Fall of Hashimoto Reverberates in Japan and Around World

Overnight, "continuity" has become the buzz word of Japan's leaders. In the aftermath of the ruling party's devastating election defeat Sunday, they're arguing that the country's economic reform plans and foreign policies will remain unchanged.

Prime Minister Ryutaro Hashimoto confirmed yesterday that he will resign. But he insisted his Liberal Democratic Party (LDP) will carry on as before. "I don't think there's going to be any change in the basic course, just in the actors," adds Foreign Ministry spokesman Sadaaki Numata, talking about Japan's foreign policy. "We'll have basic continuity."

But in reality, the transition may not be quite so smooth. The political landscape has changed in ways that not only will disrupt foreign policy, but also may delay the repair of the global economy and affect international security.

On Sunday, voters overwhelmingly favored opposition candidates in the election for half of the 252-seat upper house. The LDP won only 44 seats, far short of the 61 it held previously and the 69 it hoped to gain for a majority. The shortfall means the LDP will have to cooperate with several parties to get its legislation through the upper house.

Ideological differences will cause some delays. The Communist Party, which gained nine seats, is in a better position to push its pacifist agenda and could make it tougher for the LDP to win approval for a new set of guidelines intended to make Tokyo more of a full partner in the US-Japan security relationship.

Mr. Hashimoto's resignation may have a more immediate effect on ties with Russia. He and Russian President Boris Yeltsin have developed some personal chemistry in working toward a resolution of territorial disputes left over from World War II, and the momentum they generated now seems in jeopardy.

Economic reforms may be affected for two reasons. One is that Japan's government has become reliant more on political leadership than on its bureaucracy - thanks to scandals and mistakes that have diminished the power of civil servants. But, for at least the next few weeks, politicians will be concentrating exclusively on politics, meaning that economic supervision will likely suffer. The ebb of the world's second-largest economy is an international concern because Japan's troubles could drag other economies down.

Tokyo's political and economic troubles especially concern Asian leaders, who want a vigorous Japan to aid their own tenuous economies. "This will not be very good for Asia," says a Tokyo-based diplomat from the region, speaking on condition of anonymity. "Hashimoto has been working with several Asian leaders on the economic crisis, and he appears to know what to do. If we have to start again with a new leader, it will slow things down."

Economic reform may also lag because politicians aren't sure what voters really want. None of the opposition parties that posted gains Sunday have presented comprehensive plans on the economy, and many commentators say people voted against the LDP, not for the opposition.

Yesterday one of Japan's most respected political analysts, Minoru Morita, told a TV audience that what is needed to determine the electorate's wishes is a general election - even as Sunday's ballots lay fresh in their boxes.

Some voters, reflecting on what they had wrought Sunday, were unclear about just what they wanted to say to the LDP. "I know they did a lot for this country," says Taro Suzuki, a sanitation worker relaxing at the end of the day yesterday. "But who could have trusted their economic policies?" But in nearly the same breath he adds: "In the long run, Japanese like the LDP deep in their hearts."

Voter anger over the economy could also prompt the LDP to pull back from some of its more aggressive reforms.

"They might say, 'We just got our heads handed to us, the last thing we want to do is take on more risks,' " says Ron Bevacqua, a Tokyo-based economist for Merrill Lynch.

"The danger is that [the election results] could retard or slow the solution of their problems," adds a Western diplomat speaking on condition of anonymity.

Many say that the solutions involve letting insolvent banks fail and weak firms go under - measures that won't please voters.

Hashimoto's potential successors are also a matter of concern. Former Cabinet member Seiroku Kajiyama has earned praise for his push to speed up financial reform, but economists have criticized other aspects of his economic policies - like raising interest rates to help the elderly - as being counterproductive. Foreign Minister Keizo Obuchi is often mentioned, but he represents an old-style faction of the LDP known for pork-barrel politics that run counter to reform.

Hashimoto will not step down immediately. He will be replaced as party leader at an LDP meeting July 21. He will serve as prime minister until his successor is chosen by the Diet July 30.