Given another three years at the helm of the ruling Liberal Demo-cratic Party (LDP), Japanese Prime Minister Junichiro Koizumi last week rode out party resistance and reaffirmed the economic reform agenda aimed at bringing Japan out of its 13-year slump.
The LDP had returned him with a healthy majority to its presidential slot, guaranteeing him a further term as prime minister.
The following day Koizumi overrode the party’s wishes and kept a Cabinet designed to press on with the economic reform policy he believes will revitalise the long-stagnant Japanese economy and build a new nation.
The most infuriating symbol of this for the LDP is the university professor Heizo Takenaka, who held the dual porfolios of economic affairs and finance. Parliamentarians wanted Takenaka stripped of at least one of these.
The prime minister was adamant that “the new line-up makes it clear there will be no change at all in the Koizumi reform course”. Takenaka’s main task is to reduce by half the ratio of bad debt held by banks by the end of fiscal 2004.
Despite feuds with LDP members and the banks, he believes this goal is attainable.
“The fact that Koizumi decided to choose me again shows his strong feelings on promoting structural reform,” said Takenaka.
“Now that the first buds of structural reform in the economy are appearing, my job will be to ensure it grows into a large tree.”
Those buds came under threat almost immediately as the Japanese celebrated their autumn harvest holiday and the yen hit a 30-month high against the dollar.
A weaker yen is the cornerstone of Japanese export recovery that rests on a continued trade surplus.
Nevertheless Japan joined other members of the Group of Seven wealthiest nations in Dubai last weekend calling for more flexible exchange rates.
This was an undisguised move against the tendency of Japan and China to artificially keep the value of their currencies down.
Traders immediately began testing Japanese resolve.
If Japan’s slump is over, the yen must inevitably rise with capital seeking to get into the rally.
On the other side of the world, the dollar will eventually have to come down to correct the record United States trade deficit.
US President George W Bush must want a weaker dollar as he seeks a second term from the electorate next year.
The currency race to the bottom by the world’s two largest economies could well amount to an economic World Series.