JAPAN: SUZUKI FACING A DIFFICULT YEAR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP03T02547R000100740001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 20, 2016
• Document Release Date: May 11, 2007
• Sequence Number: 1
• Publication Date: March 1, 1982
• Content Type: REPORT

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Secret
EA 82-10037
March 1982
Directorate of Secret
Intelligence
Japan:
Suzuki Facing a
Difficult Year
207
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Directorate of ? Secret
Intelligence
Japan:
Suzuki Facing a
Difficult Year
An Intelligence Assessment
I4 rmation available as of 26 February 1982
has been used in the preparation of this report.
The authors of this paper ar
I f the Office of East Asian Analysis.
It was coordinated with the National Intelligence
Officer for East Asia. Comments and queries are
welcome and may be addressed to the Chief
Northeast Asia Division, OEA,
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EA 82-10037
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Japan:
Suzuki Facing a
Difficult Year
Key Judgments Zenko Suzuki's chances for reelection this November as President of the
Liberal Democratic Party and thus Japanese Prime Minister will be
influenced by how well he handles several complex and interrelated issues
over the next few months. In particular, he must demonstrate to his party
and the media that he can manage the US-Japanese alliance. Suzuki will
have to reduce US pressure on Japan over the trade surplus without
appearing to have been bullied by Washington or to have conceded too
much ground on other bilateral issues, such as defense.
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The Prime Minister hopes that a rebound in Japan's domestic demand will
ease pressure on the trade issue. Because of Suzuki's austere fiscal policy,
we, and a growing number of Japanese officials, believe economic growth
will be well below the level Tokyo has officially projected and, as a result,
the trade surplus will expand. Pressure is building on Suzuki to boost the
economy by increasing government spending, but if he does this his critics
will charge him with abandoning what he has established as a top
priority-administrative and fiscal reform. 5X1
The trade measures announced so far-import subsidies, tariff cuts, and
lower nontariff barriers will have little impact on the 1982 imbalance and
will not significantly open Japanese markets to foreign firms. Nonetheless,
we expect no major new initiatives in the near future because Suzuki would
have to build domestic support before he could remove barriers in
politically sensitive sectors like agriculture 25X1
Unless Suzuki seriously mishandles these key issues-particularly the
trade problem-the odds favor his reelection:
? He has the advantage of incumbency.
? The major factions within the party would have difficulty finding another
candidate acceptable to all. 25X1
In fact, the future LDP leadership picture is cloudier now than it has ever
been. Although we are unable to identify a principal rival, Suzuki does
have a variety of potential challengers waiting for a misstep:
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EA 82-10037
March 1982
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? Former Prime Minister Fukuda might use any serious deterioration in
US-Japanese ties as an excuse to try to dump Suzuki; he would attempt
to return as prime minister, if even for a short time, or to act as
kingmaker.
? The Director of the Administrative Management Agency, Yasuhiro
Nakasone, could use a retreat on administrative reform as a reason to
launch his own campaign for the prime-ministership.
Although all of these challengers would pursue a more vigorous economic
policy that could shave the trade surplus, none have the political backing to
make the broad changes in nontariff barriers and agriculture Washington
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Japan:
Suzuki Facin a
Difficult Yearl
Introduction
Japanese Prime Minister Suzuki began the year in a
strong position. His Liberal Democratic Party, in
power for a quarter of a century, strengthened its hold
in the June 1980 elections and does not face another
test at the polls until mid-1983. The major factions in
the party continue to support him, and his public
rating remains unusually high. The new cabinet he
appointed in November is talented and experienced.
Suzuki, nonetheless, faces several difficult problems
that could undermine his chances for reelection as
president of the party and thus as prime minister.
To ensure his reelection, Suzuki must demonstrate
that he can improve the economy, make progress in
reforming the government bureaucracy, and manage
the complex US-Japanese alliance. Suzuki would
probably have little trouble handling these issues
individually. They are interrelated, however, and a
solution in one area makes solutions in others more
difficult. He could make progress on the US-Japan
trade issue and spur domestic economic growth, for
example, by increasing government spending. To do
this, however, he would have to abandon his commit-
ment to administrative reform, which includes trim-
ming the government's role in the economy and
eliminating the budget deficit by the mid-1980s.
The Economic Outlook
Suzuki hopes that an upswing in domestic demand
will expand imports, reduce trade friction with the
United States, and boost GNP in 1982. Officially,
Tokyo is forecasting GNP growth of 5.2 percent for
FY 1982,' as compared with a projection of 4 percent
for 1981. The projection for 1982 assumes that con-
sumer spending will increase as real wages rise and
that residential construction will rebound in response
the 5-percent level, Suzuki will face growing dissatis-
faction with his performance as an economic man-
ager, severe criticism from Japanese businessmen
the major contributors to the LDP---and perhaps a
strong challenge to his leadership of the party
In fact, the Japanese growth estimate is optii4i~V
We forecast it at about 4 percent, in the belief that
Suzuki's commitment to f6scal austerity will hold
down domestic demand.
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he budget for general e.' -
tures has been e to a 6.2-percent increase'AX 1
compared with a 9.9-percent growth in FY I
Public works spending will remain flat. The only
stimulative measures are slight increases in the Fiscal
Investment and Loan Plan to aid housing and small
business
In part because of slow domestic growth, Tokyo is
locked into a large current account surplus in 1982,
which should exceed $16 billion. With the United
States, Japan should post a trade surplus several
billion dollars above the 1981 surplus of $17 billion.
Because of slow growth in key markets, we expect
export volume to increase 8 percent in 1982, as
compared with 10 percent last year. This wil~51
outpace imports, which should at best increase by 4
percent if raw material-intensive industries rebuild
inventories and energy imports pick up.
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Japan's export success reflects the relative improve-
ment in price competitiveness of Japanese exports.
Japan's inflation rate in 1981 was about 5 percent, as
compared with 10 percent in the United States. At the
same time, high US interest rates kept the yen from
substantially appreciating. Tokyo probably will be
able to hold inflation below the US rate again this
year, further boosting Japan's competitive advantage.
to slipping interest rates. If growth falls sharply below I
' The Japanese fiscal year begins on I April.
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 Figure 1
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Japan: Trends in Foreign Tradea
I I I I I I I I I I I I I
100 1 11 111 Iv I II 111 Iv I 11 III Iv 1 11 III Iv
1978 79 80 81
dSeasonally adjusted at an annual rate.
Figure 2
Japan: Trade Surplus
^ World
^us
1980
Prt?ictted.
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The US Problem
Suzuki would not consider the expanding surplus a
problem if the imbalance with the United States were
not growing. The EC has persistently complained
about Japan's surplus, but the European countries
have little leverage with Japan. The EC absorbs only
13 percent of Japan's exports, and many of the big
ticket items autos, trucks, electronics-already face
quotas or other restrictions. Recent plans to initiate
proceedings against Tokyo for alleged violations of the
GATT code will, in themselves, have no im act on
Japanese policy.
Complaints from Washington are another story. The
United States is still Japan's principal market-
absorbing a quarter of Japan's overseas sales-and is
the dominant customer for items such as autos, video
tape recorders, and sophisticated electronic compo-
nents. More important, Suzuki knows that a major
task of a Japanese prime minister is to manage the
important relationship with the United States. He
realizes that if he lets differences over trade get out of
control, his own party as well as the media will
question his ability to govern
At the same time, he must avoid charges of giving in
to US pressure. The press and opposition parties
accused him of caving in to Washington in December,
when his cabinet approved a relatively large increase
in defense spending while holding down outlays for
social programs. Suzuki could face such charges again
as his government responds to US demands f trade
liberalization
Japan's trade problem with the United States was one
of the major issues that Suzuki considered as he
selected his second cabinet last November. Earlier in
198 1 personal rivalries between the Minister of Inter-
national Trade and Industry and the Foreign Minister
had prevented a coordinated government policy on
trade with the United States and the EC. Shintaro
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Abe (the new MITI Minister) and Yoshio Sakurauchi
(Foreign Minister) are competent team players who
worked well together as top LDP executives in 1979-
81. Both are sensitive to the problems of bureaucratic
coordination and are skilled in the Japanese practice
of consensus building and compromise.
Suzuki also has reached outside his cabinet for help:
? He has tried to build support in the business
community by asking a group that includes senior
business leaders to consider methods for easing
trade tension.
? He has established a special LDP council on inter-
national economic measures in an effort to build a
party consensus in favor of trade liberalization.
The goals of the reform package are to cut the size of
the government and to eliminate the budget defSofar the following measures have been 201
recommended.
? A 10-percent cutback in government subsidies.
? Cuts in subsidies to the National Welfare Pension
system.
? A reduction of government contributions to national
insurance programs.
? Cuts in cabinet ministers' salaries.
? A 5-percent reduction in the number of govervnnent
employees over the five-year period beginnin in P'1'
1982.
? A reduction in deficit fundingfrom 12 percent in FY
1981 to 8 percent in FY 1982.
Suzuki has planned carefully to forestall domestic
criticism of government proposals for reducing trade
friction, but he still runs the risk of not going far
enough to case US pressure or of going too far for his
party's supporters. Although Abe and Sakurauchi can
work together, the contrasting constituencies and
mandates of their ministries will inevitably lead to
interministerial friction, which Suzuki may have to
settle. Furthermore, many senior party members be-
lieve that the bureaucracy-noted for its resistance to
change will procrastinate on the trade issue, thus
forcing decisions at the political level. (See the appen-
dix on trade policy.)
Because support from rural, agricultural constituen-
cies has kept the LDP in power for 27 years, rapid or
significant changes in agricultural quotas are unlike-
ly. In fact, the special LDP council made no recom-
mendation on agricultural quotas when it presented
its package at the end of January. According to
Masumi Esaki, who heads the council, these issues
require "further study."
Other lobbies besides agriculture may also create
problems for Suzuki. Groups ranging from the auto-
mobile industry to the banking community provide
political funds to various LDP factions. Members of
those factions will oppose any change in trade policy
that would provoke their supporters. Although the
Ministry of Foreign Affairs and MITI acknowledge
the need to liberalize the service sector, the Prime
Minister is reluctant. Japanese banking and financial
institutions-one of his faction's major sources of
political funds have petitioned him to oppose relax-
ation of controls on foreign banks and insurance
companies. Perhaps as a result, the Esaki council also
deferred recommendations on nontariff barriers in the
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Administrative Reform
In part because his predecessors tried to reflate the
economy and curb the trade surplus by pumping up
government spending, Suzuki inherited a large and
growing budget deficit when he took office in July
1980. To rectify this he established as his top goal a
comprehensive program-known as administrative re-
form-to curtail public outlays and eliminate' SX1
deficit. With the support of a broad coalition of
forces, including the business community, his own
party, and several opposition parties, Suzuki last fall
won Diet approval of broad fiscal and budgetary
reforms 25X1
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The next stages of administrative reform will be more
difficult because they require cuts in government
personnel and in politically sensitive subsidies. None-
theless, Suzuki has said that he intends to move
ahead, probably because he believes the political cost
of publicly backing away from a goal on which he has
placed top priority would be too high
increased defense cooperation with the United States
as a possible threat to Japan's peace Constitution.
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If Suzuki is not responsive to US pressure on defense,
however, some in the LDP worry that Washington
will tie the issue to trade. Tokyo is already concerned
about charges by several US Congressmen that the
His commitment to trimming government spending, Japanese have used their "free ride" on defense under
however, limits his options for solving the trade the Security aty to build their economic advan-
roblem tage
I lalthough the plan to accelerate the
tariff cuts agreed upon at the Tokyo Round of the
multilateral trade negotiations and to remove some
tariff barriers will contribute to reducing the trade
imbalance, those measures will not be sufficient to
ease foreign pressure the
government must stimulate domestic demand in order
to increase imports and reduce trade friction. If the
Prime Minister remains committed to fiscal austerity,
however, he will be unable to take some of the
traditional steps designed to increase demand, such as
increasing public works spending or significantly cut-
ting individual income taxes
Defense
Pushing ahead with administrative reform will also
undercut Suzuki's ability to respond to US pressure
for an increased defense effort. The administrative
reform program includes budget reductions in such
popular areas as education and welfare. Opponents of
these cuts will demand that defense be included. If it
is not, the opposition parties will charge that Suzuki
has bowed to US pressure
Suzuki's Options
The Prime Minister cannot avoid decisions on these
problems. Japanese officials believe that US pressure
will continue and are concerned that Washington will
make more demands on Japan, particularly on agri-
cultural issues. As a result, they will be looking to
Suzuki for help in defending Japan's policies or in
taking new initiatives to reduce tensions. From his
point of view, the Prime Minister does not want to be
criticized or politically embarrassed at any of the
already scheduled international meetings such as the
Economic Summit in France in June.
Faced with the growing trade imbalance, sluggish
domestic growth, and falling tax revenues, Suzuki
could decide to focus more attention on economic
policy in the next few months. A likely step would be
to relax monetary policy further. Although this would
help the housing industry, it could also aggravate the
recent depreciation of the yen, thus enhancing the
competitiveness of Japan's exports and increasing the
trade imbalance.
The Prime Minister tried to preempt some of that
criticism before the Diet session opened in late Janu-
ary by stressing that the increase was not a reflexive
response to the deteriorating international situation
but rather was carefully designed to allow Japan to
defend its own territory.
Suzuki could also advance the schedule for JFY 1982
general accounts expenditures to stimulate domestic
activity. Some LDP officials are pushing this idea.
uzuki has adjusted
the ceiling on government borrowing during January-
March to prevent a shortfall in public spending
because of slipping tax revenues. Suzuki also has
hinted that he may slow the pace of administrative
Despite Suzuki's efforts to defuse the defense issue,
the opposition parties and much of the media will
continue to protest. They are also likely to play up
reform without abandoning the effort entirely.1
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Early 1982 Japan will be under considerable pres-
sure from the United States to make
progress toward trade liberalization.
Mar The Diet will be in session until at least
mid-Mar; it will be debating the bud-
get, the transfer of military-related
technology to the United States, trade
friction with the United States and the
EC, and economic policy.
By June Japanese officials expect pressure from
Washington for a decision on the trans-
fer of defense-related technology.
By June Suzuki will want difficulties in rela-
tions with the United States and the
European Community smoothed over
prior to the Economic Summit this
summer and a private meeting with
President Reagan that may take place
during the summit.
Midyear The second report of the commission
on administrative reform will be
issued.
Early fall The verdict in the Lockheed bribery
trial involving former Prime Minister
Tanaka mar be in.
and those of Kakuci Tanaka and Takeo Fukuda
would have difficulty identifying a mutually accept-
able alternative. Suzuki has the advantage of incum-
bency and of a record in office that shows some
successes. Although economic growth remains below
hoped-for levels, inflation has dropped sharply. After
a series of missteps in handling US-Japanese relations
last spring, Suzuki has won support from most of' his
party for several moves in trade and defense policy
designed to put bilateral relations back on an even
keel. In addition, he skillfully built support for Diet
passage of the first stages of his administrative reform
program 25X1
In November Suzuki improved his political position
when he named a new cabinet and appointed new
party executives. He ensured continued support from
former Prime Minister Tanaka by naming a senior
leader of the Tanaka faction, Susumu Nikaido, to the
powerful post of party secretary general and appoint-
ing other Tanaka faction members to the important
posts of acting secretary general and chairman of the
Diet Policy Committee. He also made certain he
named a factionally balanced cabinet that included
his potential rivals, in an attempt to lock them into
support for his policies. 25K1
The Political Outlook
If Suzuki seriously mishandles any of the problems
facing his government, he will damage the chances for
achieving his primary political goal for 1982--reelec-
tion as president of the LDP, and thus as Prime
Minister. At this point, the odds are still in his favor.
The three mainstream factions in the LDP-his own
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In addition to dissension within the cabinet, Suzuki
will confront increased factional maneuvering within
the LDP as the election of the party president
approaches:
? Unless additional measures to increase imports are
thoroughly worked out within the party-especially
those related to such politically sensitive items as
beef, citrus fruit, leather, and tobacco-Suzuki
could be in enough political trouble with party
members to threaten his reelection.
? Komoto could use Japan's domestic ec n
culties to build a case against Suzuki.I
? If Suzuki retreats on administrative reform, Naka-
sone could try to work this to his advantage.
? Finance Minister Watanabe may be a possible
compromise candidate for LDP president, and he
may begin gathering support.
? The Fukuda faction, although now part of the
triumvirate that supports Suzuki, might lead the
criticism if Suzuki mishandles the US-Japan rela-
tionship
We expect that Suzuki's ties to Tanaka will last
through the November election. The former Prime
Minister is currently one of those on trial for involve-
ment in the Lockheed scandal, and he is trying to
delay the verdict until after the LDP elections. He
probably believes his chances are improved by sup-
porting the current Prime Minister. If Tanaka is
found guilty before the LDP elections, however, Su-
zuki could face widespread criticism for his links to
corrupt officials.
Implications for the United States
Suzuki is sincerely anxious to ease the strain in US-
Japanese relations, but he is cautious by nature and
will not move out ahead of his party or government in 25X1
initiating policy-either in the near term or if he is
reelected. In the months ahead he will continue to
look for specific problems in trade or other areas to
which Japan can make limited responses.1
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Although Suzuki hopes to thread his way through the
difficult months ahead, criticism of his performance
will mount within the LDP as the elections approach
and various factions jockey for power. If he is accused
of giving in to Washington, he will be less likely to
take or to follow through on bold initiatives. He will
also be inclined to?try to wait out US pressure, which
many Japanese believe will subside once the US 25X1
economy picks up and the Congressional elections are 25X1
over. 25X1
If Suzuki is not able to win reelection, no one
successor stands out. None of his rivals, in any case,
would have much more freedom of action. Fukuda or
EPA Director Komoto would probably try to stimu-
late the economy to boost imports. They might have
more negotiating room than Suzuki on agriculture
but, because of strong factional ties to industry, less
on nontariff barriers. Tanaka has suggested that the
time has come to liberalize the agriculture sector.
With Tanaka's powerful backing, a prime minister
from his faction (such as LDP Secretary General
Nikaido) might be able to build the party consensus
necessary for some movement in this area.
If the party opts for a president outside of the three
mainstream factions now supporting Suzuki, Naka-
sone, who heads his own faction, and Watanabe, an
independent, are clear possibilities. Nakasone would
probably be more in favor of an enhanced defense
effort than Suzuki but would have difficulty selling an
ambitious plan to the cabinet and the Diet. Watanabe
would likely be more flexible on trade barriers than
the Prime Minister but would be less likely than
Komoto to advocate stimulation of the domestic econ-
omy.
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Appendix
Tokyo's Trade Policy
Foreign pressure, particularly from the United States, has pushed Prime Minister
Suzuki to take initiatives to trim Japan's trade surplus. Suzuki's policies apparent-
ly are tailored to give the impression that Tokyo has made
commitment to open Japan's domestic market. 25X1
In mid-December, Suzuki announced his External Economic Measures Program,
which included:
? Accelerated cuts in tariffs.
? Subsidies for raw material stockpiling.
? $330 million in funds for increased oil reserves.
? $500 million in foreign currency loans for emergency imports on the condition
that the yen appreciates.
? A reported $90 million could be made available to purchase foreign grain to be
used as food aid.
? A promise to review Japan's nontariff barriers.
The net short-run impact will be small, however, because the plan included money
for oil stockpiling that would have been spent anyway and money for raw material
inventories that probably would have been rebuilt without government help
The longer term impact is harder to judge. We estimate that Tokyo's plan io5X1
accelerate tariff cuts on 1,653 items could cause Japan's imports to increas
roughly 0.6 percent annually. In 1980, for example, the total impact would have
been $900 million in additional purchases. 25X1
In late January Tokyo announced that 67 nontariff barriers would be removed or
relaxed and that an Office of Trade Ombudsman would be established to handle
specific problems. Measuring the impact of lower nontariff barriers is almost
impossible. It is not clear, for example, how Tokyo will change some of the
unwritten customs inspection standards that have been in practice for years. Tokyo
will have to follow up with specific rulings demonstrating that barriers described
as being relaxed "in principle" have actually changed. Nonetheless, foreign firms
will probably face fewer aggravations in selling to Japan
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The Next Step
Most Japanese officials believe that the recent policies, although played up as a
major program, will not substantially ease US pressure:
? Government officials still project the trade surplus to increase this year.
? MITI Minister Abe is very concerned that Japan will be used as a scapegoat in
the US Congressional elections in November.
Tokyo, however, has no major new initiatives under serious consideration. Some
officials are suggesting Suzuki adopt a more flexible position on agricultural
quotas. Others want him to stimulate the economy to spur imports
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