Japan has long been the most important ally of the United States in East Asia and it is widely viewed in Washington as a pillar of stability in the Asia-Pacific region. For a long time, the relationship with the United States, especially attitudes toward the Japan-U.S. Security Treaty, determined the division between “right” and “left” in Japanese politics. However, this division has become meaningless during the last two decades since the Cold War ended, and a new division has emerged in Japanese politics over the attitudes toward domestic economic reforms and state-market relations. On the one hand, “conservatives” try to protect the vested interests that were created during the dominant rule by the Liberal Democratic Party (LDP). On the other hand, “reformists” try to advance economic reforms that would severely undermine those vested interests. This paper discusses the implications of this new trend in Japanese politics.