Japanese Prime Minister Yasuo Fukuda must have found tackling some of the world's most pressing problems at last week's G-8 summit in Hokkaido, Japan, something of a relief from his domestic travails. Yet despite managing to win praise from world leaders for making at least some progress on issues including climate change, back in Tokyo things are looking less rosy. The Cabinet has seen its poll ratings plunge to about 25 percent, according to a Kyodo News poll released last month, while Fukuda himself suffered the indignity of seeing a censure motion against him pass the House of Councillors - the first time this has happened under the current Constitution. "One of the big problems is the social security system," said Prof. Akira Nakamura of the School of Political Science and Economics at Tokyo's Meiji University. "Elderly people are not happy they [the LDP] have not been successful in making clear what we can expect from the social security system." The future of social security is a major concern in a country that is aging rapidly and where a declining birth rate saw the country's population decline in 2005 for the first time since the World War II. Japan's government debt also hit a record 180 percent of GDP in 2007, according to the OECD, the highest ever recorded in the zone. The LDP's problems on social security have been compounded by a pension fiasco in which 50 million of pension records were lost by the Social Insurance Agency. "Bureaucrats and the LDP are two sides of the same coin. So when the bureaucrats make a mistake, it is considered the responsibility of the LDP," Nakamura said. But with demands on the social security system set to spiral, Fukuda appears to have taken his foot off the pedal of fiscal reform initiated under his predecessor but one, Junichiro Koizumi. Koizumi pushed through a number of reforms, including reform of Japan's enormous postal service, often against the dogged opposition of members of his own party. Such reforms were easier for Koizumi to pull off with his high personal approval ratings and apparent indifference to upsetting members of his own party. But the return of faction politics, first under Shinzo Abe and then under Fukuda, has seen the LDP's vested interests reassert themselves and dampen enthusiasm for reform. Prof. Naohiro Yashiro of the International Christian University in Tokyo notes the government burden is about to get bigger still, with a government pledge to up its share of pension contributions set to kick in. By fiscal 2009 the proportion of the basic pension benefits funded by the nation's treasury will increase from one-third to one-half. "We have a time limit problem. It's already been decided that the pension contribution has to be raised next year," Yashiro said. Like many commentators he argues for a hike in the consumption tax to cover the increase, something the LDP appears reluctant to discuss with a general election due by September of next year at the latest. "They need at least a 1 percent increase [to cover the pension contribution]," he says. "But a 1 percent increase is nonsense. There could be other technical problems, so we need to raise it by 3 or 4 percent," Yashiro said. And he believes LDP worries that the rate hike will be a vote loser are anyway misplaced. "I don't think people will be as unhappy as the LDP thinks," he said. "Whether it should be raised is not the point now, but how it should be spent. The negative image [of a rate hike] has been declining, so now the point for the public is for what purpose it should be raised. If it is for social security expenditure, I think people will be understanding." However, the main opposition Democratic Party of Japan has said the consumption tax should be kept at 5 percent, and it is also making spending commitments of its own. "The necessity to constrain the expansion in expenditures is obvious, but many LDP members don't like that because the DPJ is taking a populist approach," Yoshiro said. "So they think they can't win the election if they maintain a tough policy stance." The DPJ has also been giving the LDP a further headache by using the upper house majority it secured in elections last July to hold up key legislation, including forcing the expiration of a key gasoline tax, and holding up the selection of a new Bank of Japan governor. Some argue that with the opposition parties holding a majority in the upper house, Japan's Constitution makes gridlock inevitable. But Nakamura disagrees. "For many years, many specialists believed the House of Councilors should be abolished because it's a copy of the lower house, and its function seemed to be the same," he said. "But I think that argument is premature," he said, noting a number of other countries, including the United States, still function when the upper and lower houses are divided. Nakamura instead lays some of the blame with the ruling coalition's style of governance. "The problem is not the system itself, it's the politics of the LDP," he said. "I believe the Fukuda government will go, and we may have to have a populist prime minister like Koizumi. That's one way to regain the confidence and trust in government." Yoshiro said if the LDP wants to retain power, it will have to use the next Diet session to engage in some "serious discussions". Nakamura agrees. "In terms of policies, I think social security, medical expenses and the cost of food are three major issues the LDP has to think about and come up with a new approach on." Fukuda is already said to be eyeing a Cabinet reshuffle with a view to better acting on recommendations of reform set to be announced by the National Commission on Social Security. But electoral considerations are set to loom large. "It's a matter of long term stability versus short-sightedness to win an election," Yoshiro said. At present, it's still far from clear which side will prevail. Jason Miks is managing editor of International Affairs Forum

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