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Japan and Asia: What Happened?
Global Beat Issue Brief No. 49
Chris Johnstone, Asia-Pacific Center for Security Studies
Remarks adapted from Prepared Presentation given at

Conflict and Security in Asia:

Honolulu Security Seminar IV

A Professional Seminar for Senior Journalists

December 6-10, 1998 · Honolulu, Hawaii

*The views expressed here are personal and do not necessarily reflect those of the U.S. government*
 
As the 21st century approaches, Japan confronts the widespread perception-at least in the United States-that it is a nation in decline. This turn of events is somewhat surprising, given the views and expectations that prevailed at the start of the decade. In the early 1990's Japan was seen as a power on the rise. Decades of apparently limitless economic growth had made Japan one of the richest countries on earth; in the eyes of many Americans, it was only a matter of time before Tokyo began to exercise commensurate political, and possibly even military, influence. The natural focus of this growing power, it was thought, would be Japan's neighbors in Asia.
 
Nearly a decade later, Japan's much awaited emergence as a regional leader in Asia has yet to occur. Indeed, Japan appears to be fading from the world stage. The Japanese economy has turned sour; straining under the weight of a massive financial crisis, the country is experiencing its longest recession since World War II. Perhaps as a consequence of this economic weakness-and the economic boom in the United States-American interest in Japan has virtually collapsed. Until the onset of the Asian financial crisis brought renewed attention to Japan, terms like "Japan passing" had become part of the American lexicon. Ten years ago, American observers were touting the strengths of the "Japanese model." Today, that model has been discredited-at least in the eyes of Americans-and Japan is seen as increasingly weak and indecisive. Talk of Japanese leadership in Asia has all but disappeared.
 
What Happened?
 
In considering the apparent demise of Japan's Asian ambitions, several points warrant consideration. First, the perception of Japan as a waning power in Asia is to some extent an American phenomenon; Asia never forgot about Japan, even if the United States did. Throughout the 1990's, Japanese economic ties with Asia have continued to deepen, and the region remains a focus of Tokyo's massive foreign aid program. Further, contrary to American perceptions, Japanese efforts to exercise regional leadership at times have been anything but indecisive. Indeed, Tokyo's September 1997 proposal for an Asian Monetary Fund-an issue that will be addressed in more detail below-represented a strikingly assertive approach to tackling the region's economic crisis.
 
Second, much of Japan's apparent weakness can be explained by domestic politics. The political system that formed the foundation of Japan's rapid economic expansion is increasingly subject to stress. The Japanese bureaucracy, viewed by many as the architect of the nation's economic miracle, has been discredited by a seemingly endless series of corruption scandals. The fall of the Liberal Democratic Party from power in 1993, after 38 years of unchallenged rule, has given rise to less predictable and more unstable coalition politics. With the steady erosion of factional politics in recent years, the LDP itself has become increasingly undisciplined and less cohesive. In the context of these changes, the exercise of effective leadership has become more difficult in Japan, even for politicians with a clear vision of where they would like to take the country in the future.
 
American perceptions and Japanese domestic politics do not alone account for Tokyo's uncertain approach toward Asia and the world, however. A third factor is also important, and forms the focus of this essay: Japanese decisionmakers are plagued by a strategic environment in Asia that is ambiguous and very much in flux. Recent events, combined with the geopolitical shifts that accompanied the end of the Cold War, have raised questions for many Japanese about the strength of the American commitment to the U.S.-Japan alliance. At the same time, however, China's emergence as a major power in Asia, and the uncertainty that surrounds Beijing's long-term objectives, has constrained Tokyo's ability to look to its neighbors as a possible alternative to the United States.
 
Japan's apparent immoblism and indecisiveness is closely related to a broader question that has confronted the country throughout its modern history: is Japan part of the East, or part of the West? Since the opening of Japan to the outside world in the mid-19th century, this question has always been viewed in either-or, mutually exclusive terms. Immediately following the Meiji Restoration, Japan embarked on a campaign to "catch-up" to the West; the wholesale adoption of western institutions, technologies, and practices was a key part of the process. In the 1930's, in response to perceived snubs by the western powers and growing protectionism in Europe and the United States, Japan turned back to Asia; the result was the Greater East Asian Co-Prosperity Sphere-and ultimately the disastrous experience of World War II. Following the war, the pendulum swung back again, with Japan returning to the western fold via its alliance with the United States.
 
Today, in the context of a perceived weakening of the U.S.-Japan relationship on the one hand, and the rise of a potentially threatening China on the other, Japan is adjusting to world in which neither of these traditional paradigms alone represents an adequate foundation for national strategy. This transition in Japanese thinking is likely to be gradual, and will result in policy confusion, and even occasional paralysis, along the way. Over the long-term, however, significant changes in Japanese policy are likely.
 
Japan's Tilt Toward Asia: 1985-1993
 
Economic Factors - Japan's most recent "turn" toward Asia was fueled first by economic forces. Following the Plaza Accord of September 1985, the yen appreciated dramatically against the yen. In the two years that followed the agreement, the yen rose from Y260 to the dollar to about Y120. Manufacturing firms in Japan began to face intense competition, as the yen's rising value drove up prices for Japanese exports abroad. These firms were forced to look for lower-cost production sites overseas to ensure competitiveness-and Asia emerged as a natural focus. Japanese foreign direct investment in Asia virtually exploded in the years after the Plaza Accord, rising from about $1.4 billion in 1985 to more than $8 billion in 1989. In recent years, Japanese FDI in Asia has totaled more than $12 billion annually. By the early 1990's, Japanese manufacturing firms were investing more in Asia than in North America.
 
Japanese trade with Asia grew in parallel with these investment flows, with Asia's share in Japan's overall trade pattern expanding significantly. By 1991, Japan exported more to Asia than to the United States, and maintained large and growing trade surpluses with most of the region's key economies (China and Indonesia are notable exceptions to this pattern; Japan imports a large volume of raw materials from each). Approximately 50 percent of Japanese trade is now with Asia, and Japan's trade surplus with the region currently totals about $50 billion.
 
Japan's foreign aid program-the largest in the world-added to the capital flows bound for Asia. Historically, Asia has received more than half of Japanese bilateral development assistance; in the early 1990's, this share amounted to about $4-5 billion annually. Japanese firms have been major recipients of the contracts for roads, bridges, power plants and other heavy infrastructure projects that form the focus of Japan's aid program. Japanese aid officials also provided technical advice and helped to design economic development plans in countries throughout the region. Although Japan's aid program has experienced significant cuts in recent years, the volume of assistance flowing to Asia continues to be substantial.
 
The expansion of Japan's trade and investment ties with Asia corresponded with a period of accelerating economic growth in the region. As the international community began to praise the "Asian miracle," many Japanese officials boasted that their country had pioneered a new development model that was being replicated throughout the region. Central to this model was the view that the state could play a critical role in allocating resources to key sectors of the economy. Japan sponsored the 1993 World Bank study, The East Asian Miracle: Economic Growth and Public Policy, partly in an effort to gain greater international recognition for this "Japanese" development philosophy. Although Japanese officials were disappointed when the study gave Asian governments only modest credit for creating the region's miracle, Tokyo was increasingly successful in using Japan's economic strength to build a leadership profile in Asia.
 
Strategic Considerations
Although economic forces were the catalyst behind Japan's tilt toward Asia, strategic considerations played an important role as well. The end of the Cold War gave rise to a desire in Japan to get out from under the shadow of the United States and play a more assertive, independent role on the world stage. This sentiment was reinforced by a perception-widely held at the time-that the United States was a power in decline, and that Washington's commitment to the alliance with Japan was less certain.
 
From the Japanese perspective, there was ample evidence of America's turn inward. The U.S. troop presence in Asia steadily declined as the Cold War faded, falling from 141,000 in 1988 to 98,000 in 1992; further reductions were halted only after concern over North Korea's nuclear weapons program came to the fore in 1993. Bilateral trade disputes became particularly intense during the Bush and Clinton administrations, and contributed to a perception in Japan that American products were of inferior quality. The negotiation and ultimate passage of the North American Free Trade Agreement (NAFTA) sparked concern in Japan that Washington might abandon its support for an open global trading system, in favor of a more exclusive, regionally-based approach. The Persian Gulf War experience served to further amplify concern in Tokyo about American reliability: many Japanese deeply resented American criticism of Tokyo's support for the war effort, and believed that Japan's $13 billion contribution had not received sufficient recognition.
 
As a variety of factors forced a reassessment of ties with the United States, intellectual voices in Japan began calling for a greater focus on Asia-a continuation of the Japanese pattern of viewing relations with the West and East in mutually exclusive terms. Most prominent among these voices was Ishihara Shintaro, who authored with Malaysian Prime Minister Mahathir Mohamed the 1992 book, No to ieru Ajia (The Asia that Can Say No). The authors urged Japan to embrace its Asian neighbors and become more assertive in dealing with-and standing up to-the United States; Japan, they argued, should become the flag-bearer of Asian interests in international groupings such as the G-7. Mahathir quickly became the leading Asian voice calling for greater Japanese leadership in the region, although his views were by no means universally accepted in Asia. The Malaysian leader urged Japan to participate in his proposed East Asian Economic Caucus (EAEC), a regional economic grouping that would exclude the United States and other Western countries.
 
Emerging Leadership
 
Although Japan resisted these more extreme calls for a "return" to Asia, Tokyo did assume a larger political profile in Asia during the early 1990's-although it did so quietly, generally working behind the scenes. Japan played a key role in the creation and evolution of the Asia Pacific Economic Cooperation forum (APEC); indeed, by some accounts APEC was the brainchild of Japan's Ministry of International Trade and Industry, which wanted an answer to the growing regionalism in North America and Europe. The ASEAN Regional Forum (ARF), a multilateral mechanism for addressing regional security concerns, was also arguably an initiative of Japanese origin. At ASEAN's 1991 Post-Ministerial Conference in Kuala Lumpur, Japanese Foreign Minister Taro Nakayama proposed that the meetings be used as a mechanism for discussing security issues; three years later, ARF was born. Finally, Japan's decision to allow Self-Defense Force participation in the 1992 U.N. peacekeeping effort in Cambodia marked a major departure from past constitutional interpretation-and represented an important symbolic step in Japan's quest for regional leadership.
 
The early 1990's thus were marked by growing Japanese disenchantment with the United States, and rapidly deepening economic and political ties with Asia. Washington was not oblivious to these trends. As Tokyo slowly assumed more leadership in Asia, American policymakers became increasingly concerned that Japan was slowly drifting away from the alliance with the United States.
 
A Revitalized Alliance: 1994-1997
 
By the mid-1990's, Japan's shift toward Asia had come to a grinding halt. A series of events served to remind Tokyo that the end of the Cold War did not eliminate all the possible sources of instability in East Asia-and brought renewed attention to the importance of the U.S.-Japan alliance. The 1994 crisis over North Korea's nuclear weapons program was the first shock; the confrontation was particularly jarring because of the Korean peninsula's proximity to Japanese shores. Not surprisingly, public opinion polls began to consistently portray North Korea as the country most likely to present a military threat to Japan.
 
More ominous to Tokyo, however, were the increasing tensions in Sino-Japanese relations. Chinese nuclear tests in 1995 and 1996 led to the suspension of some Japanese development assistance to Beijing-a rare display of Japanese resolve in confronting its giant neighbor. Chinese military exercises in the Taiwan Strait in March 1996 also riled conservative forces in Tokyo, who are increasingly sympathetic to the democratic government of Taiwanese president Lee Teng-hui. The reemergence in 1996 of a territorial dispute over the Senkaku/Diaoyu Islands in the East China Sea also rocked bilateral ties; many Japanese were particularly surprised by the popular protests over the disputed islands that broke out in Hong Kong and Taiwan. China's growing power was increasingly seen in Tokyo as a possible threat to long-term Japanese interests.
 
In the wake of these developments, Asia suddenly appeared much less promising, and close ties with the United States again appeared essential to safeguarding Japanese interests. Almost immediately, Tokyo and Washington took steps to strengthen their alliance. In 1995, the Pentagon launched the so-called "Nye initiative", a working-level dialogue that sought to improve ties by encouraging Japan to assume greater responsibility in defense matters. In April 1996 President Bill Clinton and Prime Minister Ryutaro Hashimoto reaffirmed the importance of the alliance, and agreed to undertake an extensive review of bilateral defense cooperation. The resulting defense guidelines review culminated in an agreement that delineated specific forms of logistical and rear-area support that Japan could provide to American forces during a regional contingency-the first time that the two governments had agreed to cooperate in addressing "situations that may emerge in the areas surrounding Japan." In Tokyo, the pendulum appeared to swing back, and once again relations with the United States became the focus of Japanese policy.
 
The Asian Financial Crisis and Japan's Response
 
At first glance, the onset of the Asian financial crisis in mid-1997 would appear likely to accelerate Japan's shift back to the American fold. Asia's economic collapse has led many observers to describe the region's miracle as a myth; with Japan's economy also mired in an extended downturn-although for reasons quite distinct from the causes of Asia's wider crisis-and with the American economy enjoying unprecedented prosperity, the Asian "model" has been largely discredited in the West. The combination of Asia's troubling strategic realities, and the sudden evaporation of its economic strength, would seem likely to end Japan's brief dreams of an Asian alternative to its ties with the United States. Japan's apparent immobilism-at least to American eyes-in the face of the economic crisis indeed might suggest that Japan has lost its appetite for regional leadership. But while this interpretation of events is seductive, it may well be profoundly mistaken.
 
The political implications of the Asian financial crisis will not be fully understood for some time. Nevertheless, there is reason to believe that the events surrounding Asia's economic turmoil may actually encourage Japan to once again explore its Asian options-even as the strategic constraints on Tokyo described above remain very much in place. A number of factors point to this conclusion.
 
First, the sharp and very public American criticism of Japanese inaction during the crisis has sparked profound resentment across Japan-a sentiment that recalls the tensions in bilateral ties that emerged during the Gulf War. From Tokyo's perspective, Japan was anything but indecisive during the crisis. Japanese officials are quick to note that Japan provided some $44 billion in assistance to Asian economies, in the form of contributions to the IMF bailout packages, trade and investment credits, and other emergency assistance. In October 1998, Tokyo announced the creation of an additional $30 billion fund-dubbed the "Miyazawa Plan", after Japan's current Finance Minster-to provide financial support for the region.
 
Although this volume of assistance dwarfed comparable American support for Asia, Washington accused Tokyo of failing to do what would most help the region-reform and stimulate the Japanese economy. Japanese officials refused to link Asia's crisis to Japan's domestic economic troubles, however, and delayed taking action at home. Continued American criticism quickly became an irritant in bilateral ties. President Clinton's visit to China in June 1998 in particular hit a raw nerve in Japan. Mr. Clinton made a point of praising China's response to the financial crisis, and lauded Beijing's refusal to devalue the renminbi; the words stood in sharp contrast to Washington's withering criticism of Japanese economic management. To Japan, the self-proclaimed author of the East Asian miracle, the image of an American president in Beijing joining with Chinese leaders in a denunciation of Japanese economic policy was difficult to accept. By some accounts, U.S.-Japan relations in 1998 were perhaps worse than at any other time during the post-war period.
 
Second, despite American criticism, Japan clearly has used the crisis as an opportunity to reassert regional leadership. Tokyo's short-lived proposal for the creation of an Asian Monetary Fund in September 1997 represents the most obvious example. Although never fully defined, Japanese authorities envisioned a $100 billion fund that would extend loans to countries facing balance-of-payments emergencies; central to the proposal was the idea that the AMF would be more nimble than the rule-bound IMF, and better able to respond quickly to financial crises. The proposal was widely, although not universally, welcomed in the region, particularly in Southeast Asia. American officials denounced the AMF initiative, however, arguing that it represented a threat to IMF-and, by extension, U.S.-authority. In the face of American criticism, the proposal eventually died, although some observers have suggested that the Miyazawa Plan in fact represents a scaled-down version of the AMF. Nevertheless, the AMF initiative was a clear attempt by Japan to exert leadership in Asia that represented an alternative to the United States.
 
Finally, American and Japanese leaders appear to be drawing different lessons from the Asian economic crisis. Washington has argued from the beginning that the crisis was caused by the fundamental flaws of Asian capitalism-cozy government-business ties, corruption, a lack of transparency in the financial sector, etc. In essence, Asian economies were punished for behavior that was inconsistent with market principles, and structural reforms are necessary before investor confidence will return. Japanese officials have argued, in contrast, that there is nothing wrong with Asian economies; rather, the region was victimized by capricious capital flows, the movement of which often has little rational economic basis. Asia, in sum, was the casualty of globalization gone amok. The differing assessments of the crisis offered in Washington and Tokyo should not be overdrawn; recent IMF discussions indicate a growing global consensus on the need for both greater financial transparency in the developing world, and for mechanisms to control excessive capital movements. Nevertheless, American criticism of Japanese economic management could embolden those in Tokyo with a different vision of the world economy. Not surprisingly, the Japanese perspective has more resonance in Asia.
 
A New Paradigm?
 
The Asian economic crisis has therefore reawakened Japanese concerns about the reliability of the United States as an ally, and again encouraged Tokyo to consider its Asian options. At the same time, however, China's growing power places obvious constraints on Japan's regional diplomacy. This combination of events may ultimately force Japan to depart from its traditional west-or-east paradigm. As the 21st century approaches, Japan is beginning to consider a world which includes both a less certain American commitment to Japanese security-at least in Tokyo's eyes-as well as a rising and increasingly assertive China.
 
This evolution in Japanese strategic thinking is very much in its infancy, and radical changes in policy are unlikely over the short term. But there is some evidence of a new Japanese approach to the world. Tokyo appears to be moving to achieve greater autonomy from the United States; Japan's recent decision to acquire domestic reconnaissance satellites-a move precipitated by North Korea's August 1998 missile test, but also spurred by the broader tensions in U.S.-Japan relations-is one example. At the same time, Japan is unmistakably hedging against the emergence of an aggressive China. In the last three years, Tokyo has worked to improve relations with Russia, South Korea, India (at least before the May 1998 nuclear tests), and even the countries of Central Asia. Although there are a variety of reasons behind this new diplomatic activity, the fact that these countries trace a perfect geographic circle around China is no accident.
 
This evidence notwithstanding, shifts in policy will occur only gradually. Because Japan's evolving world view represents a significant departure from past patterns, the transition is likely to be uneven. In the process, Japanese policy may appear plagued by incoherence and apparent immobility-as has frequently been the case in recent months. There continues to be no firm domestic consensus behind any specific vision of Japan's proper role in the world, and public debate over security and defense issues in Japan remains highly contentious. To most Japanese, the prospect of an end to the U.S.-Japan security treaty remains unthinkable; similarly, the cultivation of a constructive-if not always friendly-relationship with China remains a central goal of Japanese foreign policy. Barring a sudden rupture in U.S.-Japan relations, therefore, dramatic remilitarization in Japan continues to be almost inconceivable. Indeed, Japan's FY 1999 budget reduces defense expenditures for the second year in a row, and all three services in the Self Defense Force are undergoing substantial personnel cuts. Nevertheless, over the long-term, Japan is likely to acquire-albeit gradually and incrementally-the attributes of a normal, autonomous military and political power. Asia need not fear this change, but the region should be aware that it is coming.
 
* Chris Johnstone
Research Fellow
Asia-Pacific Center for Security Studies
2255 Kuhio Avenue, Suite 1900
Honolulu, HI 96815
Tel: (808) 971-8961
Fax: (808) 971-8989
E-mail: johnstonec@apcss.org

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