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'Mr Clean' leaves Japan in disarray: Hosakawa bows out, dashing reform hopes and threatening government

HOPES of political reform in Japan suffered serious damage yesterday when Morihiro Hosokawa, a self-proclaimed 'Mr Clean', resigned as Prime Minister after admitting irregularities in his finances. He took office last August as head of a fractious seven-party coalition which was threatening to fall apart last night in the wrangle over his successor.

Mr Hosokawa was the first Japanese prime minister in 38 years to come from outside the scandal-tainted Liberal Democratic Party (LDP). Like four of his five immediate predecessors, however, he departs in a familiar atmosphere of corrupt 'money politics', claiming questionable deals had been done without his knowledge. His sudden resignation took both his coalition partners and the opposition by surprise.

Mr Hosokawa was brought down by revelations that he had received pounds 625,000 while running for the governorship of Kumamoto prefecture in 1983. He said he had borrowed the money from the infamous Sagawa trucking company, which has been linked with organised crime and extensive political bribery, but was unable to produce receipts showing the money had been repaid, and refused to allow his aides to testify to parliament about the matter. While the Prime Minister said the 'loan' was for improvements to his home, his opponents claimed it was a straightforward political bribe that had been used to finance his campaign.

Questions were also raised about a loan of pounds 2.7m Mr Hosokawa allegedly received from the telecommunications giant NTT, to enable him to buy shares on highly favourable terms. He told parliament the deal was entered into by his late father-in-law, and that he himself knew little about it.

Yesterday, however, he announced: 'I have discovered that there were legal problems with the way a person, an old friend of mine, was investing my personal funds for a few years from 1981. I have notified the ruling coalition leaders and the cabinet of my intention to resign and this has been accepted.' The LDP has used the affair to paralyse parliament for the past month, holding up the national budget to demand more information, and Mr Hosokawa said he was stepping down to accept moral responsibility for the impasse.

The Prime Minister's fall from grace was even faster than his rise. Once an LDP MP, he returned to national politics only in 1992 at the head of the Japan New Party, pledging reform. With his aristocratic background and clean-cut looks, his assumption of office appeared to symbolise the departure from the old politics, conducted by colourless men a generation older than him, and his initial approval ratings were more than 80 per cent.

But Mr Hosokawa's popularity soon declined as coalition squabbling and economic stagnation worsened. The LDP, with its decades-old links to business and the civil service, found it easy to undermine him. It formed an alliance with the largest party in his coalition, the Socialists, to wreck his plans for political reform, while his partners forced him into an embarrassing withdrawal of his tax-reform proposals. A threatened walk- out stopped him reshuffling the cabinet last month.

His attempt to talk tough with the Americans over trade also backfired, and he had to tell his colleagues to take all possible steps to open Japan's markets. Dealing with these crises and maintaining the coalition left him little time for the economy. The markets found the government's stimulation proposals unconvincing, which may explain why shares ended higher yesterday after an initial plunge.

The growing suspicion of financial scandal was the final blow to a prime minister who had already lost much of his glamour. His support had declined to less than 50 per cent in the polls, and by the time he announced his departure, Mr Hosokawa looked as haggard as any of his predecessors.

Trade setback, page 17