Japan Yasu, the Chips Are Down

By Howard G. Chua-Eoan

It is not the best of times for Prime Minister Yasuhiro Nakasone. Even his vaunted friendship with Ronald Reagan could not prevent the imposition last week of stiff U.S. tariffs against $300 million worth of Japanese exports. The move was in retaliation against Tokyo for selling microchips below cost on world markets and refusing to buy more U.S. semiconductors. At home, where the battle cry "Uriage-zei funsai!" (Smash the sales tax!) has been raised since February, Nakasone's proposed tax reforms, which include a new 5% sales tax, have won him few friends. Last week the Prime Minister's ruling Liberal Democratic Party suffered its worst setback in 30 years in local elections. Concluded Tokyo Political Commentator Masayoshi Ito: "The Nakasone administration is in its last days."

Leery of the backlash against Nakasone's tax proposal, provincial L.D.P. politicians had gone so far as to ask the Prime Minister to stay away from the campaign hustings. Indeed, Nakasone has done little to help his dismal approval rating, which has plummeted from 39% to 24% in the past four months. Last week he rammed his new budget, overdue by two months, through a parliamentary committee. In a three-minute session marred by shoving and shouting, L.D.P. Budget Chairman Shigetani Sunada declared the measure passed and adjourned the committee. The national daily Asahi Shimbun called the incident a "rash act that shamelessly tramples down the popular will expressed by the local elections." Nakasone called the tactic "unavoidable."

The Prime Minister's supporters argue that the tax-reform bill, along with its unpopular sales levy, must be passed to stimulate domestic economic growth. The plan would reduce income taxes to encourage consumer spending, creating a greater demand for imports. The sales tax, they contend, would make up for revenue lost with the cuts. An increase in U.S. exports to Japan would then take the heat out of the trade war and help stabilize the soaring yen, which has made Japanese goods more expensive abroad. Still, despite an L.D.P. majority in parliament, both the tax and budget proposals face an uncertain future.

As the imposition of sanctions suggested, Washington is skeptical about whether Tokyo has the will to correct its $58.6 billion trade imbalance with the U.S. Last week U.S. Treasury Secretary James Baker tried to allay Japanese concern about the yen by calling a further decline of the dollar "counterproductive." Nonetheless Baker complained that Tokyo's proposed economic reforms "are not yet government policy" and warned that "Japan still must do more."

The Reagan Administration's new 100% tariffs were levied on some Japanese color TVs, personal computers and power tools. Although the sanctions will affect only a tiny fraction of overall bilateral trade, they will hurt some Japanese manufacturers. But for the middlemen peddling Japanese microchips to foreign buyers, business will probably go on as usual. Already some American enterprises dependent upon inexpensive Japanese chips are busy looking for legal loopholes to exempt them from the U.S.-Japanese semiconductor agreement signed last year. In the meantime, tensions show no sign of abating. When Yasu calls on his friend Ron at the end of the month, the atmosphere is likely to be cordial but strained.

With reporting by Gisela Bolte/Washington and Yukinori Ishikawa/Tokyo