The Japanese Crisis—No More Mr Nice Guy

During the 1980s, there was a great deal of angst about the growth of the Japanese economy relative to the US and the rest of the world.  Japan was expanding into overseas markets on the strength of its hyper-efficient economy while allegedly enjoying protection from foreign competition in its domestic market.  Of course, we now know that Japan was in a bubble, and we look on the 1990s as Japan’s “lost decade”.

In the wake of the bursting of the housing market bubble and the credit crisis in the US, we now worry less about emulating the Japanese model and more about facing our own lost decade of deflation and slow growth.  For twenty years, Japan has lived in the shadow of the 1980s bubble; today it is struggling to kick-start an economy under pressure from a strengthening yen, but in a world that is murmuring of currency and trade wars, no country is prepared to help Japan hold down the yen.  China has even been accused of acting to prop the yen up.

Japan is also faced with other challenges.  Demographically, its population is aging and shrinking.  Other developed economies, including the US, face the dual challenge of a growing number of pensioners and falling birth rate by opening up to immigration, but Japanese cultural mores (or prejudices) make this virtually impossible.

Japan’s repeated failure to stimulate the economy over the course of the last two decades has not only sapped faith in the country and her economy, but it has left a rather large debt burden, somewhere in the neighborhood of 200% of GDP.  Keynesian-style attempts to boost demand and credit have left the country’s newly built infrastructure with nothing to transport but debt and corruption.

Then there are the external challenges, most notably, China—a challenge Japan and the rest of the world is only now beginning to take seriously.  As Japan has progressed up the production chain, it has farmed out lower stages of production to places like Southeast Asia, which consequently enjoyed and then rued its own boom until the mid-1990s and the Asian Crisis of 1997.  China, with its vast pools of cheap labor and eagerness to emulate and learn from the Japanese experience, was also utilized in this fashion by the Japanese.  Indeed, in light of the Asian Crisis of 1997, it may be worth asking how much of the Chinese boom is dependent on capital from more politically and economically developed states like Japan, Korea, and Taiwan (not to mention the West) and how sustainable it would be in the wake of another global economic shock, especially if China should manage to alienate these trade partners in the meantime.

And that brings us to the recent maritime activities of the Chinese in and around Japanese waters, culminating in the current breakdown in China-Japan relations over the Senkaku islets.  Although the Chinese fishing boat captain who rammed two Japanese patrol vessels has been released, the recriminations have not stopped, and China has resorted to a rather under-handed disruption of trade relations to continue to try to twist Japan’s arm.

Not only Japan, but much of the rest of the world, has been shocked by this incident in particular, but also by the increasing brazenness of the Chinese military and diplomatic corps in advancing its interests.  The world had already accustomed itself to China’s threats over Taiwan, but it seems to have assumed that China would never behave that way toward other countries.  After all, the dispute with Taiwan has allegedly been a domestic dispute, not an international one.  The trouble is, China’s modus operandi is to gradually redefine its foreign interests as vital domestic ones.  China has never fully accepted the notion of state sovereignty except as a tactic in preventing other countries from “interfering” in “domestic” issues like Tibet, Taiwan, the Uighur, human rights, and so forth.  Now it is claiming its “core interest” in the Spratlys and advancing its claim to ‘reunite’ the portions of ‘Indian-administered Tibet’ with China.  It has also informed formerly friendly ASEAN states of the diminutive posture they should maintain in China’s presence.

Under the administration of the DPJ—a motley group of politicians rather than a coherent ideological camp—Japan has made sincere efforts to improve relations with her East Asian neighbors, particularly Korea and China.  Under former prime minister Hatoyama’s rather idealistic plan, the nations of East Asia would cooperate to establish a peaceful East Asian Community modeled deliberately on the European Union, the implication being that each of the states would be co-equals.  This obviously serves the interests of Japan fairly nicely, since it fears being eclipsed by China, as does everybody else, but one can assume that China will not give up what it regards as its long overdue turn in the sun so easily.

Since Hatoyama’s effort, China has seemingly done everything in its power to humiliate the “pro-China” or dovish elements of the Japanese government.  While Hatoyama was trying to unilaterally renegotiate agreements with the US concerning Okinawa, the Chinese navy sent a flotilla past the islands and a few months prior to that had aircraft buzz Japanese warships.  Unable to gain any traction for his Okinawa policy in such circumstances, Hatoyama was forced to resign, opening the way for the new prime minister, Naoto Kan, who has now appointed a China-hawk in the guise of Foreign Minister Seiji Maehara.

More significant than the change of tack made by the friendliest Japanese government China has probably ever seen has been the reaction of the Japanese public.  Not only have they been surprised at China’s aggressiveness, but they have been infuriated by the humiliation of being forced to release the Chinese captain while under such merciless barrage, whether in the form of trade disruptions, threats, or the harassment of Japanese expatriates.  Since the release of the captain, there have been hitherto uncharacteristic acts of vandalism and violence by outraged Japanese individuals against Chinese interests.  James Farrar describes the degree to which China’s actions have wrong-footed the Japanese left and potentially legitimized Japanese nationalism.

This re-legitimizing of the Japanese right has been a long time in coming.  Although we have seen hints of it in the unapologetic visits to the Yasukuni shrine by former prime minister Koizumi and the blustering statements of smaller political figures, Japan has been in a rather unnatural position for a very long time.  Since the end of World War II sixty-five years ago, Japan has effectively been an American protectorate.  (Indeed, nowhere in East Asia have we seen the establishment of “normal” nation-states.  Taiwan is not admitted as a state.  Korea remains divided.  China often assumes the role of Han nation-state but also as imperialistic civilizer of Tibetan and Uighur barbarism.)

Japan has not been permitted, nor has it been willing, to be a normal state, but it is quickly learning that it can no longer rely solely on Pax Americana for protection.  In the wake of America’s Middle Eastern entanglements and China’s sudden assertiveness, the Japanese have little choice but to pursue a more self-regarding policy towards China.

We have become accustomed to a kind of bloodless Japan marked by austere beauty, pacifist politics, economic productivity, and quirky but harmless past-times, but we should be preparing ourselves for a Japan that will combine some of these elements with characteristics reminiscent of a more expansionist Japan, a Japan that will resemble South Korea in some ways.  This sociopolitical development will likely alter the dynamics of Japan’s economy and perhaps reverse the falling birth-rate.  Japan can no longer play a passive role in the emerging structure of East Asian and Pacific order.  The failure of the United States and the West to manage Chinese growth, a doubtful prospect in any case, has made this development inevitable.  The rest of the world will now have to make some tough decisions on how to handle the addition of this explosive new element to an already highly unstable region.


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