Interviewer: The recent Upper House election saw the LDP’s landslide.  What is your analysis of the election results ?

Tsukahara: In this election, I kept an eye on how many seats Hashimoto faction would gain.

Interviewer: What do you exactly mean by that?  Can you give us detailed explanation ?

Tsukahara: Before the election started, a member of the Diet who belongs to the Horiuchi faction said to me as follows: “ The birth of the Koizumi Government means Hashimoto faction’s defeat in the political sense. For the defeat of former Prime Minister Ryutaro Hashimoto in the April race for the chairmanship of the LDP, Mr. Hiromu Nonaka has responsibility. In the Hashimoto faction, Mr. Mikio Aoki instead of Mr. Nonaka has been gaining power. Mr. Aoki started his career as a secretary of the late Mr. Noboru Takeshita then became a politician himself.  For that background, he is good at political tactics and correct estimate of the political situation.  As to the election for the leadership of the LDP, Mr. Aoki formed quite an effective political tactics when Mr. Koizumi secured a big lead in the local primary.  He predicted political situation from then onward and reached a judgement that the Hashimoto faction needs to expand power in the Upper House.  He invested less political fund into supportive campaign for the Hashimoto faction in the recent race for the leadership of the LDP, and instead, he will assuredly spend it for the Upper House election.”

There is much talk among us in Nagata-cho about the antagonism between Mr. Nonaka and Mr. Aoki.  The Hashimoto faction in the Upper House, led by Mr. Aoki, added 2 more seats, winning 22 seats in total.  (*At present, they secure 42 seats out of 107 LDP seats in the Upper House.)  You can say that they made a tactical victory utilizing the current Koizumi boom.  Thus, Prime Minister Koizumi cannot ignore opinions of the Hashimoto faction in the House of Councilors any more.

Interviewer: What do you think is specific political issue for the Koizumi Cabinet to struggle with from now onward ?

Tsukahara: I suppose designing of a scheme for bad loan disposal can be mentioned.  Mr. Koizumi should not mean only financial reform by his slogan “reform”, but should propose and implement concrete policy after due consideration of effective method of recovering from the economic depression.  Mr. Koizumi should establish special task force for bad loan disposal under his direct leadership.  Its members, however, will need to include personnel with knowledge of international finance and network in financial world overseas in order for successful results.  Then, once the main policy of the scheme is decided, it should be implemented immediately.

Interviewer: On June 26, the government released the report titled “ Stractural reform of the Japanese economy : Basic policies for macroeconomic management” . What is your analysis of this report ? ”

Tsukahara: The crucial portion of this report is how the government will proceed with the bad loan issue, the biggest problem of the current Japanese economy.  For example, although reinforced function of Resolution and Collection Corporation (RCC) is pointed out in the report, it is doubtful whether it will work as effectively as Resolution Trust Corporation (RTC).  First of all, there is a gap between the volume of nonperforming loan in the U.S. and that in Japan.  In our country, new bad loans are added every year, notwithstanding banks’ effort of direct write-off.  Bad loans add up to as much as 100 trillion yen or more, and about 30 trillion yen out of them needs the final settlement.  Mr. Koizumi is required to dispose bad loans in such a large volume yet in a short term, and I am doubtful of its feasibility.

Second point is as to RCC.  Since it has dealt with collection of loans exclusively, the feasibility of immediate reinforcement of its function is doubtful.  Many concerns are left in their financial know-how, including securitization of bad loan, which is the most important issue.  Lastly, although banks temporally accumulate the reserve, it is intended to enjoy the advantage of no tax responsibility and they have no intention to directly write off bad loans.

Interviewer: What would you suggest as concrete countermeasure?

Tsukahara: The presence of RCC is still not strong enough to enforce its authority over financial institutions which are reluctant to dispose bad loans.  Please remember that the amount of bad loans successfully collected by Mr. Kohei Nakabo was not more than 1 trillion yen, nevertheless of his outstanding performance.  The current situation requires emergent action to be taken, and therefore, the government must take strong leadership.  Much consideration to banks’ complaint is not required now.

Financial authority should push for the disposal process with focus on certain banks and companies with nonperforming loans.  Renouncement of loan must be encouraged if appropriate.  Moreover, bad assets of firms with poor profitability should be securitized at the earliest opportunity aiming at liquidity in the market. 

In the nature of the case, companies making poor profits will be damaged in these processes.  However, it is also projected that potential damage to them will be bigger as time passes if being left without any countermeasure. 

The responsibility of banks is crucial.  It seems to me that banks with excessive loans should be put into bankruptcy or otherwise temporally nationalized.  Of course, banks must be blamed for the misconduct as “lender”.  And directors at these banks should be severely punished for their past misconduct.

Interviewer: Which direction do you expect the political rearrangement in Japan will head for ?

Tsukahara: On and after September, there will be much antagonism in the political world.  In order for Mr. Koizumi’s reform proposal to be successfully executed, the current circumstances are completely inappropriate.  There seems to be much possibility of Prime Minister Koizumi to take bold political actions given impetus by bad loan disposal issue and budget matters.  If this happens, he will be required to give a clear statement such as “The LDP has been renewed with these new members”, then to form a new political group (which concurrently means the breakup of the House of Representatives).  This will be followed by join of Diet members with support base in urban areas to this new group led by Mr. Koizumi, irrespective of political party.  And it is naturally predicted that Mr. Ishihara, the Governor of Tokyo, will be assigned to coordinator of the group.

I expect the trend of political realignment to be accelerated before and after the Upper House election.  The LDP and a portion of Democratic Party might separate into 3 mainstreams: the new party led by Koizumi and Ishihara, which has core supporters in urban areas, the traditional LDP, which has major power in local regions, and the Democratic Party, which is supported by labor unions.

The requirement to the new party is the capacity to lead Japanese people with having concrete policy proposals in order for the disposal of bad loan, without overemphasizing its nature of nationalism.


(Interviewer: Junzo Ohno, Recorded on 31, July 2001)