PHOTO CAPTION - As fellow parliament members applaud, Japanese Prime Minister Junichiro Koizumi (C) stands up after winning re-election as president of the ruling Liberal Democratic Party (LDP). AFP PHOTO

TOKYO - Japanese Prime Minister Junichiro Koizumi was re-elected Liberal Democratic Party (LDP) president on Saturday in a landslide victory, garnering 399 of 657 votes (61 percent). Of the ruling LDP's 357 lawmakers in both houses of parliament, 194 (54 percent) voted in his favor. More significant, he received 205 of the 300 votes (68 percent) allotted to the 1.4 million LDP rank-and-file, repeating his strong showing among ordinary party members, which - in the spring of 2001 - had given him a surprise victory over former prime minister Ryutaro Hashimoto. If Koizumi serves out his three-year term and the LDP, as expected, wins Lower House elections (likely to be held in November), he will become the longest-serving Japanese prime minister in three decades, topping the five years in office of his role model Yasuhiro Nakasone.

How important is all this in a country still largely run by a thin elite of bureaucrats and big-business leaders hobnobbing with one another and a handful of LDP elders? Probably more so than immediately meets the eye.

It all started with an improbable, high-risk, but quite brilliantly conceived mischievous political tactic. Japan needs radical reform, Koizumi told voters - and by itself that would have been a great big yawn. The twist that got a jaded public's attention was Koizumi's incongruous threat (or promise) to destroy the LDP if it blocked his proposed reform policies. LDPers cheered, betting that reform would win out over destruction and keep the party in power. Ordinary voters embraced the guy who looked the part to pull off what he promised and would allow them one more time to vote for the party they love to hate, but to which there's no alternative. It was a deal, and it has just been reaffirmed. The three stooges who ran against Koizumi on Saturday proved a useful foil and couldn't have been picked any better if the whole affair had been carefully scripted.

That Koizumi, 61, a life-long LDP worker, is good at politics had long been known. What surprised observers is that last October, after a year and a half of much reform talk and little action, he made some tough economic policy and personnel decisions that - hard to believe though it may be - have put Japan on a solid reform track to sustainable economic expansion for the first time in more than a decade. Koizumi didn't think up those policies, but has been indispensable to pushing them through against the opposition of the LDP old guard and reticent bureaucrats, and for a year now he has made few mistakes. If he can maintain that track record through September 2006, he will have changed Japan.

At least since 1998, when two major policy banks (Long Term Credit and Nippon Credit) went bust and the entire banking sector required some US$80 billion in public-fund injections to stay afloat, it has been known that only a radical overhaul of the financial system could fix the economy and defeat debilitating deflation. But all that happened was that a dozen large banks merged into four unwieldy megabanks while non-performing loans (NPLs) continued to pile up, bank lending declined rapidly, and the next crisis was just waiting to happen. The Financial Services Agency (FSA), the bank regulator split off from the Finance Ministry in 1998, made reform plans but did nothing. The (central) Bank of Japan (BOJ) under conservative governor Masaru Hayami adopted ultra-easy monetary policies to keep the banks flooded with cash, but otherwise did nothing.

But by last autumn, warning signals could no longer been overlooked. Toyota chairman Hiroshi Okuda, also the head of big-business federation Keidanren, warned that one of the big four banks could go under before year-end. Then Koizumi acted - to screams of bloody murder by the LDP dinosaurs. FSA minister Hakuo Yanagisawa was fired and replaced by Economic Policy Minister Heizo Takenaka, now doing double duty. A "Takenaka team" of private-sector advisers and finance officials drew up drew up an ambitious reform plan to dispose of half of all NPLs in the banking system by the end of fiscal year 2004 (March 2005) and enact strict bank supervision. Failing to meet stringent new performance criteria, they would be taken under government control.
The plan was resisted as expected. Little new happened until Koizumi had a further chance to make a critical personnel decision in March. At that point, BOJ governor Hayami was replaced by new man Toshihiko Fukui, who fully backed the Takenaka proposals and immediately set to work to design and implement monetary-policy measures supportive of restoring banks to health and - in particular - to strengthen and diversify capital markets and develop new credit channels to cash-starved small and medium enterprises crucial in new job creation. The big bang came in mid-May with the de facto nationalization of Resona Bank, Japan's fifth-largest. The ax had fallen and now markets began to believe that the Koizumi banking sector and reform and overall business deregulation and privatization policies were for real. The large gains of the Tokyo stock market (40 percent since May) speak for themselves, as do the second-quarter real gross domestic product (GDP) growth numbers (3.9 percent), which show Japan growing faster than the United States (3.1 percent) and euroland (-0.1 percent).

Koizumi quickly made the most of his election triumph on Monday. Against the opposition of the dinosaurs who had explicitly asked for Takenaka's head in return for their support to Koizumi, he reappointed the minister to his twin jobs. He replaced ailing finance minister Masajuro Shiokawa with a strong Takenaka ally, Sadakazu Tanigaki, and he appointed Nobuteru Ishihara, son of the controversial Tokyo governor, to the position of transport minister, from which he will administer the public highways corporations slated for early privatization. Koizumi also appointed Shinzo Abe, 49, son of the late foreign minister Shintaro Abe, to the position of LDP secretary general. With that, he now for the first time has his own team in place at all principal levels of government and party.

Reform until recently, to cynics, had still mainly meant a wild hairdo and belting out Elvis songs in karaoke bars (Koizumi, like Elvis Presley, was born on January 8). It won't any longer.

Katsuo Hiizumi teaches modern East Asian history with special reference to China and overseas Chinese at Aichi Prefectural University, Nagoya. From 1983-85 and from 1988-92, he served in Bangkok as a special assistant to the Japanese Ministry of Foreign Affairs. His publications include Kakyo Konekushon (The Overseas Chinese Connection), Kyogeki to Chugokujin (Peking Opera and Chinese), and The Past and Present of Chinese Economic Area.