After Koizumi

Victory lap or no, its not surprising that Koizumi should feel satisfied as he coasts into semiretirement (though stepping down as Japan's leader, he plans to retain his parliament seat). Few Prime Ministers have so thoroughly dominated Japanese politics and defined their era. For better and worse, Koizumi's impact on Japan's domestic politics, international relations and its economic environment will be felt for years to come. Before he unexpectedly took office in 2001, Japan had churned through 10 Prime Ministers in 12 years. Its economy was stagnating, its foreign policy aimless. Since then, however, Koizumi has ruled with a remarkably consistent vision that has buoyed his popularity at home and boosted Japan's profile abroad. He has presided over an economic revival, and spearheaded the most ambitious foreign-affairs agenda of Japan's postwar era, including his dispatch of 600 troops to southern Iraq in 2004—the first time a modern Prime Minister had sent Japanese soldiers abroad without a U.N. sanction, and an epochal moment for Japan. Last week, US ambassador Thomas Schieffer told a group of American journalists: "I don't think there is any question that the Japan of today is different from the Japan of five years ago. Leaders make a difference, and the proof of that is Koizumi. Under Koizumi, there was a fundamental change." Now Japan has turned its attention to the future. How many of the changes Koizumi wrought will prove lasting? Who will succeed him? Will they attempt to continue his vision or forge a different path? Amid such uncertainty, only one thing is clear: Koizumi will be a tough act to follow.

THE POLITICAL SCENE
Koizumi changed the way that Japanese politics was played. When he first came to power, with grand plans and tough talk about structural reform, he was a new and strange kind of Japanese politician. He spoke directly to the people, relying more on his image, ideas and popular support than on currying favor with party insiders. That gave him the independence that enabled him to boast he would pursue his structural-reform agenda "without sanctuary," even if it meant destroying his own LDP, which had long been wedded to the pork-barrel politics he was assailing. In some ways, the LDP's old-boys network was more resilient than expected, making Koizumi's reform record decidedly mixed. But he managed to hold on to power (he will retire as the third-longest-serving Premier of the postwar era) by never losing his popular support.

Superficially, his impact on politics was enormous. After Koizumi's initial success, the LDP and its rival, the Democratic Party of Japan (DPJ), started hiring American public-relations firms, image consultants and campaign managers. They pushed younger, better-looking candidates to the forefront, reminding them that dandruff and ill-fitting suits turned voters off. But for all the image burnishing, few genuinely charismatic leaders have emerged in Koizumi's wake. "No one there now can bring the razzle dazzle the way he could," says Jeff Kingston, a professor of history at Temple University's Tokyo campus. "While campaign styles have changed for good, without his independence, you'll probably see the factions make a small comeback." Koizumi's departure will provide the DPJ its best chance yet to become a credible opposition party. Though pundits have long been predicting the dawn of true, two-party politics in Japan, the DPJ has been consistently stymied by both its own disorganization and voters' overwhelming endorsement of Koizumi. Now one of those obstacles is out of the way.

REFORMING THE ECONOMY
Japan's overall economy has brightened considerably under Koizumi's watch. The Nikkei stock market index is up 66% over the past three years, Japan's GDP grew at more than 3% last year and there are signs that the country's five-year-long bout with deflation may at last be at an end. Upon taking office, Koizumi and his financial czar, an academic economist and political outsider named Heizo Takenaka, called for a dramatic liberalization of Japan's stagnating, overly centralized economy. His agenda has had some clear successes—corporate balance sheets have been cleaned up, the big banks' mountainous bad loans have been reduced, and the corporate-tax code has been tweaked to encourage entrepreneurialism. A new law that went into effect in May makes it far easier and cheaper to start a business from scratch.

But here again, Koizumi's record is mixed. The LDP's old guard watered down or postponed initiatives in pensions, highway planning and health care. Take their success at sabotaging highway-privatization reform, after years of grinding debate. The government announced in February that most of a 1999 plan to build more than 9,000 km of expressways will go ahead as scheduled, even though a panel determined that some 2,000 km of it may not be financially viable. Jesper Koll, chief Japan analyst at Merrill Lynch in Tokyo, doubts that Japan's lawmakers will muster much enthusiasm for more change once its primary cheerleader is gone. "This is the end of a golden era of pro-market reform," Koll says. "Koizumi was an outsider who looked for new ways to tackle problems. All of his possible successors, every single one of them, are insiders who always go to the same old people for economic advice. Koizumi's as good as it's going to get on that front for some time."

Towards the end, even Koizumi seemed to lose his taste for constant battles. After all, just to pass his most dearly held pet project—privatizing Japan's gigantic postal-savings system—he had to wage war on his own party by dissolving parliament, calling for snap elections last year and running handpicked candidates against LDP members who opposed him. The gamble paid off, but full privatization won't take effect until 2017. And after Koizumi's election victory, the predicted avalanche of other reform legislation never materialized. Proposals to amend Japan's pacifist constitution and upgrade its defense forces to a full-fledged ministry—once Koizumi priorities—both died as the Diet went into recess. "I think, in the final months, he just got tired of fighting," says Mamoru Yamazaki, an economist at HSBC in Tokyo. In late May, Kaoru Yosano, the very definition of an old-fashioned LDP man, took control of a new government economic council that has replaced the one that Takenaka had once led. Takenaka's dismay was palpable. At a press conference, he said, "The council was once an engine to promote structural reform. But now it is ... a forum that merely expresses the opinions of its members."

Whoever succeeds Koizumi will have to wrestle with some troubling consequences of change. As industries have streamlined, many of the perks of Japan Inc.'s longstanding paternalism have disappeared. Lifetime employment is no longer a Japanese birthright, widespread layoffs are common, and income disparity is on the rise. These developments have unleashed a widening conviction that Japan is losing its supposedly egalitarian roots and turning into a nation of haves and have-nots. It's a phenomenon that Charles D. Lake II, the vice chairman of Aflac Japan and the president of the American Chamber of Commerce in Japan, calls "reform fatigue." Lake warns that cultural alienation from what is sometimes now called "Koizumi's market fundamentalism" or Japan's new "winner-take-all society" may be far larger than most people appreciate. He points to the popularity of a book called The Dignity of a State. Authored by Masahiko Fujiwara, a university mathematician, the slim volume is ostensibly a nostalgic call for Japan to return to its traditional virtues. But it's also an emotional attack on free markets and globalism, which the book describes as "a system that clearly divides society into a minority of winners and a majority of losers." The Dignity of a State has sold 2 million copies since last November.

Sadakazu Tanigaki, the finance minister, and a long shot for the next Prime Minister, admits that Koizumi left a number of pressing financial concerns unaddressed. Japan has a fiscal deficit that runs at about 6% of GDP, and a national debt that's 160% of GDP. One day, it is going to have to raise taxes to meet the expectations of its aging population. Tanigaki has been a lonely voice in pointing out this unpopular truth. The problem of finding a stable system of social security, he told TIME, is one "that we will have to solve post-Koizumi."

THE FOREIGN-POLICY MAN
Koizumi came to power trumpeting a new domestic agenda. Yet ironically, he will probably be most remembered for his bold departures in foreign policy. Watching the seemingly inexorable rise of China, Koizumi made a strategic decision to tie his country's fortunes more tightly to those of the U.S. than ever before. Under Koizumi, Foreign Minister Taro Aso recently said, Japan's strategy has been "to build strong relations with America and, based on this, deepen relations with other nations." It's been a policy marked by boldness. Koizumi's decision to send the troops to Iraq paid off; the Japanese neither suffered nor caused a single casualty. But many people in Japan, already concerned that their nation is dependent on the U.S., worry that too strong an alliance may alienate other potential friends. In its global hunt for oil, for example, Japan has drawn rebukes from Washington for being too close to Iran. Japan consumes 22% of Iranian oil and its $1 billion project to develop Iran's giant Azadegan oilfield has been a point of irritation to the U.S. government. Sentiment in Japan is still more pro-American than just about anywhere else in the world, but it can't be taken for granted; resentment over U.S. bases in Okinawa and other areas of Japan still festers. According to the 15-nation Pew Global Attitudes Survey, 63% of Japanese have a favorable view of the US, down from 72% in 2002.

In contrast to his strategy of getting close to the U.S., Koizumi has responded to renewed regional competition by pursuing consistently provocative, even confrontational, policies with China, South Korea and Russia over everything from land disputes to unresolved colonial and World War II history. "Japan's Asian relations are in a shambles," says Temple's Kingston. "Koizumi has dug Japan into a very deep hole with Korea and China, and it's now up to his successors to find a way out." No issue has strained Japan's relations with its neighbors more than Koizumi's defiant annual pilgrimages to Yasukuni Shrine, which honors 2.5 million of Japan's war dead, including 14 convicted World War II Class A war criminals like Hideki Tojo, the notorious general and wartime Prime Minister. Although most Japanese scarcely give the place a second thought, many Asian governments see the shrine as an unapologetic homage to Japan's warmongering past. Every time Koizumi visits, he sparks a firestorm—especially from China and South Korea—which routinely cancel official meetings and file furious protests. "It is difficult to overestimate the role of Yasukuni Shrine in the poor state of Asian relations right now," says Peter Beck, director of the North East Asia Project at the International Crisis Group in Seoul. Tang Jiaxuan, a Chinese State Council member in charge of diplomacy, has singled out Yasukuni as the issue that has made current Sino-Japanese relations "the most difficult" since the two nations normalized relations in 1972.

Koizumi insists that his visits to the shrine are a domestic and religious matter, maintaining that he goes to Yasukuni only to pay respects to Japan's war dead and to pray for peace. But even some of his closest advisors privately confess they cannot understand his position. Indeed, Yasukuni is a highly controversial issue even within Japan. Last June, five former Japanese Prime Ministers asked Koizumi to stop going to the shrine and only the most conservative of Japan's major newspapers still runs editorials in favor of the visits. Steven Vogel, an associate professor of political science at the University of California at Berkeley, sees the changing of the guard as a chance for both sides to save face. If Koizumi's successor refrains from visiting Yasukuni and improves relations with China, says Vogel, he will have "a real opportunity to put this issue behind Japan."

THE SUCCESSION
Will that opportunity be taken? the leading candidate to replace Koizumi as Prime Minister is Shinzo Abe, the current Chief Cabinet Secretary. Just 51 years old, Abe is young, energetic, popular, well-liked and widely considered Koizumi's preferred heir. He comes from an old political family and has generally been a staunch supporter of Koizumi's initiatives. Abe is also one of Japan's most prominent hawks, well known for his wariness about China's rise, his hard line on North Korea, and even for questioning the validity of the post-World War II Tokyo Tribunals war-crimes trials. (One of Abe's grandfathers was an accused Class A war criminal later released without trial). In the past, Abe has vehemently defended the Prime Minister's right to visit Yasukuni, though a degree of pragmatism may be setting in. In recent weeks, Abe has conspicuously failed to give a direct answer on whether he would go to the shrine as Prime Minister. Kent Calder, director of the Edwin O. Reischauer Center for East Asian Studies at Johns Hopkins University, says Koizumi's attempts to legitimize Yasukuni have failed. "I don't think his successor—even Abe—will be able to go at all if he wants to have an effective Asia diplomacy," says Calder. Those LDP members dissatisfied with Abe for being too inexperienced or too hawkish frequently name Yasuo Fukuda, Koizumi's former Chief Cabinet Secretary as having the best chance of an upset. Also from an old political family, Fukuda, 69, is considered a more traditional, consensus-building kind of Japanese politician who's also interested in mending relations with China. He has publicly criticized Koizumi's Yasukuni fixation and has joined a coalition of Diet members calling for a new, nonsectarian memorial to honor Japan's war dead. Says Calder: "Abe would be charismatic, reformist, populist, and more conservative on national-security and constitutional matters, though he would also be more flexible and pragmatic than Koizumi. Fukuda, on the other hand, has a more sophisticated sense of international affairs. He's a strong believer in the U.S.-Japan alliance but he also has excellent ties in China, Southeast Asia, the Middle East and Europe. He would be more cautious about reform and listen to mainstream views."

When Koizumi steps down in september, Japanese politics will lose a little spark. That he changed Japan in significant ways is undeniable. He drew the public into the political process like never before, he restored their confidence and convinced the nation to venture more boldly into the world after more than a decade of economic malaise and uncertainty. But Koizumi's was an imperfect reign. Running into stiff resistance from the forces against change, he achieved far less than he intended to, and, in the end, abandoned some of his most cherished initiatives. His ironclad support of the U.S. was matched only by his seeming contempt towards his nearest neighbors and his utter indifference to forging a community of Asian nations. What Koizumi's successors lack in flash, they could make up for with concrete gains in constitutional reform, long-term fiscal planning and improved relations with Japan's neighbors. Koizumi may be a tough act to follow—on that, everyone agrees. But with some luck and lots of wise statecraft, his successor may not, in fact, find the departing Prime Minister an impossible act to top.