Left Flank

The latest Japanese prime minister's resignation is raising hopes, even as members of the ruling Liberal Democrats (LDP) start to jockey for spots on the party ballot, for the health of Japanese democracy.

Japanese politics may have entered its most exciting period in more than 50 years.

The excitement lies in the probable collapse of the old political order and the realignment it will herald. Of course, such a transformation has been predicted—and avoided—for years. And the ruling Liberal Democratic Party (LDP) still has two powerful weapons: its well-oiled machinery of patronage and the incoherence of the main opposition, the Democratic Party of Japan (DPJ). Politics still looks deceptively like business as usual. Indeed, in the end, it was a belated attempt to pursue reform and take on some of the LDP's vested interests that did for Mr Fukuda. He exhausted himself struggling against them. The succession will be decided in the traditional manner: among the LDP's barons, without asking the electorate. Japan will have its third leader in a row not to have led his party to a victory at the polls. Japan's top-down politics stands in stark contrast to America's thrilling primary season.

The LDP's troubles, and by extension, Japan's, bear striking superficial similarities to the American GOP's.

In his pronouncements, Mr Fukuda showed a keen sense of how Japan needed to tackle the burdens of an ageing population and mountainous national debt. He challenged his party's own pork-barrel interests, particularly the road-construction lobby, which not even Mr Koizumi defeated. In foreign matters he kept relations with America from fraying, by using the ruling coalition's supermajority to ram through legislation allowing Japan's navy to refuel ships in the Indian Ocean in support of efforts in Afghanistan. And he deepened Mr Abe's initiatives to warm Japan's ties with neighbouring China and South Korea. But there was no denying it: Mr Fukuda's leadership lacked even a smidgen of colour; the one thing he was not, as he admitted this week, was popular.

Yet, unlike the American economy's, the Japanese economy's problems look lighter.

The biggest contrast with America and Britain is that Japanese households have reduced their debt from 71% of GDP in 2000 to 63% this year, according to Goldman Sachs. This is much lower than debt ratios of around 100% in both America and Britain, where borrowing has exploded over the past decade (see chart). The only other G7 economy where consumer debt has declined is Germany, which has also avoided a housing bubble.

Japanese companies have trimmed their debts even more dramatically, to 78% of GDP from 130% in 1991. The level is now well below where it was before the 1980s bubble, though higher than corporate America's debt of less than 50% of GDP. (American firms have traditionally relied more on equity financing.) On the other hand, corporate debt has expanded rapidly in the European Union.

Heavy debts, falling property prices and a shortage of new credit are a lethal cocktail, which could depress economic growth in America and parts of Europe for several years—as Japan itself found out in the 1990s. Today Japan's economy is much less burdened by debt and so likely to recover more quickly.

Another reason why the downturn in Japan could be fairly mild is that almost half of Japan's exports go to other buoyant Asian economies. Exports had been the main force behind Japan's recovery before they slowed this year. Shipments to America and to Europe have fallen, but demand from the rest of Asia remains strong. In July, for the first time, Japan exported more to China than to America.

Politically, though, as both Garrett DeOrio and Japan Observer relate, the LDP has deeper troubles. TPR has an excellent podcast, in which DeOrio argues that scandals - » 'political funds, pension records, hepatitis C and the Defense Ministry scandals' » - undid Fukuda. Both pundits agree that the front runner, Taro Aso, is not the usual conservative. That will not mean much on the foreign policy plane, where Fukuda's moderate stance worked well with Beijing. The rest of the slate reflects ideological differences and factional splits between moderate conservatives and reformers.

Autumn could bring electoral surprises all around the Pacific Ocean.

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