alone, it is clear that the Tanaka faction and Nakasone faction

pretty well have a strangel hold on the situation. The commerce and

industry sub committee chair and the parliamentary vice minister posts

are now pretty much on the order of a rotating system for these two

factions.

Next, what about the rapidly rising Postal Services zoku.

Tied into high technology and the new media industries sectors, it is the

?ooVe??ted t0 bS ?

he 2

l

8t CentUry '^cessions" <~ the share of the 100 trillion yen industry". And, even here, the citadel of the Tanaka

llnUT^ "

nShfen

-.

S

*

tting aS±de the leSendar?str-gth of Kakuei

l^la\T l^r,°SS iS/

h±n Kanamaru'Und" W- Protective wings are Keizo Kobuchi (former director general of General Affairs), Tsutomu Hata

£r^minlSter °

f a

S

riculture' forestry and Fisheries), and iSro

thTrole0^ T

1ST °f L

°

Cal AUt0n°my) 'Hata is the °ne wh° took on the role of leading Kanamaru to the fore from the Postal Services zoku

^th7cas: irVT^1 ?

the Way he -plates this t^man Sam.

£WM? f Polishing the tax exempt system for postal savings,

SnnSYl :,WaS ""I C°

me °Ut W±th d

*

rectly °PP°sin

g arguments.8Ozawa

eventualttt» 1?" n^ "T** ^ ^^ P^^rrangements for the eventual bottom line." Ozawa's plan was to recognize tax exemption but

in return, gam partial self-management of postal savings an earnest

wish of the Postal Services Ministry. Prior agreements§by both the

20
Akira Fukida CAbe faction) vigorously waved the "opposition" flag until

the very end but even he was aware all along where the bottom line was.

The only thing is that this matter was leaked out beforehand and the only

result was that Fukida lost face.

The Komoto faction which, at one time, appeared as if it would share the

Postal Services concessions with the Tanaka faction, failed in its attempt

last summer to maneuver Setsu Shiga in as successor to the chairmanship of

the communications committee headed by Tetsuo Kondo and ended up being

nothing more than an isolated skirmish with Tokuo Yamashita (director

general, General Affairs Agency) who is on close terms with Kanamaru.

Yamashita was also involved in the "Ozawa mediation" along with Yutaka

Okano (House of Councillors, Tanaka faction).

The Nakasone faction with the personal encouragement of the prime minister

has captured the post of postal services minister for two generations

through Fumio Sato and Shunjiro Karasawa and is thus planning its inroads.

However, their efforts have not been heavyweight enough to make them

fully "zoku".

Other younger elements such as Eikiro Hata (Tanaka faction) and Katsuhiko

Shirakawa (Miyazawa faction) are being nurtured along but they are no

match for the threesome under the protective wing of Kanamaru.

Ozawa (1) is Construction and Hashimoto is Transportation

The construction zoku which has bgain returned to life due to the increase

in public works and increase in domestic demand is still one under absolute

control by the Tanaka faction through the major leaders Kanamaru and

Takeshita followed by Eiichi Watanabe (former construction minister),

Takashi Inouye (former construction ministry administrative vice minister,

Upper House). Through a division of responsibilities: roads-Kanamaru,

Housing-Watanabe, they have worked to divide up the public works budget

heretofore while in many sectors financial routes have been left for the

big boss Kakuei Tanaka. In the other factions, current construction

minister Mitsuharu Amano (Nakasone faction) and former MITI minister

Hajime Tamura (Abe faction) have a limited area of defenses but overall

aging cannot be denied.

At that point it is said that Kanamaru and Takeshita have designated Ichiro

Ozawa to be the successor. Their strategy is to follow Ozawa with Kenzo

Muraoka and Kishiro Nakamura.

In the Nakasone faction a successor-like person to Amano resides in the

person of Takami Eto (former construction minister) and there is some

indication that they are trying to nurture Takeshi Noda and young Yoichi

Tani. In the Abe faction there is a move on to place Hidenao Nakagawa

in position but this is not yet definite.

Within the framework of the construction ministry budget the "Sewer

system" which is an indication of an independant nation is still a

21
monopoly area of Hajime Tamura (current MITI minister, Tanaka faction).

Besides hosting the gathering of the "Friends of water association" which

is a gathering of concerned Dietmen, individuals such as Jushiro Komiyama

(former postal services minister, Tanaka faction) and Kazuo Shioya (non

affiliated) have been placed in key related positions and further efforts

are being made to solidify their concessions.

In contrast to the strongholds of the Tanaka and Nakasone factions in

commerce and industry, postal services and construction, the Fukuda and

Abe faction strongholds were heretofore the transportation zoku.

Among the groups of the transportation zoku there is one known as the

"Red Prince Association". It is an association that continues basing its

strength in the Prince Hotel in Kioicho, Akasaaa. The zoku Dietmen

normally conduct liaison with each other through Takashi Hasegawa (former

Transportation Minister, Chairman of the National Railways Basic Problems

Research Council), Kichizo Hosoda (former Transportation Minister, Chairman

of the National Railways Basic Problems Research Council), Kichizo Hosoda

(former Transportation Minister), Mutsuki Kato (current Minister of

Agriculture, Forestry and Fisheries), Masajiro Shiokawa (current minister

of education), Hiroshi Sanzuka (former transportation committee chairman),

all Abe faction members. In the other factions there are only Hikosaburo

Okonogi and Tokuo Yamashita. This group is attended by the Administrative

Vice Minister of Transportation, the various bureau directors, councillors

and from the National Railways, the director general and all members of

the Board of Regents class. It would not be in error to say that all

transportation related policy matters were, for the most part, settled

on by these members.

However, even here a new wave has moved in. One reason is the "June 3

war" between Kato and Sanzuka which dissipated the strength of the Abe

faction, but even more important is the fact that Nakasone appointed

Ryutaro Hashimoto (Tanaka faction) to the post of Transportation Minister.

Kato, who was retained in the post of Minister of Agriculture, Forestry

and Fisheries, in his first utterance is said to have blurted out with

The fortress I have built is going to,crumble." It is clear that

Nakasone had made inroads into the Fukuda-Abe power of the Transportation

zoku.

As expected, the personnel actions of the new National Railways Corporation

were handled by the Nakasone and Hashimoto combination. Added to these

were Okonogi and Yamashita while the Abe faction was practically completely

left out. It is true that there is much talk within the Abe faction

having to do with obtaining concessions but Hashimoto makes no attempt at

reorganization of the Transportation zoku by attacking the chinks in its

armor.

We cannot talk without mentioning the one other "zoku" with which Hashimoto

is involved, the Welfare-labor zoku. This zoku is also on the verse of a

generational change.

22
With experience as a Welfare Minister, Kunikichi Saito (Miyazawa faction),

Masami Tanaka (Abe faction), Torao Ozawa (Tanaka faction) and Ryutaro

Hashimoto are called the "Four Emperors of Social and Labor." "Not only

can there be no movement or change in welfare policy matters unless they

are weighed by this meeting of four bosses" (according to a welfare

ministry official) but these four have come to have considerable influence

even in personnel appointments in the Welfare Ministry. But a change in

the power balance among these four emperors came about as a result of

the "Health Insurance Diet Session" in the fall of 1984. Ryutaro

Hashimoto, using the power of the then chief of the General Council, moved

to make adjustments with the Japan Mecical Association and the opposition

political parties to materialize the revisions in the health insurance

law sought by the Welfare Ministry. His personal strength, be that as it

may, with Saito and Tanaka aging and with Ozawa having been succeeded,

the position of boss can be said fell naturally into the hands of

Hashimoto.

Conversely, Hashimoto is trying to effect the following. Gathering together

Yuya Niwa and Takuj iro Hamada of the Miyazawa faction and Sukenari Nagano

of the Nakasone faction he has convened a Dietmens' study group for medical

and environmental health matters and has embarked on nurturing a youthful

group. There is evidence in the group that factional considerations

were taken into consideration.

As far as social-labor zoku are concerned, such elements as Saburo Toita

(Tanaka faction), Juro Saito (Tanaka faction, current Minister of Welfare),

Masakata Tozawa (Miyazawa faction), Jitsuo Inagaki (Nakasone faction)

are eyeing to be the next power elements.

Room for a dark horse in Tax Research

In the past, along with the commerce and industry and construction zoku,

the agriculture and forestry zoku were said the form the three legs of

the three most lucrative of zolis but a layer of this lucrativeness has

now been striped off.

In contrast to the powerful elements comprizing those who came through

the agriculture, forestry and fisheries ministry ranks such as Tokutaro

Higaki (former Postal Services Minister, Nakasone faction), Taichiro

Ikawara (Tanaka faction), Hyosuke Niwa of the General Agricultural Policy

faction (former director general of National Land Agency, Komoto faction),

Michio Watanabe (former finance minister, Nakasone faction), such

individuals as Tsutomu Hata and Koichi bato (deputy chief, Policy Research

Council, Miyazawa faction) and Tokuichiro Tanmazawa (Abe faction) have

come to the fore. Added to this is Takami Eto and the group is often

referred to as the Agriculture and Forestry Eight Man Group. However,

there are others such as Motoji Kondo (Miyazawa faction), Kosuku Hori

(Tanaka faction) and Tadamori Oshima (Komoto faction) who are surging

into prominence. Constituting the backbone of these individuals'

maturization is the awareness that subsidy administration alone will not

sustain future agricultural policies.

23
Zenko Suzuki still remains the ultimate power in the fisheries zoku

which is closely allied to the agriculture and forestry zoku. Under his

sphere of influence in the same Miyazawa faction are, Fumio Abe, Fujujiro

Kikuchi and Genjiro Kaneko. However, due to the resistance of Koichi

.Hamada, aka Hamako (non affiliated) and Muneo Suzuki (non affiliated) the

new generation's war over concessionary rights is believed will intensify.

While it is different from a dividing up of responsibilities, education

zoku has a relatively high degree of unity. This is because when it comes

to a showdown with the Japan Teachers' Union, all members,.as one,

becomes education hawks.

Even this education zoku has seen the demise of the Hirokichi Nadao and

Michita Sakata era and, in the past 1975 period the following six Dietmen

have come to exert their power, Toshiki Kaifu (former education minister,

Komoto faction) Takao Fujinami (former chief cabinet secretary, Nakasone

faction), Yoshiro Mori (former education minister, Abe faction), Takeo

Nishio (Miyazawa faction), Yohei Kono (former director general, Science

and Technology Agency, Miyazawa faction) and Hiroshi Sanzuka. The current

status is that this group is being chased by Yasushi Nakamura (Nakasone

faction), Kunio Hatoyama (Tanaka faction), Hajime Funada (Tanaka faction)

and Kazuya Ishibashi (Abe faction).

There are little concessionary benefits for the education zoku. However,

in terms of assistance to private schools, university guidance and school

lunch programs, there is an established route so they are not merely

being ornamental with their titles as "educational expertise"

At present, in the area which is said to be the most difficult to nurture

zoku Dietmembers is in the national defense area. As if to exemplify

this Asao Mihara's (former director general, Defense Agency, retired)

existence is big.

Last year, on December 4, a "Party to celebrate the new beginnings of

Asao Mihara" was held at a downtown hotel. For a retirement party it

was most unusual to have both the Prime Minister and the Party Secretary

General hurry to attend. Partly, it was due to the entreaties of Taku

Yamazaki (Nakasone faction) who claimed "We want Mihara's good offices in

the future." Not only in the area of waving the flag to get increases

in defense expenditures, there is no one better at making adjustments

within the government or in the LDP than Mihara. Perhaps it is to say it

was a vivid display of Mihara's prestige as a veteran of the Diet chamber

confrontations.

But the whole of the Defense Agency cannot be left in the care of Mihara

alone so there is a sincere effort in nurturing a younger group. Among

the core of the younger elements in the defense zoku are, besides

Yamazaki, Koichi Kato and Sohei Miyashita of the Miyazawa faction and

Motoo Shiina (Non aligned) who are at the head of the line. If we look at

settlement of the 1% parameter problem of the end of last year, the

government's evaluation of "the validity of arguments" is particularly

high as far as Shiina is concerned.

24
Now, finally, let us look at the financial zoku. Rather than to refer

to them as financial zoku, it is perhaps more appropriate to call them

"tax research zoku".

As it was clearly evidenced in the tax system revision work at the end of

last year, the LDP Tax System Research Committee, which is the main arena

of the tax research zoku, gained an absolute position of superiority over

the government tax research committee and has within its grasp the

authority over'decisions concerning even the minutest of details of the

tax. In contrast to the efforts of other zoku who have to engage in

battles to get budgets, the tax research zoku utilize to the fullest

their authority to reduce or exempt from taxes and are distributing

"subsidies at the revenues level." If we take up the example of sales

tax, whether a product is to be taxed or exempted is a matter of life or

death to the industry so, while the "vote" is a fearful thing, it can at

the same time represent a powerful political tool.

The LDP Tax Research Committee, because of the magnitude of its authority,

does not make internal personnle appointments, but rather, the authority

of the time influences the choice of the prime minister. Since the

establishment of the LDP, when, for the first time, Masayuki Fujio (Abe

faction) was reappointed to a third term as chairman of the Policy

Research Council, he forcefully pulled in Mutsuki Kato of his faction

as chairman of the Tax Research committee. This time Sadanori Yamanaka's

return to the chairmanship of the tax research committee is the result of

one clarion call by Nakasone. The position of deputy chairman is treated

as a cabinet level appointment and is in keeping with factual power

balances.

Yamanaka, along with deputy chairman Tatsuo Murayama and sub-committee

chairman Ganri Yamashita constitute the "Tax Research Triumvirate". At

the start of the LDP tax research discussion, the prime minister called

these three to the official residence and with gravity reminded them "Tax

system revision is my biggest and final work."

There are no others who carry more weight on tax matters than these

three. Nakasone was also well aware of this. Stated in. another way,

if the judgments of these three are in error, there is no one capable

of applying the brakes.

However, in this tax system revision deliberation, while hardly important

enough to stand near Yamanaka's footsteps, there were some young elements

who emerged trying desperately to make inroads. They were Nobutaka

Machimura, Koji Omi (both of the Abe faction), Takujiro Hamada (Miyazawa

faction), all second and third term electees to the Diet. However, there

is still a gap. Between these young elements and the veterans are

Yoshiro Hayashi (former welfare minister, Tanaka faction), Takeshi Noda

and Yuji Tsushima of the Miyazawa faction and Sohei Miyashita who will

likely become the core. The only thing is that since the tax research

personnel actions are so closely linked to the power relationships of the

time, there is a possibility for the emergence of a dark horse type of

entity onto the scene.

25
Those born in the Showwa era now hold, center stage

As a result of the recent Upper and Lower house double elections, the

political world has generally turned younger. The LDP zoku Dietmembers,

with the exception of the tax research zoku and a few others have all now

become persons who were born in the single and teen digits of the Showa

era. If we were to summarize; Kajiyama, Ozawa, Haneda and Hashimoto of

the Tanaka faction, Kato of the Suzuki faction, Sanzuka of the Abe faction,

Fujinami of the Nakasone faction and Kaifu of the Komoto faction are the

"neo-new leaders" who seek the leadership in the next era after the current

"new leaders" go their way. These neo-new leaders have gone their

individual routes in establishing zoku in areas of their particular

expertise and are now establishing bases of power for policy decisions

and mediation in power and authority struggles. In particular, Hashimoto

and the three others of the Tanaka faction are all directly involved in

the establishment of the Soseikai. They, by their participation in the

establishment of the Soseikai, created the wave within the LDP for a

generational change and through the power of Kanamaru and Takeshita at the

backs, became central figures as Diet zoku.

Both the government and industry in eyeing "post Nakasone" are sniffing

around in earnest as to who among the new leaders will have influence

and will work to place such individuals as coordinators for the Diet zoku

members. With a political generational change and with government and

industry working as one will create the emergence of new power leaders.

The only thing is that relying solely on the power of the new leaders is

equivalent to "Having the help of a great parent" and will not relate

to one becoming a power factor. Haneda and Ozawa comment on their success

by saying, "First of all, from the time we were first year Dietmen, we

appeared at all committee meetings and regardless of how seemingly useless

the task, we did our best at it. Next we study in at least two committees

and gain the confidence of those with whom we work. Confidence cannot be

gained by giving tips to everyone. Next, routes are established into the

Finance Ministry because the purse strings are held by the Finance

Ministry, don't you see."

The most important point is the ability to look over the entire situation

and catch the flow. Next is the ability to find the point of concession.

We could condense it down to having a feel for balance. Those individuals

who, when they get involved in one thing, are unable to see the whole

picture, cannot aspire to being a leader of the "zoku."

Whatever the case may be, some of the above will control the generation

following next generation of new leaders.

9980/9190

CSO: 4105/104

26
ECONOMIC

'JAPAN MONEY*IMPLICATED IN HIGHER YEN TREND

Tokyo SENTAKU in Japanese Feb 87 pp 78-81

[Excerpt] As a company gains more international competitive power,, it

acquires a surplus in the general account due to increased exports. As a

result, the price of yen increases. It is expected that the Japanese economy

will repeat this cycle for some time in the long run. When the trend of the

strong yen continues, the balance of capital will also run a surplus and

direct foreign investments will rapidly increase, which will in turn bring

about the "hollowing-out" of domestic industry.

What is restricting the Japanese economy even further is what is called

"Japan Money," or Japanese institutional investors. There is no doubt the

fact that Japanese large banks and large industries are turning into

speculative businesses, and the speculative selling of dollars is accelerating

the trend of the strong yen even further.

If this situation continues, the institutional-investors-a-traitors" theory

will soon appear, since "they keep manipulating stockjobbery without any

regard to the trouble that the Japanese economy is having."

Triggered by Life Insurance Companies "Hedging"

Let us first take a look at how "Japan Money" took part in bringing about the

highest price of the yen which was recorded on 19 January.

The trend of the strong yen—which reached the rate of one dollar bring equal

to 150 yen was brought about first by the high deutsche mark in Europe and

then by selling of dollars by Japanese institutional investors such as

life insurance firms. Both of them were the result of the energy which had

been saved since last autumn by the stabilized exchange rate of the yen.

The high deutsche mark, in fact, was a phenomenon taking place behind the

scene of the stabilized yen. With the worldwide surplus of money, investment

money is always seeking a destination. When the yen-dollar relations became

stabilized due to the agreement reached by Finance Minister Miyazawa and

Treasury Secretary Baker, speculative money had to go to the mark. However,

if the mark's price goes up, the relative price of the yen appears to be lowered.

This relative price of the yen made the yen unstable, which eventually

27
becomes the fact or for raising the price of the yen. Therefore, there is a

theaunstabLSyen?tUre ^ ^

exchan*e

""^ that the stabilized 7« creates

The same can be said for institutional investors. One factor which had

been stabilizing the price of the yen since last autumn was the demand for

dollars caused by investment in foreign bonds which was activated again

iSZTr lnStltÜJ

io

?

al Nestors, such as life insurance firms, .cannot usethe

abundant money which was collected and unable to be placed within Japan.'

M^! 5' 'S7 inVe,

St ifc in f

°

reiSn assets such ^ United States treasury bills. Roughly speaking, Japan is using for investments in foreign

mttZitXeS tht

Same amount of moneY that was earned from the trade surplus,

making a rough equilibrium between the inflow and the outflow of money.

Therefore as long as investments in foreign bonds, which transform the

yen into the dollar, are actively pursued, the fluctuation factor for the

exchange rate in terms of real demand should be neutral. The value of the

yen climbs when cautious institutional investors start "hedging" by selling

the" ZtlTr I"7f

e yen> thinkin8 that lt,S ri3ky in the lon§ to invest8

the dollar based assets. in

The current increased price of the yen was accelerated by this hedging. The

naked without exchange cover) investments in foreign bonds" which had been

supporting the stability of the yen's price are the potential factor

causing hedging. Here lies the structure in which stability becomes the

cause of the next cycle of instability.

Life insurance firms are irritated about the self-restricting conduct which

accelerates the depreciation of foreign bond assets that they have due to

the sales of hedges" causing the higher price of the yen. Due to the high

price of the yen since the year before last, life insurance firms had about 70

billion yen s loss due to the high yen at the March closing. This should

have taught them a lesson, yet, since last summer, with the impression that

the yen has reached the highest price it can get, they began active

purchase of foreign bonds again. Then came the second period of the high

yen. Those who are involved blame the monetary authority, saying "We

were^deceived by the Miyazawa-Baker agreement," but is it not a little off the

Someone in securities firms said, "When we buy dollar denominated bonds, the

interest rate is about 3 percent higher than the domestic bonds. Even if the •

price of the yen increases a little, the result will be about the same as

investing in Japan. If the price of the yen decreases, the attraction will

double. Since the annual interest rate for foreign bonds was around 40 percent

until the time of G5 in the autumn of the year before-last, the institutional

investors cannot seem to forget that taste."

A cautious investor would, at the time of buying foreign bonds, sell future

dollars._ This is a method to buy dollars with yen, then with these dollars,

buy foreign bonds, and at the same time, reserve in advance (a forward

exchange contract) to convert into the yen from the dollars earned as

interest payments of redemption. With this method, there is no danger of

28
losses caused by the difference in exchange rates, but the interest earned

will be just about the same as that of domestic bonds therefore, there is no

thrill.

Therefore, if you want "delicious investment," the only way is to buy bare

foreign bonds without exchange cover. "If you want a good investment, you

should first buy bare foreign bounds and, just when the yen begins to drop,

reserve the forward exchange contract (hedge). This way, you can have both

advantages of interests and exchange rates. But if you do hedging after the

yen becomes strong, it is too late. That will lock in the loss. However, if

you don't do hedging because you are afraid of losses, and if the yen becomes

even stronger,' that will be the worst. This explains why life insurance firms

and trust banks rushed into hedging to sell dollars." An exchange dealer said.

However, it is totally impossible to put hedges on all the foreign bond

investments of life insurance firms which totals more than 10 trillion yen.

First of all, if such a thing is done, the price of the dollar will take a

nosedive. Mitsuyuki Tsuchida, chairman of Life Insurance Association and

president of Meiji Mutual Life Insurance Co., says, "We have only done a little

hedging." Yet, life insurance money is gigantic enough that even a little

hedging can accelerate the trend of stronger yen.

Because of the high yen which was brought about by "a little hedging," the

overwhelming majority of foreign assets without exchange covers greatly

decreased. Here is a vicious circle in which an attempt to avoid a loss brings

about a bigger loss. The institutional investor, life insurance firms are

falling into a trap of self-destruction.

Top Earner In Banks

It is not just life insurance firms. Recently, even banks have transformed

themselves into speculative business, contributing (!?) to the enlargement of

the "contradiction" of the Japanese economy.

What changes stability into instability is the speculation in the exchange

market and the speculative movement of capital. During the current phase of

the strong yen, all speculators sold dollars, and a battle was fought between

the government which tried to maintain the yen's exchange rate in the foreign

exchange market and speculators who tried to gain profits by changing the

exchange rate. It was a fateful confrontation between the government, which

hopes for stability in light of running the country's economy, and those who

are involved in exchange transactions, whose business cannot go on with

stability. However, what is ironical is that even exporting firms and

institutional investors, who are supposed to be able to profit from the stable

yen or even low price of yen, transformed themselves into speculators and led

the way in selling dollars; such is the current conditions of Japan.

Although about the same amount of money as earned by exports is being

allocated to bonds in dollars mainly in the United States, each firm rushes

into selling dollars every day, thereby accelerating the trend of the

strong yen. And in this structure, they are depreciating their own assets in

dollars.

29
Take banks.for instance. Rearrangement and enlargement of dealing rooms have

become almost a fad not only in large city banks but also throughout

,w?Claf

CircleS

- *

n a

spaces room without any partitions, computer displays

showing foreign and domestic exchange rates and interest rates are lined

across the room. Dealing rooms are now the place where most profits can

be generated for banks. Since large firms began to stay away from banks due

to their surplus money, banks' preferred customers became small and medium

size enterprises. High income Bank employees are now diligently visiting

small and medium-size companies, but it is natural that this way their

profits are less than the time when they used to deal in huge loans with large

rirms. °

For banks, the traditional method of making profits from interest by loaning

money has come to lose profitability. Therefore banks are now focusing their

attention on the world of money game where they can make money by moving money

by themselves in the exchange and bond markets. In exchange transactions, one

million dollars is regarded as one unit, and normally 10 units are sold or

purchased at one time. With ten units = 10 million dollars, even if the

spread is only 0.1 yen, the return will be one million yen. In the traditional

business, in order to gain one million yen in profit, it was necessary to

collect savings of 100 million yen, find borrowers of the money, and wait for

one year.

In the money game, there are several such business chances every day. It is

therefore very suitable as work for workers with high salaries. Even if they

secure a spacious room in the most expensive area of Tokyo and equip the

room with computers and various terminals, the profits can easily cover the

costs.

Furthermore, in this business, unlike making loans, there is no need for actual

money. For each exchange dealer, a limit of buying and selling called "capital

position is given. Depending on their past achievements, some are given ten

units or others are given twenty, etc. Within this limit, they can buy and

sell freely. In the current phase of the high yen, the dealers' position for

selling dollars were expanded greatly, yet it is not that they are actually

using more and more cash. Even if they sell, they buy back by the settlement

day of exchange dealing. If they sell again, there will be a perpetual chain,

and no need for cash. It is basically different from exporting firms

earning dollars by exports and selling them in the market. It can be said

that as long as they keep selling and buying, banks will always have limitless

money for speculation.

The reason why banks received permission to have such "positions" was

originally to tide over the orders from customers. When there was very little

amount of dealing and the market was not possible to conclude the deal

immediately. Therefore it was necessary for banks in order to make deals

smooth m the market; but as the market matured, the "positions" became

independent and have now become a powerful weapon in the money game.

There are two kinds of banks* exchange dealers. They are: the customer

dealers who connect customers' order with the market, and the dealers who

30
estimates the selling and buying rates on their own using their "positions."

The big stars are those dealers who can decide the rates on their own with

"positions." They are. the directors of the money game and at the same time

the biggest money makers in banks.

With One Firm, Power Is As Great As Bank Of Japan's Intervention

Recently, those who can decide selling, .and buying rates on their own using

"positions" are not just bank dealers anymore. In April 1984, "principles of

real demand in foreign exchanges" was abolished, which made it possible to buy

and sell without any endorsement for the exchange transactions with foreign

currencies, such as settlements and remittances for imports and exports.' This

was the lifting of the ban on exchange speculations in Japan. This was timely

with the trend toward the free economic structure and deregulation of the

exchange market. Since then, one organizational investor after another, such

as trading firms, manufacturers, life and casualty insurance companies, began

to participate in the money game. It is said that the money spent in

speculation daily is about 150 billion dollars.

Take exporting firms for instance. The strong yen since the year before last

gave the strong impression that the role of leader in the exchange market

shifted from banks to general firms and institutional investors. The house

hold electric appliances manufacturers Sharp Corporation, which is called "the

champion of western," Japan opened a dealing room within the main office in

Osaka in February last year and began exchange dealings on a full scale. Since

the company received a severe blow in their exports in the previous year due

to the low dollar and the high yen which were brought about after G5 meeting,

they thought of making up for the loss with exchange dealings. Opening a dealing

room immediately was just a decision that Sharp Corporation is likely to make,

since they have always been sensitive to exchange transactions. If they

lost due to the strong yen, they think of a way to win due to the strong yen.

Not only Sharp Corporation, but most of the Kansai region companies acted quickly,

too. "We are not engaged in exchange speculation. We do participate in the

market, but we do not consider ourselves as participating in buying and selling.

We are merely reserving forward exchange contracts as a means to cope with

the strong yen trend," says Sharp Corporation, which dislikes very much

the idea that they are regarded as the contributor to the high yen through

their speculations.

However, the bank employee who receives orders from Sharp Corporation said,

"Sharp is a very aggressive buyer and seller. When they think it is the right

time, they give us substantial orders. We can feel their intention to lead the

market." It is said that the amount of capital that Sharp is investing in the

market is quite large, and it is becoming conspicuous as a "big player" in the

market. Those who are knowledgeable about the market say that the remarkable

performances of Sharp Corporation in the market owes greatly to a young in

charge of stockjobbery, Mr. Masaaki Sakura, a chief clerk in the capital

division.

The house hold electric appliances industry is one of the typical industries

whose performances are deteriorating due to the strong yen. Such firms buy

and sell in the market, being fully aware that they themselves are contributing

31
to the trend of the strong yen. This contradiction itself is the clear picture

of their self-destructive conduct. p

ySuUdoSaftrL

C

^?wrati0n;,SOm!

Pe0ple Say' "Buying and Sellin§are not something

Inn^ 8 Wlth °

therS

-

Xt iS n0t something that you decide after

consulting your superior. It is better to leave everything up to intuitive

young people. However, the company may feel a little uneasy this way.

Sharp Corporation is doing.well in this respect, but we are not sure how they

will do m the future. ..Right now, Sharp Corporation itself is separating

principles and reality and letting young people buy and sell freely. But

noteiiJp tl?a7

StftSt

° P

Ut restrictions on them-because the company does

?n\llkV

he ld<:a of being regarded as a speculator-it may become difficult

to keep doing what they have been doing."

»?h!hY

ther hat' in a Steel trading flrm'Hanwa Industry, which is considered the champion of east in Japan," the president himself, Mr Shigeru Kita

(61 years old), stays in the dealing room all the time and takes an active

part m buying and selling. Therefore there are few problems within the

company. President Kita says, "The other day, an executive from Merrill Lynch

the biggest securities firm in the United States, came to visit us, and said

it is just like companies in the Unites States in which the president

participants in buying and selling.' This is too difficult a job to handle

unless you are m the position with responsibility." The field of exporting

***l- u !

n

°^lginally closely related with exchange transactions. In

addition he has had experience in commodity speculation such as in shrimp.

Therefore he seems to be a quite intuitive stockjobber. At the highest, the

amount of buying and selling sometimes reaches nearly 10 billion dollars.

Therefore this company has as much power as the Bank of Japan.

Tokyo Market Surpassing New York

Sharp and Haswa Neither of them is an unusual case. It's becoming a common

pattern for sophisticated financial management, and companies which are ready

to follow the see champions of the east and the west are increasing rapidly

wiUUbe°born ^^ AS the SCOpe °

f the mone

y W expands, more new stars

This is all based on Japan's surplus in general current accounts, and also the

excessively high savings rate compared with other countreis. As long as

capital flows into institutional investors, Japanese speculators, in other

words, Japan money, will keep expanding.

It is said that the Tokyo market has already surpassed the New York Market in

terms of size. This is because the (volume) is rapidly (increasing). According

to a .survey last March, the (volume) of the Tokyo foreign exchange market was an

average of 48 billion dollars per day (including direct dealings among banks).

It has not yet reached the size of the London Market, 90 billion dollars

yet it is very close to the New York market, at 50 billion dollars. This

survey, the Tokyo market had only 12 billion dollars, while New York had 26

billion dollars. With such a rate of growth, it is not surpricing if Tokyo

has surpassed New York by now. This is because participants in the market are

increasing very rapidly.

32
However, with abundant capital in the background, if the price of yen goes

up further in the long-term high yen, low-dollar trend, the Japanese economy

will be damaged, this is the most absurd thing I've ever heard. Are there any

good means to stop this vicious cycle of the self-destructive Japanese economy?

As often discussed, there are two methods. One is to expect the United State's

economy to recover. If that is not possible, another way is for Japan to have

'a little break" for a while. The "Maekawa Report" was provided as the

prescription for that. However, the "structural reform" which was proposed in

the report cannot be realized overninght just because it was declared to the

world. Although the policy was made, the current situation is that before it

is carried out, it's carried under the high yen and the low dollar trend.

In spite of the well known fact that the rapid rise of the yen severely damages

Japan's economy 'Japan Money' is still uncuntrolled today.

12545/12951

CSO: 4106/091

33
ECONOMIC

POSTAL SAVING SYSTEM SAID HEADING FOR DECLINE

Tokyo SENTAKU in Japanese Feb 87 pp 68-71

wilfL

A

h

t6

^

S

i°°-year htf

tor

y

of tax exemption, interest on postal savings

will not be taxed as a result of the current tax reform. How will taxing this

lar^sTn f

£Cf ^ ^mmoth Postal saving system, which boasts lie world's

w rSii funds"

107 Million yen of savings deposits? The Ministry of

Finance [MOF] maintains that the postal saving system will be on equal footing

In* f?om tllr "? ^ ^^ ^

UOt be great because the s

^em of exemptbe abolLhedT °

n

,5n

1

tereat e

f

rned °n

«"* deposits in private banks will also

the n°ii^ Nevertheless, taking a wide view, one can see that the growth of

to shrink' SaVXnS SyStSm W±11 Sl0W'

and ln thS l0ng run'the W«» «111 begin

Pointn8n«

a

ntat-?

he h±St0r7 °f thS P

°

Stal SaVing S

?

St from a

future vantage

111 5«! ?

P

i *

recogn±ze that the s

began to set on postal saving when the tax-free-interest system was abolished in October 1987.

MPT Leaders Optimistic

n^'vf the enl°f la^

year'the LDP'S Tax S

^

stem ^search Commission (Sanda- nori Yamanaka Chairman) formulated the fundamental principles of "the first

drastic tax reform since the 'Shoup Recommendations [of 1949]'" and the Sal

decision was made to abolish the system of tax exemption for interest on oostal

savings and time deposits in private banks (interest will remain tax-f^ee^or

So ST ir1Udin8 ?" 6lderly and the Physically handica'ed) the leaderfaces! Stry °

f P

°

StS 3nd Telecommunications [MPI] showed two dirferent

It was with a sad face that Posts and Telecommunications Minister ShuniirS

Karasawa expressed regret at a press conference saying, "We did Lt have the

do^Sf V

aVe thS 100-year-old, tax-free-interest saving system' I really

1Z WT h°

W t0 apologize to al* those who use the system." Itlppears thL

:rrr^rrrräSTt^—; H

stances under which the abolition was finally pushed through-for example

Mr Shin Kanemaru, the MPT's last ray of hope, was hospitalized at theclimas

of the controversy-Minister Karasawa's statement contained no falsehoods

34
But on more private occasions, the faces of Vice Minister Shigeo Sawada, Postal

Savings Bureau Chief Taizö Nakamura, and other leaders of the MPT were radiant,

like those one would expect of victors. The reason is that, in return for

accepting the abolition of the tax-free-interest saving system, the MPT won the

following: (1) autonomous control of some postal saving system funds, (2) an

increase in the limit on the amount of money which can be deposited in a postal

savings account (from the.present 3 million yen to 5 million yen), (3) an increase in the amount of money which can be loaned to a depositor by "Yüyü"

loans (from 1 Million to 2 million yen) ["Yüyü" loan: postal saving system

loan made automatically to a depositor to cover an insufficient balance in the

ordinary deposit account, secured by time deposits], (4) permission to sell

national bonds at post offices, and (5) permission to make loans secured by

national bonds.

Obtaining the authority to autonomously control postal saving system funds is

what brought the greatest joy to the MPT leaders. As is commonly known, no

matter how much money the MPT collects, it must turn over all that money to

the MOF's Trust Fund Bureau. The MPT, consequently, has had a "just-an-agencyto-collect-money complex;" autonomous control of funds is an answer to many

years of MPT prayers.

In 1987, the MPT will manage 2 trillion yen (1 trillion of which must be used

to underwrite newly issued national bonds). After 5 years, the figure will

have grown to 15 trillion yen. In their hearts, the leaders of the MPT no

doubt shouted for joy.

Other items than the autonomous control of postal savings funds, such as raising

the limit for loans and sale of national bonds at post offices are what MPT has

been strongly asking for many years. MPT calculated that even if it had to

sacrifice the tax-free-interest saving system, it would still be much better

off as a result of its gaining, in a single stroke, so many things it had

wanted.

Although the expressions on thier faces were grave, in their hearts the MPT

leaders were smiling with .glee. More than a few people think that the current

tax reform has ended in a strategic victory for the MPT. With the funds it

will control, it would not be impossible for the MPT to dominate the bond

market if it seriously wished to do so. The MPT could also replace the life

insurance companies and trust banks as the dominant force in the foreign bond

market. If the MPT bureaucrats, whose prayer has been answered, come into the

bond markets aggressively as if they were going to vent their long suppressed

desire, MPT could become the largest "institutional investor." A view that

MPT could become a threat based on the above assumption has been whispered.

Furthermore, there are people who are wary that the opportunity presented by the

approval of loans secured by national bonds and by the approval of the increase

in the limit on "Yüyü" loan size will result in a serious effort to loan money

through the postal saving system. Those people fear that if the 22,000 post

offices in Japan all at once start trying to make small loans, private financial

institutions, like credit associations and banks will not be able to compete

with them because of their great number and will sustain serious damage.

35
Same Tax on Interest Wherever One Deposits

Assuming that tax on interest is the same wherever one deposits, people conclude

that the postal saivng system will grow still larger. Some have even gone so

tar as to assume that, freed from restrictions and using all kinds of advantages,

the postal saving system may completely change the existing financial system.

But will that really happen? The answer is "no." The view that the postal •

saving system poses a threat overlooks two important points.

The first is the breakdown of "demarcation system." The present system of

tax exemption for interest earned on small saivngs actually forms the framework

of the demarcation system supported by different financial institutions. A

saver is permitted to deposit only up to 3 million yen in the postal saving

system. A 3-million-yen limit also exists for both the time deposits in private banks on which the interest earned is tax exempt [maruyü system] and

national bond accounts on which the interest earned is tax exempt [special

maruyu system]. For this reason, people who want to take maximum advantage

of tax-free interest saving must divide their savings. As a result of the

current reform, however, interest will be taxed separately from other income

at a uniform rate of 20 percent. Consequently, there will no longer be any

reason to divide one's savings.

This change is extremely important. Because the tax on interest will be the

same no matter where one saves, tax saving services will no longer be needed.

Sv^uslv^r the faCt°

r Wh±Ch determin

es where people put their money. Obviously, it is more convenient to concentrate one's savings in a single location than to go to the trouble of dividing them among several.

llTr.T !

ieWp°int °f

convenience, it seems highly probable that funds will

concentrate m financial institutions where many people have accounts into which

their salaries are deposited directly by their employers. In fact, there are

some city banks which are carrying out important campaigns whose theme is that

increasing the number of such salary deposit accounts is the post-maruyu measure.

In other words, it is highly likely that abolition of the tax-free-interest

saving system will, in various ways, break down the demarcation system which

coLef? t

eion oef ? ,S °f

^ """S^ °

rder ^W±11 brln*ab°Ut a new ^ of concentration of funds. A comparable phenomenon is the change in the retail

whiSTn t

he tlme

, I

hen Sma11 Sh°PS Were the »*** outl*ts to the period in which supermarkets and department stores are more important.

p'ered'bfthel £?? -

Chan8e' ^P

°

Stal SaVlng SyStem W±11 COntinue t0 be *am- 5! I^V 5-million-yen-per-person limit on the amount of money which can be

.To I t

Xn a

P°Stal acCount- ***» li*it will remain as an important difference between the postal saving system and private financial institutions. There

is no such limit on accounts in private institutions; in such accounts a person

may deposit as much money as he or she wishes. Regarding this dirference the

leaders of the MPT maintain that the increase in the limft on dejosits to

-Ä ^tlllf^rl! deal With ^ ——- POS

tStalt0

saving

36
Nevertheless, the 5-million-yen limit on postal deposits is not a small disadvantage when several factors are considered. For example, the average Japanese household has over 7 million yen of savings, and, contrary to the MPTr

s

explanation many people using the postal saving system have large savings. It

is not realistic to think that the postal saving system has been set completely

free.

Some people hold the opinion that, in reality, there is no limit on postal savings deposits. .These people think that since it is hard to believe that the

limit has strictly been observed, it will make no difference whether a 5-million

yen limit remains or not.

Perhaps there is some truth to their argument. But the imposition of the uniform 20-percent separate tax on the interest earned on postal savings deposits

menas that the postal saving system will have to accept auditing by the National

Tax Administration Agency. In principle, after the tax exemption for interest

earned on time deposits in private financial institutions is abolished, tax

audits of savings in private financial institutions will no longer be carried

out. Even going so far as to use a fictious name should present no problem for

a saver. The postal saving system will probably not be strictly audited either;

nevertheless, for persons whose postal savings deposits exceed 5 million yen,

there still will be a possibility of being discovered violating the law. The

psychological effect of knowing this cannot be ignored.

The Interest Rate Liberalization Storm

The second point overlooked by the view that the postal saving system poses a

threat is the effect of financial liberalization. Within this area, liberalization of interest rates on small savings is of crucial importance. So far, little

progress has been made in liberalizing those rates in spite of much carrying on

about the need to do so. The reason is simply the existence of the tax-freeinterest saving system. Accounts under this system hold over 60 percent of

personal financial assets. As long as the system remains, progress in liberalization of interest rates on small saving is extremely difficult.

But, because the tax free interest saving system will be abolished this October,

most of the financial world thinks that liberalization of interest rates on small

savings is about to make rapid progress. Yoshirö Araki (President of Fuji Bank),

president of the Federation of Bankers Associations of Japan, has said, "The

abolition of the maruyü system is closely connected with liberalization of interest rates. If the heavy weight of the maruyü system is removed, liberalization

of interest rates will make rapid progress. Considering the example of the

United States, it seems possible that interest rates on small savings will be

completely liberalized 2 years from now in the spring of 1989."

Rela competition will finally occur among financial institutions. Only the fit

will survive; unprofitable institutions will be weeded out by mergers. Soon

after interest rates were completely liberalized in the United States, financial

institutions competed fiercely with each other raising interest rates paid to

depositors. Banks which could not compete successfully disappeared one after

another. Now, even huge Bank of America is on the verge of a crisis.

37
The question is whether or not the postal saving system will be able to pay

o3°"f°? rateY

f interest competitive with the highest rates paid by

private financial institutions. If interest rates on postal savings are low

yinVhlgher rSL^S«'^ T^ *' "^ ^ * ^ Stations

petittve rates? P°

Stal SaVing S

^

stem hav

e the ability to pay comSe^J11 U tttmT I

7 the/ield °n the deP°sits autonomously controlled by"'-

w?n si' J ? MPT succeeds m earning high yields, the postal saving system

will be able to pay depositors interest rates equal, or even superb to ItT

highest rates paid by private financial institutions. suP

erior, to the

lie; ^e^Sli"^ Tfi0n^

f aut°nomous c

°

nt l. As was mentioned earner, tue MFT will control 2 trillion yen in 1987 But- i MIH „ - u

to underwrite newly issued national bonds; ?h^ rLaning 1 trinion" the6 "

amount the MPT will really control. The amount controlled ly IIIMPT will increase every year. In fiscal year 1991, it will reach 15 trillion yen of which

kL'ö^s^ää b

be av:n

K

ble to the ^-^to invest

- * Wishes Utie other half will still have to be used for new issues of national bonds).

theWveildSon^hhat the Pf

tfoli° assembled by the MPT officials will determine

should be Pitted W* ^ ** J*6"

that ^comPletely «afe investments snouxa be permitted because postal savings deposits are the treasure nf nr^

"tZsllllV. Ia '"'"• the WT hSS "—control-In"^ saf^

theTse/Srlf U^°nS "

e mUCh £rMr thM the «** " i»vest funds ,s

two parties are forced to compete in the same ring the outcome is quite obvious.

MPT Postal Savings Bureau Chief Nakamura confidently says "Ther* i<= * » • •

deposits, and we will be able to cope with liberalization » f

say so? -Lioeraiization. But can we really

paying hisherCi»:»r " rail" „°^ °^rÄ"

hlCh "" T"1

""

f

"

5=S.-,• . SSL-yäSK.!£S=JSS="

38
Momentous Change Coming in 1990

When will the sun begin to set on the postal savings system? To be brief, in

the spring of 1990—for that is when fixed amount postal deposits [teigagaku

yübin chokin: postal deposits in. multiples of 1000 yen which can be withdrawn

any time after 6 months or left deposited for up to 10 years] deposited in 1980

will reach full maturity. Nineteen eighty was a time of extraordinarily high

interest rates in Japan when an annual rate of 8 percent was paid on both fixed

amount postal deposits and bank maturity designated time deposits [kijitsu

shitei teiki yokin: way of saving introduced by private financial institutions

to compete with fixed amount postal deposits; deposits can be withdrawn any

time after 1 year on a month's notice; maximum period of deposit is 3 years].

Maturity designated time deposits which is the longest of any kind of bank deposit, is 3 years and no bank time deposits deposited in 1980 reamin today.

In contrast, because fixed amount postal deposits take 10 years to mature fully,

such deposits take 10 years to mature fully, such deposits remain from 1980.

The controversy over the green card system [a proposed system by which cards

would have been used to prevent savers from evading taxes on interest earned on

savings exceeding the tax-free-interest limit] triggered explosive growth in

postal savings deposits in 1980 that is still fresh in our memory. Although

there is no accurate date, it is said that 80 percent of postal deposits are

fixed amount deposits, a considerable portion of which was deposited in 1980.

There is no doubt that the amount in question is on the order of several tens of

trillions of yen.

These fixed amount postal deposits will reach maturity in the spring of 1990

when interest rates will be fully liberalized. At that time, if the rates

offered by the postal saving system are lower than those offered by private

financial institutions, there will be no way to prevent a mass exodus of postal savings deposits.

Last fall, the British financial world was shaken up by relaxation or abolition

of regulations covering securities trading. For this reason, the deregulation

was called "Big Bang." If the Japanese financial order is to be convulsed by

a "Big Bang" of its own, it is highly likely that it will be the exodus of

funds from the postal savings system in the spring of 1990.

The decline of the mammoth postal saving system will have a variety of effects

on the flow of funds in Japan including an effect on the Fiscal Investment and

Loan Plan. Saving patterns of individual savers will be affected too. Nevertheless, rationally speaking, it seems a welcoming event.

In business and finance, it is by no means healthy when government enterprises

grow huge and oppress private ones. This has been pointed out again and again

by the Ad Hoc Committee on Administration Reform and the Postal Savings Discussion Group. The ideal is that government enterprises should not go beyond providing what private business does not.

There is no doubt that anyone would disagree with this ideal. But the changes

in the financial system should be as gradual as possible. The abolition of the

39
tax-free mterest saving system will be trial for the .postal saving system It

IT T

th/\r1±C±eS bS ad°Pted WhiGh enSure that ^e scale of the system xs reduced gradually rather than suddenly until it is carrying out its proper

Wtxon whxch is filling ln gaps around private flnanc±2 institutions 'it

xs desxrable that the MPT authorities recognize this as the proper function

13336/12232

CSO: 4106/098 . END

40