Tokyo’s Depression Diplomacy

Yoichi Funabashi. Foreign Affairs. Volume 77, Issue 6, November/December 1998.

Don’t Japanic

During the mid-1980s, when Japan’s economic might was reaching its zenith, a French diplomat reportedly declared, “All I wish is that somehow Japan and the Soviet Union would disappear from the earth.” On both counts, his dream has almost come true. Japan now confronts the toughest challenges in its foreign relations since World War II. The way it faces up to them will determine whether Japan’s meteoric rise to world-power status in the last half-century is transient or sustainable.

Japan is in a deep funk. Its economic debilitation, political gridlock, and rapidly aging population all contribute to a pervasive pessimism and imperil its cherished identity as a nonnuclear, non-weapon-exporting, economically dynamic, democratic, generous, civilian power. And while the Japanese are famed for downplaying future prospects to prepare for a rainy day, this time is different. People genuinely fear the future. Political leaders have consistently failed to lead and the economy has deteriorated for seven years. Increasingly, however, the pessimism is the problem, with far-reaching regional and global implications. Unless the psychological slump reverses, Japan’s deflationary cycle will cripple Asian hopes for recovery and destabilize the global economy.

While the world has been collectively keening over the Japanese economy, another death has been in progress-Japan’s diplomacy. Economic and financial failure have exacerbated Japanese insecurity at a time when it must confront a complex of foreign policy concerns Asia’s economic meltdown, India and Pakistan’s nuclear tests, China’s emergence as a major power, and most critically, uncertainty over the U.S.-Japan alliance. Japan, historically disposed to a sense of strategic exposure, is again feeling vulnerable about its place in the world.

Isolationist Japan?

Since World War II, Japan has based its diplomacy on economic, not ideological, foundations. But the erosion of those foundations has jolted the belief that economic might would translate into diplomatic influence. Japanese hopes for peace through economic development and integration have been compromised.

Worse, Japan is currently amassing a dismal record as the catalyst for world depression. If Japan allows the hemorrhaging banking system to bleed to death and the public refuses to invest in Japan’s future, deflation could bring down the world economy and destabilize the entire international system.

Japanese business has already started to withdraw from the world. Foreign direct investment to Asia is slowing down, and even large corporations in the developed world are following suit. Fujitsu has just closed a semiconductor plant within British Prime Minister Tony Blair’s Sedgefield constituency. In Asia, Japan’s consumers provided the original stimulus for regional economic growth as countries enthusiastically exported goods to Japan. But this “absorber function” is rapidly diminishing because of Japan’s consumer retrenchment. Japan, the locomotive of the regional economy, accounting for about 70 percent of Asia’s GDP, has ground to a halt. Depreciation of the yen-now about 40 percent lower against the dollar since April 1995-means that yen loans will shrink in dollar terms. As Japan’s economic assistance to its neighbors declines, the couplings between the Japanese engine and the rest of Asia will crack.

Meanwhile, Asia fumbles for an economic formula to solve the problems of globalization. The current model is defunct, and Tokyo has been unable to come up with a revitalized version. Its demoralized bureaucracy, buffeted by scandal and charges of economic mismanagement, is ill equipped to forcefully promote a positive, outward-looking economic or foreign policy. Asian countries are left without new ideas or direction from their erstwhile economic mentor. Japan’s strategy of regional integration, particularly with regard to Asia-Pacific Economic Cooperation, has stalled. The recent APEC trade ministers’ meeting in Kuching, Malaysia, demonstrated Japan’s clumsy attitude toward liberalizing regional trade.

Japan’s economic health has deteriorated alarmingly. With public sector debt projected at io6 percent of GDP for 1999, Japan will be one of the most heavily indebted members of the G-7. This dismal performance bodes ill for U.S.-Japan relations. Resumption of “Japan-bashing” in the United States over Japan’s perceived economic intransigence has prompted a rise in anti-American sentiments in Japan. Some Japanese even feel that current economic circumstances represent “the second defeat in the Pacific War.” Japan will have to fundamentally restructure and streamline its government in the next decade. This move will certainly strain ties with the rest of the world, especially with Washington, which could find its presence in the region undermined as Tokyo cuts defense expenditures and Host Nation Support contributions.

Asian Conflagration

Asia’s economic crisis has rudely exposed the helplessness of the Association of Southeast Asian Nations and APEC. ASEAN simply lacked the stature or intergovernmental institutions to respond to the financial crisis. Its principle of nonintervention in members’ domestic affairs precluded a comprehensive collective response, which hastened the downward spiral of Asian currencies. ASEAN’s inability to act was mirrored by APEC’s, where the creed of “concerted unilateral action” failed to muster a credible response to the Asian conflagration. Now the crisis’ unequal impact threatens to rupture the politically fragile framework of regional ties.

This feebleness is especially troubling for Japan. Over the last three decades, ASEAN has been an increasingly important component in Tokyo’s foreign policy. Japan sought to develop regional ties to complement its alliance with the United States and its global participation in the G-7 and the United Nations. As Professor Gerald L. Curtis of Columbia University has noted, “The strengthening of Japanese-ASEAN relations is one of the outstanding achievements of postwar Japanese diplomacy.” ASEAN’S record of friendship with Japan has provided some fulfillment in Japan’s search for an international role. This found concrete expression in 1977, when then Prime Minister Takeo Fukuda proposed a new doctrine for Japan in Southeast Asia that rejected Japanese military power and professed the desire for a “heart to heart” relationship with the region. This tie has underpinned Japanese dealings with ASEAN for 20 years, but it is now in serious jeopardy.

The regional turmoil has also drawn Japanese attention to Asia’s seas. With Indonesia occupied by its internal travails, a power vacuum has opened up in waters of critical strategic importance. More than 8o percent of Japan’s oil supplies sail through the South China Sea, which also delivers vital oil to China. If instability in Indonesia threatens those supplies, many fear that China will use force to protect them. Chinese seabed resource surveys intruded into Japanese waters near the Senkaku Islands in May and June of 1995, sparking a series of niggling confrontations. China’s 1996 missile tests in the Taiwan Strait also strained relations with Japan. As an island country, Japan has always been a major seafaring nation and is thus sensitive to any changes in the maritime status quo. Tokyo’s past policy envisaged a strong, stable Indonesia, but this can no longer be assumed.

Japan’s primary stumbling block, however, is the burden of past misdeeds and its ad hoc attempts to resolve them. This accounts for Japanese reluctance to lead on the Korean peninsula and, more generally, to address the Asian economic crisis. Japan’s relations with South Korea have deteriorated, particularly in 1995 during the fiftieth anniversary commemorations of World War II. Japan’s inability to tackle its past has also tainted relations with China. In 1992, Emperor Akihito’s visit to China was hailed as a harbinger of future reconciliation. But three years later, Japan and China found themselves pitted against each other over China’s nuclear tests, Japan’s suspension of grants to China, and territorial disputes. At their joint press conference in 1995, South Korean President Kim Young Sam and Chinese President Jiang Zemin criticized Japan’s handling of the World War II anniversary. In that criticism Japan saw anti-Japanese sentiment in Korea and China amalgamating to portend a troubling geopolitical future, especially with the prospect of Korean reunification.

Historically, Japan has played a unique role as the most socioeconomically advanced country in Asia, competing with the West on relatively equal footing. This status as a “member of the club” of modernized nations inspired belief in Japan’s role “bridging” the gap between the West and Asia. But now Japan finds disturbing similarities between its own problems and the rest of Asia’s. Throughout the region, the lack of transparency and accountability in both financial markets and politics has been cited as a factor in the economic crisis. The acute awareness that these are shared problems has exploded the myth of Japanese uniqueness. At the same time, the concept of “bridging” has proved unnecessary. Western businesses deal with all Asia directly, without needing Japanese intermediaries. Although it thinks of itself as exceptional, Japan has found itself subject to the rules that govern the rest of Asia.

Spectacular Saber-Rattling

Japan’s faith in the efficacy of its nonnuclear, pacifist creed has been profoundly shaken by India’s and Pakistan’s spectacular saberrattling. Japan, which plays a symbolic role as the sole victim of nuclear weapons, has been ineffective in promoting nonproliferation and relegated to the international sidelines. With the prospect of North Korea going nuclear, these concerns take on increased urgency.

First, the tests demonstrated that Japan’s economic aid has not prevented nuclear proliferation in Asia. Second, they revealed the limits of employing official development assistance as a diplomatic tool. No amount of economic assistance persuaded India or Pakistan to forgo their respective nuclear programs. Both countries, India in particular, have questioned the meaningfulness of Japan’s nonnuclear stance while it remains under the U.S. nuclear umbrella. The ambiguity of Japan’s position has undermined its moral authority in South Asia. India’s eloquent criticism of the Nuclear Nonproliferation Treaty regime dividing the globe between nuclear “haves” and “have-nots” struck a note with many Japanese. Japan is still highly unlikely to go nuclear. But Japan is interested in another option-Theater Missile Defense. Nuclear proliferation in South Asia further inflamed the TMD controversy within Japan, a debate given urgency by North Korea’s August 31 missile test over Japanese airspace. These new threats will bolster support for a TMD system. Growing threats may also, however, trigger calls for Japan to reaffirm the global community’s commitment to nuclear disarmament, challenge the status quo, and perhaps even forgo the nuclear umbrella.

South Asia’s nuclear tests also revealed tensions between Japan and the United States and China on the issue. On June 4, the foreign ministers of the five established nuclear powers met in Geneva to fashion a response to the tests. Japan’s request to participate was denied, which fueled suspicion that its attempts to endorse nuclear disarmament and nonproliferation lack U.S. support and are being contained by China. Many Japanese resent the exclusion of major nonnuclear powers like Japan and Germany from meetings like those in Geneva, feeling that it rewards the nuclear path to power while punishing the civilian. China claims that only the “club” of declared nuclear powers should discuss nuclear issues because they have a special responsibility. This argument is unacceptable to Japan. A nonproliferation regime can only be truly sustainable through cooperation between the “haves” and the “have-nots,” so the “have-nots” should not be excluded.

Trading Places

Japan’s predicament looks almost surreal when contrasted with its sensational arrival on the world scene-announced by its defeat of imperial Russia-at the beginning of the twentieth century. A hundred years ago, the Greek-born, Japan-residing author Lafcadio Hearn wrote an essay entitled “The Genius of Japanese Civilization” ushering a new Japan into the world. But in 1998, China’s rise to world prominence commands the world’s attention. The perception that Japan and China are trading places in Asia has started to spread. Although it is hardly accurate, in the recent Asian crisis China has been hailed as a regional stabilizer and Japan condemned as a passive bystander.

A rising China will induce critical, painful, and psychologically difficult strategic adjustments in Japanese foreign policy. Japan has not known a wealthy, powerful, confident, and internationalist China since its modernization during the Meiji era. Proximity to China’s constant turmoil has sharpened Japan’s sensitivity to its neighbor’s problems, deepening skepticism about China’s prospects for development. Japan has long viewed itself as the leading Asian country. While most remain unconvinced that China will emerge as a regional leader, other Japanese now wonder if their predominant position in the past century has been an aberration.

China’s emergence presents multiple challenges to Japanese foreign policy. Despite Japan’s financial largesse and diplomatic engagement, its attempts at rapprochement have been compromised by the perception that China and Japan are natural rivals. China’s role on the world stage has recently been getting greater billing, while Japan’s star has been on the wane. The old order, with the U.S.-Japan alliance as a bulwark against Soviet belligerence, has given way to trilateral relations coaxing China into the world community. Sometimes the three countries’ interests overlap, as when dealing with nuclear weapons and famine in North Korea. More often, however, the intrusion of domestic politics has distorted the triangle, shifting the focus to bilateral concerns at the expense of the third party.

Japan is deeply uneasy about the “constructive strategic partnership” that has evolved between the United States and China. Despite American assurances to the contrary, China is perceived to be trying to outflank Japan while U.S.-Japan relations are particularly shaky. Jiang’s 1997 visit to Pearl Harbor came at his request, while this year China put out feelers about a Clinton visit to Nanking, the scene of an infamous massacre by the Japanese imperial army. Tokyo feels used and abused by Washington. Some suspect that the United States enhanced its security ties with Japan in 1996 expressly to strengthen its negotiating position with China. Yet Japan continues to suffer the indignity of being chided by both China and the United States for its economic failures. To Japan, this emphasis on the “Japan problem” is a diversionary tactic, preventing an Asian backlash against U.S. “victory” in the markets and obscuring China’s externalization of its “internal contradictions,” like currency vulnerability. This is a zero-sum game for Tokyo. China barely conceals its desire to weaken the U.S.-Japan bilateral relationship: witness its pronouncements about the need for a new multipolar world order and the end of Cold War security arrangements.

But at the same time, Japan fears U.S.-China enmity. Should the vociferous anti-China rhetoric emanating from Congress impact policy, warnings of Chinese antagonism may become self-fulfilling. This would devastate the U.S.-Japan alliance. Unless it significantly compromises its interests, Japan believes that it can live with a powerful China, even one that challenges the U.S.-led liberal internationalist order. Such a belief acknowledges that geography and history matter. Some Americans believe that Japan has no choice but to follow the U.S. lead as China becomes more powerful. In fact, Japan’s actions will depend on how the threat from China takes shape.

Jilted Japan

The most problematic factor for Japan’s political leaders is that Clinton did not reaffirm, in his talks with Jiang, the stabilizing importance of the U.S.-Japan alliance in Asia. It is as if the alliance was something to be ashamed of, to be hidden from China to avoid friction. The United States and Japan have lost sight of their relationship’s overarching purpose. The alliance was reaffirmed with great fanfare in 1996, but tensions over Japanese macroeconomic policy and the U.S. bases in Okinawa have added to widespread doubts about its terms.

During the Cold War, U.S. forces and Japanese support mechanisms formed an elegant security architecture. Few were inclined to tamper with it. The end of the Cold War brought new pressures to bear. There is no rationale for the impressive U.S. presence in Japan without a compelling military threat. Economic tensions between the two countries are rising. American contentions that the three legs of the relationship-security, economics, and a common agenda-can be compartmentalized are disingenuous. It is cruelly ironic that U.S. Treasury Secretary Robert Rubin is busy extolling the virtues of China’s state-directed economy without a fully convertible currency while lambasting Japan as an economic miscreant. This downgrading of U.S.-Japan ties is particularly painful because it violates the highest virtue in Japanese society, loyalty. Once an alliance is entered, it is not subject to negotiation, justification, or competition from a third party. The perceived betrayal strengthens Japanese advocates of a “burdenless alliance.”

If Korea unifies, domestic pressures will probably hasten the withdrawal of most U.S. military forces. That would certainly prompt some Japanese to call for a drastic reduction in U.S. forces stationed in Japan, declining to be the only nation hosting U.S. troops. The U.S.-China “constructive strategic partnership” has been welcomed in some quarters-in a rather twisted way-for stabilizing Asia. Indeed, advocates of a reduced American presence in Japan argue that China’s strategic relationship with America means there is less need for security preparedness between the United States and Japan. With a further reduction in U.S. forces, the two countries could move toward a new alliance based on political relations rather than military strength.

Reluctant Realism

Japan must define its priorities, policies, and national interests more clearly. Security ties with America must be strengthened; so must dialogue among China, Japan, and the United States. Although Japan cannot and would not wish to compete militarily with China or the United States, it cannot be left out of regional and global discussions between the two. Tokyo’s role may be to ameliorate the hegemonic tendencies of these two great powers. All three countries need to remember that the stabilizer in the recent Asian economic crisis has not been the Chinese renminbi but the U.S. presence and the U.S.-Japan alliance. Rather than feeling victimized by growing U.S.-China warmth, Japan should push for more dynamic trilateral dialogues on a range of issues, including macroeconomic policy, trade, the environment, nuclear reduction measures, and regional policies. This discourse should also be developed within and used to promote multilateral institutions like APEC and the World Trade Organization. Tokyo and Washington should explore the possibility of including Beijing in their alliance-although not until it becomes a democracy and finds a peaceful settlement with Taipei.

Japan and the United States must coordinate macroeconomic policy to forestall the downward spiral of the world economy. These consultations should include China. The United States and Japan, along with South Korea, should also work to involve China in the denuclearization of Northeast Asia through the Korean Energy Development Organization project. Although it has suspended contributions to protest the North Korean missile test, Japan should once again sponsor KEDO. The organization does not merely encourage nonproliferation, it is also a soft-landing for Korean reconciliation and reunification. If China would get involved, the organization would foster China’s cooperative behavior. The quality of security policy coordination between the United States, South Korea, and Japan should be enhanced. A “G-6” dialogue among the two Koreas, the United States, China, Japan, and Russia on peninsular security should be launched.

Finally, Tokyo must develop a rejuvenated nuclear policy. Working with like-minded nations, Japan should prod the established nuclear powers to get serious about nuclear disarmament. The original five should invite representatives of the nuclear “have-nots,” such as Japan and Germany, to take part in discussions to coordinate nonproliferation policies. Now is the time for Japan to build momentum for change. An unfortunate consequence maybe that the United States misconstrues Japan’s rejection of the nuclear status quo as equivocation about the alliance itself Nevertheless, if Japan is to regain an honorable place in the world, protect Asian stability, and further the cause of nonproliferation, it must send a clearer message about nuclear disarmament.

Japan is evolving from an era of commercial liberalism to one of reluctant realism. A weaker economy means that national interests will have to be defined more realistically. Inevitably this will involve scaling back in areas where Japan is overextended. But Japan should remain faithful to its aspirations to be a prototype of a global civilian power. This will continue to strengthen the U.S.-Japan alliance, as Japan’s defensive power complements America’s offensive might and joint contingency planning is improved. Sooner or later, Japan can and will shed its pessimism. History has taught us that Japan will act quickly and decisively once its people reach a consensus. The new generation of leaders must come to terms with Japan’s history, make amends, and move on. Japan’s financial system will be revamped, and Japanese business will restructure and launch itself once more onto the global stage. Strong support for development aid, U.N. peacekeeping operations, refugee relief, and a larger (albeit still nonmilitary) role for Japan in the international community reflects the public’s strong sense of themselves as stakeholders in a peaceful, orderly international system. In the next decade, the emergence of new political players-especially younger and more internationalist politicians, women, and nongovernmental organizations-will create new dynamics in Japanese public life. If Japan’s economic and foreign policy edifices are to be restored, new ideas and human resources are urgently needed-these will not come from the bureaucracy but from the burgeoning civil society. Japan’s leaders must harness these forces and embrace change.