OPINION

DECEMBER 31, 2009.

Why Japan Needs a 'Hatobama' .

By IAN BREMMER
AND NOURIEL ROUBINI

Like President Barack Obama, Japan's new Prime Minister Yukio Hatoyama made lots of extravagant economic and foreign policy promises on the road to victory earlier this year. Mr. Obama has shown flexibility and the willingness to compromise. Will Mr. Hatoyama do the same? If not, Japan will be in for a rough ride in 2010.

In some ways, Mr. Hatoyama's victory was even more historic than the American election. His Democratic Party of Japan (DPJ) ousted the Liberal Democratic Party (LDP) that had held power virtually without interruption for more than five decades. Like Mr. Obama, he's had to come to grips with enormous immediate challenges, beginning with the need to kick start a stalled economy. Japan's public debt is approaching 200% of gross domestic product—by far the largest debt-to-GDP ratio in the industrialized world.

Mr. Hatoyama's promises were ambitious, and sometimes even contradictory. Recognizing Japan's financial limitations, he and his party pledged to slash wasteful state spending. Yet he has also called for "an economy of the people" that includes considerable state subsidies, and his government put forward a record high initial budget request of 95 trillion yen.

The government has now moved ahead with a new bond issuance, with a promise to cap the new debt at about 44 trillion yen. Mr. Hatoyama has announced plans to halt the privatization of Japan Post bank, an enormous enterprise with more than $3 trillion in assets that helps finance state spending. And he has reiterated a pledge that Japan will reduce carbon emissions 25% below 1990 levels by 2020, a promise that will soon prove too costly to keep.

On foreign policy, the new prime minister has argued that the U.S.-Japan relationship should develop toward a partnership of equals. But despite some blunt warnings from Washington, DPJ officials have yet to resolve the standoff over the controversial relocation of a helicopter base and 8,000 Marines from Japan to Guam. This is a deal the U.S. believes it settled with the previous Japanese government in 2006.

In Washington, the prime minister's critics are becoming more vocal. Former National Security Council director for counterproliferation strategy Carolyn Leddy recently accused the Hatoyama government of "increasing security policy schizophrenia."

Mr. Hatoyama's domestic approval numbers have taken a tough hit: A Kyodo News poll last weekend found that disapproval of the government surged to 38.1% this month from 25% in November. And the risk remains that he will try to keep too many of his campaign promises, deepening Japan's debt without actually spurring growth. He also risks undermining a security relationship with Washington that remains essential for East Asian stability.

There are two main reasons why Mr. Hatoyama's unrealistic goals are more worrisome than any of the economic plans Mr. Obama has proposed.

First, there are far fewer political checks on Mr. Hatoyama's ability to pursue them. Mr. Obama faces a hostile Republican Party, a divided electorate, and moderates within the Democratic congressional caucus skeptical of his plans. He has accepted compromise on important issues like health-care reform and troop deployments to Afghanistan because he knows he must. Recognizing the complexities involved, he's taken a go-slow approach on domestic climate change legislation and the closing of the prison at Guantanamo Bay. Fiscal conservatives in both parties make a second stimulus package all but politically impossible.

The DPJ, meanwhile, has built a strong single-party majority in the lower house and relies on a pair of coalition partners to dominate the upper house. Mr. Obama's party has majorities too, but Mr. Hatoyama faces fewer institutional obstacles, like the filibuster, to setting a political agenda and pushing it forward.

Finally, the U.S. has a two-party system that allows business and industry groups to hedge their bets by lobbying both sides. Five months ago, Japan had a one-party system—one in which business elites negotiated legislative language with an LDP-dominated bureaucracy. For the commercial elite, it now has a no-party system, a ruling coalition of mostly new faces with far fewer connections in the business world.

Mr. Obama's innate caution and his willingness to compromise are likely to serve him well. To spare Japan an unnecessarily turbulent 2010, Mr. Hatoyama needs to become "Hatobama," a pragmatist ready to disappoint ideological allies and assuage centrist fears of a policy agenda his country simply can't afford. Japan's recovery is riding on it.

—Mr. Bremmer, president of Eurasia Group, is co-author of "The Fat Tail: The Power of Political Knowledge for Strategic Investing" (Oxford University Press, 2009). Mr. Roubini is a professor of economics at New York University's Stern School of Business and chairman of RGE Monitor.