“Whither Japan?” at issue

Japan is dawdling.

That’s bad news for Asia, the world, and particularly the U.S. which has depended on Japan as the keystone for Asian stability and progress for a half century. Far from most of the other high income countries, the engenuity of 128 million Japanese has made their rocky little, resource-poor islands Asia’s brightest spot. But the incredible tidiness and cleanliness visitors see – always a shocker for other Asians – and seeming prosperity masks a deep malaise. And for the moment at least, political leadership seems stymied.

When a Chinese squadron recently ploughed into the Pacific through Japan’s Ryuku archipelago without so much as a salute, Tokyo got another signal of its growing vulnerability. A similar wake-up call came earlier when North Korea fired an unannounced missile over its islands in 2008.

Japan faces complex issues with both its Chinese and Koreans neighbors. China is now its largest trading partner and a platform for reexport, exploiting China’s cheap labor. Tokyo also still has it old dream of one day opening huge Chinese internal markets.

But as every Japanese government makes new professions of improving relations, Beijing is always ready to exploit the long history of Japanese aggression despite its omnipresent modeling on Japanese industrialization. And hovering over the East Asian landscape is China’s rapidly expanding military and its officers’ growing tough talk.

Flying in the face of Beijing’s recent $10 billion in credits to Pyongyang, Tokyo has just reimposed sanctions against North Korea. They are intended to clean up Pyongyang’s organized crime in Japan as well as apply pressure to end North Korea’s weapons proliferation and force a settlement of North Korean kidnappings of Japanese nationals.

But Japan’s unassimilated million Korean ethnics – some brought as wartime slave labor – bedevil already torturous international strategy. Tentative moves to give citizenship to these “Zainichi” runs into flak from Japanese traditionalists. Still, their isolation produces anomalies such as schools operating on CoU.S.-Japan Mutual Defgense mmunist North Korean curriculum. It also suggests current feeble attempts to supplement the diminishing young labor pool through emigration will be extremely difficult if not doomed.

Beijing’s latest naval maneuver also dramatized the principle issue now badgering Washington-Tokyo relations. Although both sides continually claim the U.S.-Japan Mutual Defense Treaty as bedrock, growing collaboration is hindered by failure to implement the torturously negotiated 2006 agreement for redeployment of American forces. Reducing U.S. Marines in Okinawa [Ruyukus] with a buildup on American Guam has snagged with local political friction reaching into Tokyo’s governing coalition.

That government of Prime Minister Yukio Hatoyama’s Democratic Party of Japan [DPJ] is in trouble  So far Hatoyama has not found the Okinawa solution which satisfies Americans and Okinawans he promised by May 31st. With polls dropping despite the DPJ’s landslide only last fall, Hatoyama no longer can look forward with certainty to winning in July a majority in the upper house. That could mean Hatoyama may have to give way to one of his rivals.

But more important, what some had hoped was a new Japanese political realignment with two major parties of differing ideological bent doesn’t seem to be happening. The Liberal Democrat Party, ruling for 50 years, is fracturing and the DPJ is no nearer sorting out its garden variety of contradictions.

All this is being played out in a worsening economy. Exports have recovered but domestic consumption stagnates among a population ageing more rapidly than any in the industrial world. Decades of pump priming through infrastructure projects is limited by plummeting tax revenues and soaring welfare costs. Based on fiscal 2010’s nominal gross national product of 475 trillion yen ($5.13 trillion), Japan’s debt is estimated to reach around 950 trillion yen – or roughly 7.5 million yen [$81,000] per person. Standard & Poor’s warned it might cut ratings on government bonds, which could raise borrowing costs. That could mean the end of internal borrowing to fund its debt – not exactly Greece, but arguing for new strategies.

This century opened with what seemed a consensus under the immensely popular Prime Minister Junichiro Koizumi to abandon for liberalization “the Japan model”.  Koizumi, fighting vested interests and those clinging to what had been the world’s most successful model for modernization of a non-European society, started disbanding Japanese postal savings. The world’s largest pool of capital, it fed semi-government banks for targeted economic expansion. But bursting of the Japanese bubble economy in the early 90s finally demonstrated the system had outlived its usefulness. Koizumi set out to create a real capital market.

Now old opponents and new voices inspired by the near demise of “the Washington consensus” – privatization, markets, democracy – are turning the clock back. The DPJ has put a minister who opposed Koizumi’s reforms in charge of the partially disassembled postal group. And the government has just moved to increase the maximum deposit limit.

This return to bureaucratic management could vitiate a new wave of Japanese investors moving out into international markets. And it could wind up being another example of risky intra-government borrowing, not unknown in the U.S. and Western Europe, in an attempt to stem the effects of the collapse of credit and the worldwide recession.



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