2007 was a politically significant year. It is stirring to see how much the political terrain has changed from the beginning of the year to now.

It had been expected that the July Upper House election would have a great impact on the direction of Japanese politics. The administration of Prime Minister Shinzo Abe tried to win the election by turning a "departure from the postwar regime" and revising the Constitution into major election issues. In view of the enactment in 2006 of the revision of the Fundamental Law of Education and in 2007 of the law on the procedures for a national referendum for constitutional revisions, it looked as if Abe was close to realizing his ambitions.

But Abe's Liberal Democratic Party suffered a crushing defeat in the election and the opposition gained control of the Upper House. In addition, Abe, the hope of the right, suddenly resigned in September and the LDP was cornered. Abe's political agenda completely failed to win public support. People were interested in issues close to their lives such as pensions and economic disparities, rather than changing the Constitution. In the coming 10 years, revising the Constitution will not be on the political agenda. In this sense, people protected the postwar regime through their votes in the Upper House election.

Another factor in the LDP's defeat was the public's negative assessment of the structural reforms pushed by the administration of Prime Minister Junichiro Koizumi. As far as profits of business enterprises are concerned, the economy is enjoying unprecedented expansion. But people do not feel any economic benefits in their lives. Rather they are sensing a deepening impoverishment in rural regions away from large prosperous urban areas and an employment crisis. The problem of the "disappearance" of pension premiums payments records has deepened people's unease about the future of the pension system. Japan's health services, which have been touted as among the world's best, are in danger of collapse because of reductions in doctors' pay and shortages of medical personnel.

Taking a cue from this situation, the Democratic Party of Japan adopted the slogan "People's lives come first" and succeeded in winning public support. By calling for a reduction of economic disparities, reconstruction of the pension system and assistance for farmers, the party succeeded in presenting its policies as clearly different from the LDP's "small government" agenda. This strategy helped the party to win the Upper House election.

As a result, a two-party system similar to that prevailing in other developed countries has eventually started to emerge in Japan. The political model prevalent in those developed countries consists of the Republican Party of the U.S., the Conservatives of Britain and the Christian Democratic Union of Germany on the right, and the Democratic Party of the U.S., the Labour Party of Britain and the Social Democratic Party of Germany on the left. The parties on the right attach importance to market principles and represent the interests of the business community while the parties on the left are inclined toward redistribution of wealth and income, and equality, with their power base anchored with labor unions.

In Japan, a two-party system like this did not exist. This is because for a long time the LDP pursued a market-oriented economic growth policy with preferential treatment for the business community while at the same time attaching importance to pursuing a redistributive policy by paying great attention to the socially weak and rural regions. But the Koizumi administration got rid of the redistributive policy and "purified" the LDP as a party of neoliberalism. On the other hand, the DPJ was unable to develop a clear-cut policy line and its left-wing factions were weak. But when Ichiro Ozawa became party leader, the DPJ succeeded in garnering the support of people who are worried about the future by turning economic disparities into a political issue and proposing a redistributive policy, although it did not characterize itself as leftist.

Thus a political structure in which a right-leaning party and a left-leaning party confront each other has emerged more or less. Of course, there are indications that the LDP will return to a redistributive policy in an attempt to win back public support. It also must be remembered that the DPJ adopted a redistributive policy as it tried to cope with the prevalent political situation. It is not that the party has adopted the idea of social democracy. But while the LDP cannot free itself from the influence of the business community, the Japanese Trade Union Confederation (Rengo) exercises strong influence on the DPJ as part of the party organization's power base. Because of this, a structure of right-left confrontation, which emerged in and after the Upper House election in 2007, will strongly influence the future of Japan's politics.

In November, Ozawa attempted to form a "grand coalition" with the LDP. But his attempt was quashed by the DPJ. First and foremost, public opinion was clearly against such an idea. People want a clear-cut two-party structure.

As the extraordinary Diet session has been extended to continue into 2008, Prime Minister Yasuo Fukuda is facing difficulties managing government. The prime minister decided on a second-time extension of the Diet session, giving priority to military cooperation with the U.S. But people are more interested in the pension problem. Because Fukuda didn't seem to take seriously his predecessor's public pledge that the government will solve the problem of hard-to-identify pension premiums payment records by the end of March, the approval rate of the Fukuda administration plummeted to 35 percent in a Kyodo News poll. The Fukuda government has entered dangerous waters.

The LDP must want to delay the dissolution of the Lower House and subsequent general election as long as possible. But it is certain that the ordinary Diet session will be thrown into confusion from the beginning. The fiscal 2008 budget can be enacted only with the vote of the Lower House. But budget-related bills, including tax-related bills, must be passed by both chambers. For Fukuda to stay in power, the ruling parties, which occupy a more than two-thirds majority in the Lower House, will have to rely on the emergency measure of the Lower House passing for a second time all the budget-related bills voted down by the opposition-controlled Upper House.

For example, whether to continue the higher-than-normal gasoline tax rate has become a political issue between the ruling and opposition blocs. If the tax is lowered to the normal rate, the price of gasoline per liter will fall by more than ?20. But it will cause a deficiency in tax revenues. If the ruling coalition fails to pass the gasoline tax-related bill by the end of March due to the resistance of the opposition, the nation's economic activities will be thrown into confusion. Thus from the start of the ordinary Diet session, attack and defense between the ruling and opposition camps over budget-related bills will be fierce.

In addition to budget-related bills, there is the possibility that a wider corruption case involving politicians may be brought to light by the bribery arrest of former Vice Defense Minister Takemasa Moriya and could rock the Fukuda administration. If LDP politicians are found to be involved, lawmakers would be unable to even think about Diet deliberations on the budget. If the approval rate of the Fukuda administration sinks further, there may be calls even from among LDP members for a change of prime minister. The Fukuda administration will have no alternative but to dissolve the Lower House in spring at the earliest or after the G-8 summit in July at the latest. If public opinion continues to prevail, it will be extremely difficult for the LDP to stay in power.

It may be said that the crisis of LDP-dominated politics, which has continued since the formation in 1993 of the anti-LDP coalition government of Morihiro Hosokawa, has clearly come to a head. The essence of the problem is that the LDP cannot take the initiative in changing the policy paradigm that was successful to a certain extent in the postwar years. The paradigm consisted of economic growth led by exports, pork barrel spending in the form of public works distributed throughout the country without any strategy, dominance of bureaucrats and lack of control over them by politicians, and such reliance on the U.S. that independent diplomatic thought and initiatives are impossible. As the economic bubble burst and the Cold War ended in the 1990s, those elements put a brake on Japan's development. For a very short period of time, forces opposing the LDP captured the reins of government and tried to carry out reform. But the government was too short-lived. During the Hosokawa administration, the LDP learned that once it is out of government, it faces a danger of dissolution. After that, it continued to stay in power by changing its coalition partners ? first the Japan Socialist Party, then the Liberal Party and lastly Komeito.

As the 21st century set in, the LDP regained its strength by having Junichiro Koizumi, who was a popular character, as its front man. But Koizumi could never restore the LDP's vitality. Rather he presented problems and issues in a simplistic way by shouting the slogan "Reform," which actually lacked content, and he skipped discussions necessary to form policies. And yet he was popular. Koizumi was an unusual leader in Japan's political landscape who pushed populism by utilizing sound bites. But what he achieved in the name of reform further undermined the LDP's long-standing support base. Now that people have sobered up from Koizumi's populism, the LDP has become a rootless party, lacking stable support bases in urban and rural areas.

Now the time has come to find an answer to the question of what kind of party system needs to be established following the end of the system dominated by one party, the LDP. In order to stay in power, the LDP will continue to maneuver to the last to form a grand coalition with the DPJ. It can use a delay in the enactment of budget-related bills as an excuse to seek such an alliance. Talk of a grand coalition is only a temporary expedient for prolonging the LDP's life.

If the DPJ wants to seize power, it must prove that it is capable of running the government. The ability to run the government does not mean the ability to maintain the status quo. Any party can do that by relying on bureaucrats. Rather it is necessary for the DPJ to show the people that it can make necessary changes without causing confusion. The chance for a change of government depends on the DPJ's ability to have people understand that the social system built by LDP governments and bureaucrats is not the only viable system, and that the DPJ has the ability to build a society where people can live a better life.

Concerning the possibility of a change of government, people learned a lot from the Upper House election. Their votes deprived the ruling parities of their majority in the Upper House and this made it impossible for the ruling bloc to extend the antiterrorism special law for the Maritime Self-Defense Force's refueling mission in the Indian Ocean for naval ships of the U.S. and other countries engaged in operations in and around Afghanistan. As a result, Japan withdrew the MSDF from the Indian Ocean, rejecting a U.S. request for the first time in the 60 years or so after World War II. Despite the withdrawal, however, little harm has been done to Japan-U.S. relations. For the first time ever, people are becoming aware of the fact that their votes have the power to bring about change.

It is hoped that clearly distinguished policy lines will emerge between the LDP and the DPJ through deliberations on the budget and tax-related bills in the ordinary Diet session. Especially, the DPJ must give substance to its Upper House election slogan "People's lives come first." It must not just list hopes and desires. It must draw a scenario to reconstruct the policy foundation to strengthen social security and the finances of local governments by making clear who will shoulder what kinds of financial burdens. A true measure of any political party's ability is what vested interests it can cut its way into.

If neither the LDP nor the DPJ can win a majority in the Lower House in the coming general election, there may be political realignment moves. I believe that the most important watershed would be a choice and confrontation between a policy line stressing equality and a redistributive policy and a policy line based on market-oriented neoliberalism. These are the very things people are most interested in. There may be a development in which moderate forces in the LDP, which were withdrawn during the Koizumi period, and the DPJ join hands or a development that sees conservative forces in the DPJ, which cannot exert their influence under Ozawa's rule, and pro-Koizumi members of the LDP work together. In any event, 2008 will be a year of more political turmoil than in 2007.