HATOYAMA: Japan’s financial system has already collapsed. It has hit bottom. At this stage it will be very difficult to reconstruct. Spreading public-works spending to local areas is not going to solve Japan’s economic crisis. We hope to balance Japan’s national budget within five years. That means limiting public works and cutting the number of civil servants by 30 percent. We do not plan to raise taxes. As industries restructure and the bureaucracy is downsized, unemployment will rise.

The current rate [4.9 percent] is quite high. But the way it is calculated underreports the true figure. When you see the number of people alienated from their families and living in parks, you realize that the situation Japan is going through is unprecedented. Unemployment is Japan’s biggest issue. There’s no way to conduct structural reform without increasing joblessness. There will be more unemployed workers, so we need to create new jobs to help them.

The Upper House election in July is critical. We hope to reduce the ruling coalition’s strength to at least 10 seats below a majority. If we attain this, we will have veto power in the Upper House. With that, we could demand dissolution of the Lower House and force new elections. Lower House elections are very difficult. But if we win, we hope to form a coalition with other parties and take over the government.

Could be. It is not my goal to become prime minister. What’s important is what we achieve when we take over. There are people within the LDP who are reform-minded. We could cooperate with them.

We are not attacking Mori as an individual. We want the cabinet to resign because they have made many mistakes. The biggest one is economic policy. You can see that no matter how much money they inject into this economy, stock prices continue falling. They haven’t undertaken structural reform. Yet most Japanese don’t seem outraged. It’s something strange with Japanese democracy.

Mori has made many political mistakes. He kept golfing after a U.S. submarine sank a Japanese training ship near Hawaii. I think people should be angrier, but Japanese are not interested in expressing their outrage by going out to demonstrate or demand a change in government. In their minds they are fed up with Mori and want him to resign quickly. But there is a certain reservation that says, “No matter who takes over the government, nothing will change.”

When [unpopular governments] appear in other countries, there are movements in which people express their anger and demand change. But this doesn’t happen in Japan because the LDP has held power for so long that the people have abandoned the possibility of standing up. Unfortunately, it seems that Japanese are not capable of showing what you call “people power.”

Impossible. Their power base is old and brittle. Real structural reform would destroy it, so I don’t think it possible that the party will enact significant change, let alone produce a dynamic leader.

Given its faults, the LDP should be easy to topple. Why has your party failed in this?

In 1993 we had an eight-party coalition under [Japan New Party] Prime Minister Morihiro Hosokawa. At the beginning he enjoyed 80 to 90 percent support. Yet even that government could not make a breakthrough and fell in eight months. When that happened, the Japanese people lost hope for reform. The disappointment continues to this day.

The first thing we must do is solve the bad-loan problem without risking systemic failure. That may require injecting public funds [into financial institutions]. To do that we’d need a thorough auditing and would hold CEOs of troubled banks responsible. South Korea has handled its financial problems better than Japan. They’ve adopted bold solutions. The United States is also a good example for us to follow.

It is essential that we have exact information, but I’m afraid that Japanese financial institutions are not presenting accurate data. I estimate that bad loans worth 70 trillion to 90 trillion yen [$580 billion to $750 billion] remain on the books in Japan. But there are no clear disclosure rules, so banks can continue to claim that they’re healthy.