FOCUS: 1 yr after Lehman collapse, Japan wrestles with wakeup call for change

TOKYO, Sept. 12 Kyodo -
When U.S. investment bank Lehman Brothers Holdings Inc. collapsed last
September, Japan was jolted awake from decades of lassitude by an offshore
crisis that nearly led to the meltdown of the global financial system.
Just one year later, traditionally apathetic Japanese voters said ''no'' to the
status quo and catapulted into power an untested leadership that promises core
changes to Japan's political, economic and foreign policies.
The opposition Democratic Party of Japan dethroned the long-ruling Liberal
Democratic Party in a sweeping general election victory, pledging to wrest
power from bureaucrats and restore it to politicians.
''The (Lehman) collapse provided a tipping point for Japanese to finally say
they have had enough failure -- that failure from politics was no longer
acceptable,'' said Devin Stewart, an East Asian expert and director at the New
York-based Carnegie Council for Ethics in International Affairs.
Big-name companies like Toyota Motor Corp. and Sony Corp., once the bedrock of
Japan's postwar economic miracle, also became instantly vulnerable as the
financial turmoil ravaged their lifeline exports, dragging Japan into its worst
economic recession in half a century.
Yet, despite what many labeled a ''once-in-a-century crisis,'' most economists
agree that signs of bottoming out are already emerging after companies pushed
through massive job and production cuts and as the government rolled out a
large stimulus package.
The economy expanded in the April to June quarter for the first time in more
than a year. The key Nikkei stock index, though still falling short of the
pre-Lehman level, has also soared around 50 percent to above the 10,000 range
since it crashed to a 26-year closing low in March.
''There was unprecedented speed in the response,'' Hideo Kumano, chief
economist at the Dai-ichi Life Research Institute said, adding the stimulus
measures, inventory adjustments and booming demand in China all supported the
rebound.
Meanwhile, a string of overseas acquisitions by an increasingly fervid Japanese
investment banking sector, once criticized as too rash and risky at the height
of the credit crisis, are showing some signs of paying off.
Japan's largest brokerage house Nomura Holdings Inc., which acquired a part of
Lehman's operations, returned to profit in the April-June period for the first
time in six quarters, partially thanks to new business deals orchestrated by
the Lehman talent on the back of improving market conditions.
But company executives warn a faster-than-expected rebound in the Japanese
economy is still insufficient to reinstall jobs and resume tightly-controlled
capital spending, especially in view of fragile demand supported by fixed-term
stimulus measures.
''We are still at the rock bottom ... Strength-wise, we're still continuing
'blood transfusion,''' Toyota President Akio Toyoda recently told reporters.
Echoing the guarded tone, Nissan Motor Co. Chief Operating Officer Toshiyuki
Shiga said, ''Conditions at the moment are okay but the economy is not yet
fully recovering so we can't help being cautious.''
And whether Japan can depart from a deep-seated corporate structure susceptible
to external shocks will largely depend on whether the new administration led by
DPJ leader Yukio Hatoyama can build an economy more driven by internally
created demand.
''The LDP administration was not able to make a policy shift'' that would hurt
export-oriented manufacturers, said Yukio Noguchi, a professor at Waseda
University's graduate school of finance and a former Finance Ministry official.
''The question now is whether the DPJ can do this, but that's still unclear,''
he said.
Some market players have strongly favored the yen after the DPJ win in late
August as they count on its pledge to overhaul Japan's vulnerable economic
structure, which manifested after the Lehman crisis.
''It is possible that a shift towards an economy led by internal demand will
become inevitable with the acceleration of the yen's appreciation,'' Noguchi
said. The U.S. dollar recently slipped to a seven-month low at the upper 90 yen
level.
Experts say changes in foreign relations have also been reinforced after the
Lehman crisis, a shift Japan has long struggled with as it seeks to keep intact
its alliance with the United States while preparing to surrender to China its
status as the world's second-largest economy.
''This crisis has led Japan, Korea and China closer together,'' said Kent
Calder, director of the Edwin O. Reischauer Center for East Asian Studies in
the School of Advanced International Studies at Johns Hopkins University.
''I don't think it directly threatens the U.S.-Japan alliance,'' Calder said,
adding Japan needs to broaden its bilateral ties with the United States into
new areas like energy and the environment while building confidence with its
Asian neighbors.
While doubts are already rampant about whether Hatoyama will stick to promises
of change in long-entrenched political, economic and foreign ties, both Japan's
businesses and people seem willing to try untested waters as they scramble to
survive an uncertain post-Lehman era.
''Voters understand that a bright scenario cannot be depicted with the status
quo,'' Kumano said. ''Changes have to be delivered.''
==Kyodo