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Implications of Japan's Prime Minister's Resignation

Speaker: Sheila A. Smith, Council on Foreign Relations Senior Fellow For Japan Studies
Moderator: Jayshree Bajoria, Staff Writer, CFR.org
June 2, 2010, Washington D.C.
Council on Foreign Relations

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OPERATOR: Excuse me, everyone. We now have our speakers in conference. Please be aware that each of your lines is in a listen- only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given if you would like to ask a question.

I would now like to turn the conference over to Ms. Bajoria. Ma'am, you may begin.

JAYSHREE BAJORIA: Thank you. Good afternoon, everybody, and welcome to this Council on Foreign Relations conference call to discuss the implications of the Japanese prime minister's resignation.

I am Jayshree Bajoria, the staff writer on Asia for CFR.org, the Web site of the Council on Foreign Relations. And I'm delighted to moderate this call with Sheila Smith, who's a senior fellow for Japan studies.

Sheila has also written a first take on this which is now available on our Web site, www.cfr.org. It is titled "Political Tremors in Tokyo," and I would encourage you all to take a look at it.

So as you all know, Japan's prime minister, Yukio Hatoyama, has resigned after just eight months in office. One of the reasons he cited for his resignation was his inability to fulfill his campaign promise to relocate the U.S. military's Futenma Marine Air Station on Okinawa which also resulted in the dissolution of the governing coalition between his Democratic Party of Japan and the Social Democratic Party of Japan.

This also raises questions for the U.S.-Japanese alliance and the role and management of U.S. military forces in Japan going forward.

Sheila, thank you for joining us today.

SHEILA SMITH: Thank you for having me.

BAJORIA: You were in Tokyo last week and have been witness to many of these events leading up to Mr. Hatoyama's resignation. Why don't you take us through what just happened leading up to this?

SMITH: Sure. I'd be happy to.

I think we had -- the U.S. and Japan -- the governments of the U.S. and Japan had been, for the past month, six weeks or so, been involved in fairly intensive conversations about how to come to some kind of an agreement about moving forward with the relocation of Futenma. As many of you know, the U.S. and Japan had reached an agreement in previous administrations in 2006 to relocate the Futenma Marine Air Station in the northern part of Okinawa Island.

And that 2006 agreement was under policy review by the democratic party of Japan when it came into office last fall. So after months of internal review and extended discussions between the U.S. and Japanese governments, by this spring, clearly, the U.S. and Japan wanted to move in the direction towards a common understanding of how to move forward.

So this was a modified return to parts of the original plan. It also incorporated some new ideas about moving U.S. Marine Corps exercises off of Okinawa and perhaps to an island in the Kagoshima Prefecture but also addressing some of the complaints of Okinawa about the impact of the U.S. forces there. That agreement finally came to fruition last week. Prime Minister Hatoyama himself had set forth the end of May as his deadline for reaching an accord resolving the issue. And many people over the spring were very worried about whether or not anything would be possible because of the complexity of the issue.

But the U.S. and Japan made it a point of trying to get their own understanding of what kind of framework they would use to move forward. And so that agreement was announced last Friday in Tokyo. The prime minister then wanted to have a cabinet statement of approval of the U.S.-Japan agreement. And his coalition partner, the social democrats, specifically Mizuho Fukushima, who was the leader of the social democratic party and a member of his cabinet took issue with the agreement.

She argued that this was breaking a campaign promise and that her party did not support the agreement. The prime minister then decided to fire Ms. Fukushima, to remove her from the cabinet. And so she was removed. That drama all took place late into the night on Friday. All of us were glued to our Blackberries and our television screens waiting for the prime minister to make his announcement of what had transpired in his cabinet decision and his cabinet discussions.

And over the weekend, the social democrats, the party got together to discuss what the implications would be for them of Ms. Fukushima's removal from the cabinet. So by the time I got on an airplane on Sunday, it was pretty clear that the social democrats would leave the coalition government.

I came home to a rather quiet Memorial Day (chuckles). I don't think any of us anticipated that the prime minister would resign so swiftly and so completely and in the manner that he did. And so I think not only here in Washington but in Tokyo, there's a great shock at how quickly things have moved.

BAJORIA: So what happens next?

SMITH: Well, the very short term is the democratic party of Japan, the members of parliament will gather on Friday to vote for their candidate to lead the democratic party of Japan. As you know, they are the majority party in the lower house of parliament, therefore, they can choose the prime minister. They have 308 of the 480 seats which gives them a clear majority.

So whoever the DPJ chooses as their new leader will be Japan's next prime minister. And the -- both of those selection processes will happen, I believe, on Friday.

The -- a little bit further down the road, however, is the upper house election. And at least at the moment, everybody is anticipating that the current session of the Japanese parliament will end on the 26th of June, I believe -- or the 16th of June. Sorry. Forgive me. But the upper house election then will be held on the 11th of July. And if that's the case, then the public's response to the last eight, nine months of the DPJ rule will be better understood.

The election, I think, many people in the DPJ had hoped that they could get a majority in the upper house. That looks increasingly less likely given the opinion polls and the low rate of support for the Hatoyama cabinet.

But I think until we get beyond the upper house election, we won't really know where the DPJ stands in terms of its new coalition partners, its approach to governance and priorities and, indeed, how it wants to put its leadership team together.

BAJORIA: So do we have a sense of who are going to be the potential future leaders?

SMITH: Well, right now, we have one candidate as far as I know. At least as much as I was watching Japanese television late into tonight, which, in Tokyo time is this morning and Mr. Naoto Kan, who is the minister of finance, the deputy prime minister, and one of the founding members of the DPJ, he has indicated that he would like to be a candidate for the leadership of the party.

BAJORIA: So before we open up for questions, one last, if I may ask.

Where does this leave the question of the U.S. military base in Okinawa? Is that going to be reopened for negotiations with the United States? Or is that final and done?

SMITH: Well, I think the issue of Futenma relocation is not -- is best understood not as a done deal but as an ongoing process. The U.S.-Japan agreement that was concluded between the Hatoyama cabinet and the Obama administration last week set forth the framework under which the two governments would proceed to move the issue forward.

It also requires, however -- the implementation of this accord requires cooperation of the people of Okinawa, the governor of Okinawa, the people of Nago City as well as other localities in Japan that would be approached to be asked to share some of the burden of the U.S. Marine operations or exercises.

So there's a host of local communities and actors inside Japan that will need to be a part of this process, and that will unfold in the months ahead. I think it's important to understand here that the people of Okinawa feel deeply betrayed by Prime Minister Hatoyama. He had made a campaign pledge to move the U.S. Marines, at least a substantial part of them, off of Okinawa Island. And many people in Okinawa had hoped that he would be able to do that.

So there's some very deep dissatisfaction inside Okinawa about the way this issue has been handled, and that dissatisfaction is focused for the moment on the prime minister who has just resigned. But it is also dissatisfaction that could easily be directed at the next leader or at the U.S. government as well.

So I think sentiments in Okinawa are key to the success of any agreement that the U.S. and Japan put forward.

BAJORIA: Sheila, thank you so much for that.

Operator, we are now opening the line for questions.

OPERATOR: Yes, ma'am. At this time, if you would like to ask a question, please press star one on your telephone keypad. Again, that's star one on your telephone keypad if you would like to ask a question. And we'll hold just a moment while we wait for questions.

Our first question will come from Shaun Tandon with AFP.

QUESTIONER: Hi. Thanks for doing this call.

I wanted to get your perspective on how much responsibility, if any, you think the Obama administration and its policy had to do with his resignation? I mean, some have argued that, perhaps, the administration wasn't necessarily terribly flexible about the Futenma issue considering it was a new government and a new party for pretty much the first time in a half century, or some might argue that, conversely, you know, Hatoyama sort of undid himself.

And expanding from that, I mean, where does it stand now for U.S. policy? Is there a chance to reset things and try to get U.S.-Japan relations back on track now? Or will Futenma still be lingering as an issue?

SMITH: Those are all very good questions, and I think, you know, my sense is we are going to watch the conversation about who's to blame in -- you know, in Tokyo unfold still. I don't think there's one answer to that question.

I do think that the tensions and the difficulties in the relationship between the United States and Japan, there is responsibility on both sides. And I think our policy team understood that they needed a more patient and long-term perspective than, perhaps, they had begun the conversations on Futenma with the new government. So I think there's been adjustments on both sides. I think that there is a deep understanding among the policy team here in the Washington of the importance of the alliance and, particularly, of the importance of this political transition in Japan.

But it has been a rather unpredictable process with which to manage the relationship, and I think that -- my sense is that there will be a looking back and a lessons-learned exercise going on in our government as well as in the DPJ.

So I think this is an opportunity, frankly, on both sides to quietly sit back and evaluate what needs to happen. I think the prime minister, Mr. Hatoyama, did, in some ways, by creating the end-of-May deadline, imposed a kind of limiting parameters on his ability to work on some of the domestic side of the problem.

There was contradictions in statements. There was some unpredictability in the direction in which he wanted to go. So I -- all of which sort of indicates to me that this is -- Futenma relocation has been, for 13 years, a deeply complex issue. And it involves various levels of government -- the engagement of local actors as well as the U.S. military as well as the highest political leaders in both our societies.

So this is a task that U.S.-Japan will continue to have to work on for some time together, and it will be successfully solved based on that ability to work together.

Broader than that, though, you know, my sense is that Secretary Clinton and Foreign Minister Okada, at the beginning of this year, established the beginning of a broader alliance dialogue between the United States and Japan. And I think that is really where I would suggest we ought to begin as Japan's new leader is selected.

And once we get beyond the upper house election, where there's some stability in the governance, I think we ought to really focus on the broader alliance agenda, our understandings of our strategic goals, our exploration with the DPJ government of their priorities in the security sphere. You know, they have also put under policy review their own national defense program guidelines for Japan. That's an exercise that ought to be completed by the end of this summer.

And I think it will give a firmer footing to the two governments as they talk specifically about defense cooperation and basing issues. So it will give them a firmer footing to move forward.

But this relationship is broader. And as you can see in Northeast Asia, our cooperation about the Korean Peninsula is very extensive. We have deep conversations on Afghanistan-Pakistan and broader issues around the world. So I am particularly -- I am not one of the people who thinks this relationship is in crisis, but I do think clear and open channels of communication with the next leader of the DPJ will be critical. And I hope that those communication channels are established early and that there's frequent and regular consultations on the bilateral relationship. QUESTIONER: Thank you.

OPERATOR: Thank you. Our next question will come from Michael Robowski (ph) with World Press Review.

QUESTIONER: Konichiwa, Ms. Smith. Thank you for that fascinating analytical overview.

I'd like to get, perhaps, just sort of categorize my question in three points.

The first is do you believe that there is a rift in the bilateral relations between Tokyo and Washington; that this has harmed the key strategic relationship, perhaps, to irreparable levels?

And the other question I'd like to ask as well: Do you think that Secretary Clinton handled this matter in a deftly manner, it was skillfully handled, perhaps, too much pressure was put on the prime minister?

And, thirdly, some colleagues, you know, and I speculate that, perhaps, the Capitol Hill hearings against Toyota and its mechanical mishaps were somewhat related to this crisis.

Do you think that was, perhaps, a way to persuade Tokyo to, you know, do things correctly and maintain the base where it was?

SMITH: Wow. (Laughs.) Let me take the last one first because I think it's very intriguing.

I don't think that there was linkage between the Toyota hearings and the base issue. And I say that for a couple of reasons. One is because the mechanisms that prompted the Toyota hearings were very clearly derived from our consumer protection angle and our transportation investigation side of the government.

The other is that, as you watch the hearings or at least somebody like myself that studies Washington watched the hearings, they were -- if you think of the 1980s trade wars between the United States and Japan and the tone and tenor of that congressional moment, right, of critique against Japan, the Toyota hearings were quite sophisticated, were quite friendly in many ways even though there were some tough questions to Mr. Toyoda.

So they were handled with a certain amount of grace, I think, and different than the idea of leverage or putting pressure on Japan. So I don't think I sensed that in the slightest.

But back to the other question specific to Secretary Clinton's handling of it or, more broadly, to the Obama administration's handling of it. I do believe that we are at a particular moment with Japan today when we, as Americans and policy makers, ought to be fully cognizant of the depth of political change that's going on in Japan. It's partly generational change. It's partly a new expression of Japanese aspirations. And included among those, I think, are aspirations for a different kind of relationship with the United States.

Now, the words that the DPJ used in its manifesto is a more equal relationship. I think many people here in Washington feel that the relationship is equal to be extent that we have a sovereign relationship.

But the crux of the sensitivities inside Japan or other countries for that matter that host U.S. military forces, I think, needs to be more deeply understood. And so it's no accident, I think, as we've watched the DPJ and into power, they've critiqued the LDP's oversight of the alliance. They've critiqued it primarily on two counts.

One is the oversight of the U.S. military presence itself, Status of Forces Agreement, the realignment agreement, host-nation support, right? So they critiqued their predecessor's policies and the way they've handled it.

And, second, they've critiqued the so-called secret agreements about how the Japanese government in the past handled some of the operational sides of the U.S. military presence.

So part of what you're seeing here is a new party that wants to review and correct some of the processes and procedures by which the U.S. military presence specifically has been handled. And I think the U.S. government ought to be alert to that. And I think we ought to be helpful to the extent that we can in bringing a transparency and accountability to the processes by which we manage our alliance.

So I think our policy team is learning that there is a little bit deeper set of interests here and learning how to work with the DPJ on those interests.

I don't believe our team feels that they put pressure on Mr. Hatoyama. I think, in some ways, they were a little bit confused by his end-of-May deadline or some of the statements that he made. And so they tried to respond as constructively as possible. There were moments in early April, I think, where the irritations showed publicly, but I think since then there has been a very dedicated effort on both sides to bring the conversation back in a constructive basis. And I think the result of that was the agreement last week.

I don't believe that this is a rift that's irreparable. I do believe, however, that the U.S. and Japan need concerted attention to this broader alliance conversation. And by that, I mean simply that we need to understand strategic goals, what we think the U.S. and Japan ought to be doing to meet those goals together and/or separately, and how we want to prioritize our alliance agenda going forward.

Some of that will involve correcting some of these oversight practices for the U.S. military stationed in Japan. And I think that's a reasonable request. We've done it with other allies. We ought to engage in the conversation -- a careful conversation -- with Japan.

So that's, I think, how I would answer your three questions.

QUESTIONER: Domo arigato.

SMITH: Dou itashimashite.

OPERATOR: Thank you. Our next question comes from Jamie Bowman (sic\Jamie Bowen) with the Diplomatic Courier.

QUESTIONER: Hi. I was just curious in regards to the -- I mean, recently, we've seen the chairman, president and prime minister step down and now, with kind of the shock of having the prime minister of Japan step down, what do you think how this will affect, not only, Eastern Asia where there's a lot of problems with Korea going on and just kind of the whole outlook on the world upon that?

SMITH: I think the regional stability issue is probably -- I think you put your finger on the issue that I think is most important for the U.S. and Japan right now to focus on.

As you know, the North Korean sinking of the South Korean ship has made many in the region concerned about the extent to which we can predict North Korean behavior. This is the first time that the North Koreans have openly violated the armistice agreement since the end of the Korean War.

So this is a rather serious moment in how the global discussion as well as the regional discussion and how to think about North Korea but, also how to think about being prepared for contingencies that might involve North Korean provocations.

The U.S., Japan and South Korea, despite the tensions or the mishaps or miscommunication on Futenma, we have had a very successful and close consultative relationship with Japan and Seoul and Washington on how to deal with North Korea. And that began, of course, as you know, from last spring's missile launches and the second nuclear test.

So that is an area where there's been very quiet but very successful alliance coordination. And I think it proves the point that I was trying to make earlier that, on the issues we really care about, the U.S. and Japan have been able to work very closely together despite the politics and the tensions over Futenma. But I think this question of regional stability and, in a more detailed way, this question of how the U.S., Japan and South Korea will work on regional crisis management should something else happen is very key to the alliance and should be at the top of our bilateral agenda.

QUESTIONER: Thank you.

OPERATOR: Thank you for your question. Again, if you would like to ask a question, please press star one on your telephone keypad now. Our next question will come from Scott Fiske (sp) with Fuji TV.

QUESTIONER: Good afternoon, Dr. Smith. Thanks so much for being available for us today.

SMITH: Thank you.

QUESTIONER: I was wondering if you could speak to, I guess, the question of -- I don't know -- the trust in the leadership in Japan amongst the Washington policy team. You know, we see basically every year or so a new prime minister, you know, the speed of the change, all these questions about the leadership with the DPJ.

You know, looking at, you know, either if it's Mr. Kan or whatever government gets formed next week, you know, to what extent -- I don't know -- is there going to be -- will the U.S. policy team trust the Japanese leadership and their ability to, you know, work out I guess especially the Futenma issue but then these -- you know, these other broader issues that you've mentioned?

SMITH: Yeah. I think this question of personal trust, you know, at the very highest level pervaded the conversation about the alliance and its difficulties, right? It was all that public discussion in the media, right, about, you know, Mr. Hatoyama telling President Obama last November to trust me, right, and then the April summit, you know, the 10-minute conversation about do you trust me. I mean, there was a lot of meaning given to those kinds of stories about the interactions between the two leaders.

Two things, and one is a bigger structural challenge for the U.S. and Japan at this particular moment. In the past, you know, who came to power in the LDP, right, was somewhat predictable. And if it wasn't quite predictable, at least we kind of knew how to figure out who people were, right?

So even when Mr. Koizumi emerged, right, in 2001 as a kind of maverick choice for the leadership of the liberal democrats, people knew people who knew him or people knew how to find out about him. And pretty early on, there were overtures, personal overtures and think-tank world people were finding out, that kind of thing.

So it was an accessible party. People had pretty deep personal contacts within the party. And, of course, it had been in power for such a long time that, if you didn't know the person who was about to become leader, somebody that you knew in Tokyo certainly did. Right?

So that access to understanding the LDP is now needed in terms of the personal relationships, both professional but also personal relationships between the Washington policy community and the DPJ.

And this is part -- this was our homework that I think on the U.S. side -- and I'm not pointing fingers at any particular individual here. But we ought to have done our homework better as the DPJ was growing and coming into power. We ought to have gotten to know people a little bit more closely. We ought to have put in that kind of energy into understanding Japan's new emerging opposition party.

I think there's still a lot of that kind of work to be done. I think, in many ways, there has been a little bit of playing political football a little bit with the relationship in the sense that people who are in Tokyo or in Washington, both who are critical of the DPJ, have tried to paint them as anti-alliance -- and I think our government policy makers have known better than to really think of the DPJ that way. But there's been an awful lot of chitter-chatter in the bilateral outside-of-government channels about who the DPJ really is. What do they really believe in? And do they really trust America, or should American really trust them?

And I think that's been unhealthy, frankly, and has gotten in the way.

On a broader structural level, though, this relationship -- the foundations of this relationship with the common and shared interest between the United States and Japan. And you can have phases of discomfort in personal relationships at the top, or you can have phases of new people coming to the floor in leadership positions. I'm thinking here, for example, of Mr. Hashimoto in the '80s.

When he became prime minister, I remember Washington was like, oh, he's anti-alliance, right? (Chuckles.) So, you know, they didn't know him. They knew him as a trade negotiator who was very tough. And then when he became prime minister, there was concern that he would be anti-alliance. Well, that is a kind of immature response, right? He didn't prove to be that in the slightest. And I think we're going to find with subsequent leaders of the DPJ that they may have different ways of articulating Japanese interests, but I don't find that they're going to be anti-alliance or that they are not going to be comfortable working with the United States.

The interests in the U.S.-Japan alliance, I think, run very deep in Japan even if there's some desire for modification of some of the practices of policy or alliance management. And I think we're both just going -- both sides -- Democrat, Republican in the United States; LDP, DPJ and other parties as well that may be in coalition -- we're going to have to work at a cross-party understanding of the importance of this relationship to both our countries.

And once we get that basic consensus, that middle ground, then I think it'll be a little bit easier for us to withstand transitions in leadership either in Tokyo or in here.

OPERATOR: Thank you for your question.

Our next question will come from Louise Randofsky with the Wall Street Journal.

QUESTIONER: Hi. I wondered if you could elaborate a little on some of the issues which might still affect the base. You mentioned the concerns of the people of Okinawa. It sounds as if they've not really changed one way or the other as a result of what's happened in the last few days.

Are there other sticking points that you think exist beyond that? And do you think there's anything that's specifically been changed as a result of recent events?

SMITH: Two points. One is the agreement between the United States and Japan that was concluded last week. In that agreement, the two governments agreed to examine what kind of construction, where -- which specific location of a replacement facility or a runway, might be built, and that there will be this kind of technical assessment coordinated by the two governments that will take place.

And I think that is due to be completed at the end of the summer, at the end of August, I believe. So that technical process will reveal more specifics than the actual, you know, bilateral agreement revealed.

Inside Okinawa, though, that's a separate process. So that process will be ongoing at the U.S.-Japan government level. Inside Okinawa, clearly -- and you could see it in the response to the prime minister's resignation. You could certainly hear it in response to Ms. Fukushima being asked to leave the cabinet. The public statements of Okinawa -- the word that got used a lot in the interviews of the man and the woman on the street was "betrayal." They felt betrayed. They had developed these expectations and hopes that perhaps the DPJ would be able to present them with a different alternative, moving the Marine Corps off of Okinawa.

So there is a sense of resentment and betrayal.

How much of that is directed at Mr. Hatoyama individually and how much becomes directed to the party as a whole I think we have yet to see.

That's going to take a little while to work out. There will be some upper house election results, right, that we can read as a preliminary reading, but I think it's also important to understand that, inside Okinawa itself, the mayor of Nago City, which is the relocation site -- Henigo (ph) is the coastal region in Nago City -- that has been specified as the target relocation site.

The mayor of that city has said he will not accept a base in Nago City, in his municipality. The governor of Okinawa will play a role in approving any land reclamation or any kind of coastal development construction under Japanese law. The governor has a right to approve or disapprove of any kind of coastal development project.

And so the governor will have a role in the policy-making process no matter how it proceeds.

So you're watching, in Okinawa, some fairly key political leaders who have the capacity to slow down or change or completely reject the proposals that the U.S. and Japan are trying to move forward. Couple that with November, that election for the governor seat in Okinawa, and you have now some pretty volatile politics, I think, in Okinawa with regard to the base.

I think this is very difficult territory for the two governments to navigate, frankly.

QUESTIONER: And do you think the resignation will have emboldened local politicians?

SMITH: Well, you know, the election of the Nago City mayor was last January. So this is pre-resignation. He was elected, and he was the first mayor in Nago to really be elected on a no-thank-you platform. You know, previous mayors -- and I've written about this on my blog, but previous mayors have said, okay, let's talk about it and have tried to suggest conditions under which Nago might accept the relocation runway. But this particular mayor has said "no, thank you," and he won by 1,600 votes, but he won nonetheless. And it's not really clear to me -- and I don't think it'll be clear until we actually get into the implementation process -- whether or not he has the significant support of the residents of Nago City.

I think the governor's role is a critical one. It always has been. And I think it's just as the election gets closer, it will be very, very difficult for a governor of Okinawa or a candidate for governor of Okinawa to say yes to the plan just given the proximity of the election.

So I think you've got a sentiment that may be directed at Mr. Hatoyama specifically, or you may have a much more broad-based sentiment that will express itself in the election in November. We won't know, I think, until we get there.

QUESTIONER: Thank you.

SMITH: You're welcome.

OPERATOR: Thank you. Our next question come from Satoshi Ogawa with Yomiuri Shimbun.

QUESTIONER: Hi.

(Cross talk.)

SMITH: Hi. Nice to hear your voice. (Laughs.)

QUESTIONER: I'd like to ask about Kan-san. Right now, as you mentioned, Kan-san, Mr. Kan is the only candidate of Hatoyama -- succesor could you tell me his reputation in Washington?

And how will the political -- this political leadership change affect to the coming up house elections? Will DPJ maintain a majority in the election?

SMITH: Probably you can answer that second question better than I can. (Laughs.)

I think Kan-san's reputation in Washington is -- you know, he's known as probably in the same way that I introduced him. You know, he's known to be one of the founding members of the DPJ.

Among those of us who watch Japan or know about Japan, he is also known for his role at the health and welfare ministry when he was in government and outing the bureaucrats of that ministry for protecting Japanese pharmaceutical companies and not protecting HIV patients. And I think that is probably in his history. That is probably the most telling episode that helps us understand that he is a tough person. He is a fighter.

And when he became finance minister, I remember writing a blog that he is somebody who will come into office willing to take on the issues that he cares deeply about. More recently, I think many of us, again, on the outside, have watched him in both his role as head of the national strategy council and also his role as finance minister. He has embraced his policy role deeply. And, again, prior to that, most of us saw him as more of a political figure than a policy-oriented figure.

But his role inside the ministry of finance, his articulation of Japan's policy agenda, both the short term as well as that longer-term task of fiscal reform, has been very impressive to watch, frankly. He has -- at the beginning, he started to take on the Central Bank of Japan but has backed off on that. He has, instead, been very attuned to the need of the global financial system to have stability and watched Greece and the European experience and started to articulate inside the party during their manifesto discussions a much more hands- on approach to thinking about Japan's long-term fiscal health, and, in fact, began to talk openly about the need for tax reform, something that the DPJ had tried to shy away from.

So he has lately been, for somebody like me who watches him from overseas, he has been quite impressive in his capacity to talk about the specifics of the policy challenges that Japan faces, to address some of those problems head on instead of being overly sensitive to the politics of them, and to be a quite forceful advocate of the need for the DPJ to become much, much more of a problem-solver than a political animal.

So I think he's -- you know, again, I don't speak for all of Washington, but for people like me who watch him, I think he has become one of the people inside the DPJ that shows the strongest promise of articulating a policy agenda for the DPJ that would be -- that would speak to the needs of the Japanese people and the sentiments, I think, of the Japanese people.

How the upper house is going to turn out, you know, again, I will rely on people like you to help me understand. (Laughs.) Whether or not anybody else stands up tomorrow, for example, in the DPJ leadership race will be interesting to me because I am kind of curious to see whether Mr. Kan is going to be the lone candidate for the leadership of the DPJ or whether, perhaps, some of the others inside the party, perhaps, not so satisfied with Mr. Ozawa's role in the party are going to stand up and put themselves forward.

And I think the upper house election itself will be a question about whether or not the money and politics scandal that Mr. Hatoyama referred to in his resignation remarks, whether or not that's really hurt Mr. Ozawa's capacity to run in the election, whether or not it's hurt the Japanese public's confidence in the DPJ.

So I think everybody is going to -- everybody here in Washington will be watching very closely to see whether or not the DPJ will make inroads into that majority that they want in the upper house. I doubt that any of us expect that they will make a majority or that they will get a majority of seats. But I think the story begins after the upper house, and that is which direction the DPJ looks to for coalition partners coming out of that election.

OPERATOR: Thank you for your question. Again, if you would like to ask a question, please press star one on your telephone keypad now. Again, that's star one your telephone keypad if you would like to ask a question. BAJORIA: Sheila, while we wait for a question, let me jump in.

SMITH: Sure.

BAJORIA: You know, there are divisions within the DPJ on what should be the future course of the party, and secretary general, Mr. Ozawa seems to be key to some of those debates. Could you give us a better sense of what some of those divisions are and what should we expect?

SMITH: I think there's several planes, I think, where you could identify some divisions within the party. I think, early on, as they were coming into office, you had groupings -- I don't want to call them factions because they don't call themselves factions -- ut you had groupings around certain individuals like Mr. Maehara, for example, Mr. Hatoyama. And that, you know, began to look a little bit like a generational breakdown or a kind of -- not quite ideological breakdown but perhaps a policy orientation division.

For example, Mr. Maehara is a younger -- and up-and-coming leader. He is very interested in national security issues. He's very articulate on international politics and on Japan's foreign policy interests.

There was another group that identified themselves openly on the Web site as an anti-Maehara group, and they called themselves the liberal group. So they took a much more kind of liberal left position on Japan's constitution, for example. They focused much more on climate change issues, on non-military issues, and wanted to see Japan articulate its global interests in that way.

So you saw a little bit of ideational division within some of the younger members of the party. But as you've watched the DPJ come into power -- or as I've watched the DPJ come into power and watched it in power, what we've begun to see is this distinction between, I think, what many people would call the old-style politics of Japan represented, in part, by Mr. Ozawa, and the money politics and the scandal and the accusation, at least, of scandal. He has not been formally indicted on any of the charges brought up against him. He has, in fact, been -- the prosecutors have not indicted him. So all of this is alleged scandal.

But that sort of veneer of money politics, and the power of Mr. Ozawa in the party has caused a number of people to speak out. And so they have -- you see this cleavage in the party now that seems to orient itself between the Mr. Ozawa side -- people who support Mr. Ozawa and his role in the party -- and those who would like to see a different or a clean divide from that style of politics.

And included in that group of the -- not anti-Ozawa -- but the distinguishing side of the Ozawa side of the party, you'd find Mr. Sangogup (ph), who is the head of the national strategy council at the moment and a potential runner in the election on Friday. But he has not yet stepped up.

You will find Mr. Edano, who is the man who's in charge of administrative reform in Japan who has been the primary architect behind the budgetary hearings that have been so popular among the Japanese public last fall and again this spring.

And Mr. Maehara, again, openly spoke out on the issue of Mr. Ozawa's role in the scandal that he was accused of.

So there is this sort of general sense that there is people now talking about those who support Mr. Ozawa and those who are a little bit more distant from Mr. Ozawa. And I don't know how much that cleavage is going to define the party going forward.

But yesterday's resignation speech by Mr. Hatoyama clearly hit on that nerve that is in the party about the prime minister's own personal money scandal. You know, he got money from his mother that he had then used for political purposes and didn't declare on his tax returns. And then this sort of -- the controversy surrounding Mr. Ozawa's investments that, even though the prosecutors can't find any evidence with corruption, at least the media continues to see him as being, perhaps, involved in activities he shouldn't be.

So he has asked -- yesterday, Prime Minister Hatoyama said he was resigning because of that money and politics scandal and that he was asking the party's secretary general, Mr. Ozawa, to do the same.

So there's a clear internal party conversation here about their identity as a reform party, their identity as something different from the previous LDP governments. And part of that difference is their identity as a clean party, not corrupt, behind-the-scenes, back-door politics and unaccountable flows of money but, rather, a much more accountable, transparent, political entity that stands for reform and transparency in governance overall.

BAJORIA: Speaking of change, the DPJ victory in the August elections last year had been hailed as the beginning of a two-party system in Japan after decades of almost complete dominance by the liberal democratic party. How does Hatoyama's resignation reflect on DPJ's capabilities to live up to that promise of delivering change?

SMITH: Well, I think it's a setback, frankly. And, you know, you could say the setback is not the resignation of the prime minister but, in fact, the setback began earlier this year when the money and politics scandals emerged, when the Futenma issue got difficult, when there was indecisive leadership on questions of the Japan post and inability to keep the coalition effectively, you know, moving in the same direction.

So this last five or six months of the Hatoyama cabinet -- let me say four or five months, I guess -- really began to make it seem that the DPJ was incapable of implementing this new agenda that it was trying to articulate and move forward.

I think, to be fair, I have always taken the position that the scale of this political transition for Japan -- you know, going for a half century with virtually a single-party dominant political system and then transitioning with a new party into an alternating system of political responsibility, be it two-party or a broader multi-party base, this is a huge transition for Japanese governance.

So, you know, I give the DPJ a lot of slack, frankly, because our transitions here in Washington can be messy and sloppy and uneven, and we do it all the time. For a country that does not do it, has not done it, and has a new political entity that is now coming to the fore in governance, we should expect that this will be a messy process.

And I think we are still -- I am still hopeful that the DPJ will be learning as it goes along some of the tricks to transitioning, some of the tricks to governance -- discipline in governance as well as discipline in party -- and that they will get better at it the more experience they have.

I think the real question, though, about this two-party transition is whether the Japanese public is going to be tolerant through this process. You know, whether or not they really -- the Japanese voters really decide that this is the kind of volatility or instability or, you know, whatever we want to call it, this is what they want or this is what they're willing to bear as this political system evolves, I think that we'll watch that in the polls this July in the upper house and, again, at the next lower house.

The LDP is greatly diminished. It lost a lot of seats in the last lower house election last year. It's not the force it once was. So there's not an option of going back to the way it was.

So now there is this rather muddled process of going forward. And I think, for the Japanese voter, it's an uneasy set of choices ahead. BAJORIA: Thanks, Sheila.

Operator, do we have any more questions at this time?

OPERATOR: No, ma'am. Not at this time.

BAJORIA: So I guess we can call it a close, Sheila.

SMITH: Okay. Thank you. It was terrific.

BAJORIA: Thank you so much for laying down the implications for Japan's politics as that has policy implications for the United States and its partnership with that country.

And thank you, everyone, for being on the call today.

As I mentioned before, Sheila has a first take that touches upon many of the issues raised in today's call. It's titled "Political Tremors in Tokyo," and you could also check out CFR's Asia Unbound Blog featuring timely analysis from CFR experts, including Sheila. That might be a useful resource for you.

Also, a reminder that the audio and transcript of this call will be available later on the council's Web site, www.cfr.org.

Thank you all for joining us today.

SMITH: Thank you, Jayshree.

BAJORIA: Thanks, Sheila.

SMITH: Bye-bye.

BAJORIA: Bye.

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