AFTER JAPAN'S MEGA-COLLAPSE.(interview with Yukio Hatoyama)(Brief Article)

Last week, Japan's Prime Minister Yoshiro Mori said he would move up the leadership elections for his ruling Liberal Democratic Party--a face-saving way of resigning, probably by early next month. That opens the door for Yukio Hatoyama, head of the opposition Democratic Party of Japan. Before Mori's statement, Hatoyama spoke with NEWSWEEK's George Wehrfritz and Hideko Takayama. Excerpts:

NEWSWEEK: Finance Minister Kiichi Miyazawa said last week that Japan's financial system is "near collapse." Do you agree?

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.

How high are you prepared to let joblessness go?

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.

What is your short-term political agenda?

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.