Who Swings the Pendulum? Japan's Youth in the Pit

Once lonely at the top, Japan's elderly can expect company. Via.

Sexagenarians arrested for shoplifting. A population hardest hit by Japan's March 11 earthquake and tsunami. An August ministry report stating Japanese people aged 65 or older have surpassed 30 million for the first time. Japan is clearly experiencing a crisis among its elder demographic. But what of the youth, many of whom find themselves as vulnerable as their aging counterparts?

"Recall, for inspiration, that young people made the last Japanese Spring," a 2012 Japan Times article declares, citing youth participation in the Meiji Restoration as a counterexample to all the doom and gloom surrounding Japan's young. With Prime Minster Shinzo Abe unveiling a plan Tuesday for both a ¥5 trillion stimulus package and a 5 to 8 percent rise in the consumption tax, it is the 20-somethings as much as the elderly who must wait to see the real results of Abe's great experiment.

On the one hand, the sales tax could ultimately benefit both groups by mitigating runaway social security expenditures, a problem that a raise in the minimum age for collection of benefits to 61 earlier this year has apparently been unable to curb. On the other, the tax hike comes at a time when pensions earn "close to zero interest," with no rate increase planned for at least a few years, and when companies are reluctant to implement a much-needed increase in wages. In other words, both pensioners and younger workers stand to suffer from a rise in prices without a commensurate rise in income, whether in the form of social security or wages.

While part of Abe's plan provides ¥160 million in tax breaks to companies that raise wages by 2 percent, some in New Komeito, the junior coalition partner of Abe's LDP (Liberal Democratic Party), see this as nothing more than "wishful thinking." The results of the recent Reuters Corporate Survey seem to support the party's doubts. Of 266 companies polled as to what action they will take in response to the expected tax increase, only 13 percent planned to increase wages. Given this depressing response, Abe's call for a vaguely philosophical "virtuous circle of rising jobs, profits and wages" might prove shortsighted in the long run.

Take another part of Abe's plan: ¥110 billion in tax breaks and up to ¥300,000 in cash handouts for homebuyers. How will this affect Japan's working youth? Certainly, some kind of stimulus is needed. A 2012 government white paper showed the number of homeowners in their 30s to have dropped over 10 percent between 1983 and 2008, with a dramatic drop of over 50 percent for younger individuals. At the same time, the report blamed falling income for a rise in the burden of housing loans.

A topical look at Japan's housing development statistics paints a sunny view: increases in housing starts of 31,462 units a year for the past three years; booming business for Sekisui House Ltd., the nation's second-biggest home builder. But consider the example of Yokosuka, Kanagawa Prefecture, where a fifth of apartments stand empty, and the land ministry's grim prediction that a similar fraction of all residential areas will become ghost towns by 2050. Suddenly, the housing boom starts to look much more like a housing nightmare, reminiscent of the kind of superficial newness that Murakami writes of in A Wild Sheep Chase:

"What a view! Instead of ocean, a vast expanse of reclaimed land and housing developments met my eyes. Faceless blocks of apartments, the miserable foundations of an attempt to build a neighborhood… Everything brand new, everything unnatural." (107)

Part of the problem of vacant housing stems from years of youth migration away from rural areas to cities, where they might hope to find more opportunities for work. Though young graduates have seen their fortunes improve somewhat since 2008, employment numbers still illustrate an uneven recovery. A recent report by Japan's education ministry showed 1 in 5 university grads coming into the market in the spring unable to obtain secure employment.

Nature reclaims vacant housing in Japan. Via.

Five and a half percent of those surveyed fell under the NEET (Not in Education, Employment, or Training) designation. Though this number represents 30,770 people, only recent graduates were included in the report. If we look at an earlier study from 2009, which tallied the total number of NEETs at 640,000, we can see the grim reality: many of those unemployed graduates won't see improvement in their fortunes moving forward.

Even those who do manage to land full-time jobs face difficulties in a market with a glut of eager workers and a scarcity of positions. Recently, the term burakku kigyo (black companies) was coined to describe companies that demand as much as 100 hours of uncompensated overtime a month from their young employees. The overworked Japanese salaryman became something of a stereotype even during the golden age of bubble Japan. However, Ayako Mie of the Japan Times believes today's abuses stand apart due to the economic climate. Citing Haruki Konno of the NPO Posse, Mie writes, "exploitative companies hire new college graduates en masse, assuming most won't be able to survive the harsh conditions and will eventually resign. Then they just hire more."

With over 45 percent of college graduates employed in the service, entertainment and education industries leaving their jobs within three years, according to a 2012 health ministry report, one wonders whether the earlier 1 in 5 number for graduates without secure employment really tells the whole story.

A revolution in youth employment will require more than stimulus, such as Abe's ¥10,000 yen cash allowance for low earners. Writing on the topic of a youth-led Japanese Spring mentioned earlier, Roger Pulvers recognizes that companies themselves are "struggling to keep up not with the Joneses but with the Wangs and the Kims," illustrating the dwindling figure of the Japanese economy next to that of neighboring China and Korea.

Even inspiring efforts like that of Yujin Wakashin, who aims to establish a self-titled NEET Corporation for business-minded, iconoclastic NEETs, seem more like standouts than the start of a movement. The real rise or fall of Japan's youth will hinge not only upon the results of Abe's economic vision, but also more broadly upon a change in thinking.

Former Prime Minister Yoshiko Noda spoke at Japan Society yesterday on topics ranging from the Senkaku Islands conflict to social security reform. Prominent throughout his speech and his responses during the question and answer session was a call for Japan to become a nation that can make decisions in the present for the generations to come. His admonishment seems particularly relevant for a society and government that must decide whether to abandon its youth, and, by extension, its children of tomorrow, or to age into oblivion. The solution Noda calls for may require less of what he called the "two types of leaders: politicians and statesmen," and more of what he deems his own goal: the political reformer.

--Andres Oliver

Restructuring Japan’s Infrastructure: A Sustainable Way Forward

Via.

Last week we looked at challenges facing the Japanese economy in a global setting, especially the demographic dilemma unique to Japan. While there are many possible solutions to these challenges, some agree that infrastructure is a vital priority.

Traditionally, Japan’s infrastructure investments have been geared towards new construction projects rather than improvements in existing structures. As in the U.S., such projects have been derided as political allocations to representative districts (i.e. “pork”) rather than as necessary expenditures. But infrastructure reinvestment can provide much-needed repair work for Japan’s roads, bridges, tunnels and buildings. Of course, this investment will come at a cost. Japan’s public debt is now close to double its GDP as social welfare spending and tax revenues are moving in inversely-related directions. A recent increase in the consumption tax will help fund pension liabilities, but one wonders how much of the other tax revenue streams will be available for infrastructure expenditures in the face of pre-existing government debt.

In light of the almost-complete abandonment of nuclear power following last year’s Fukushima incident, another major component of Japan’s infrastructure is energy investment. Recent incentives to promote solar power could eventually make Japan the world’s largest solar-power market (over Italy and Germany). It seems that the time is ripe for Japan to lead the way in “cleaner” energy investments.

In tonight’s Japan Society’s Corporate Program event A Roadmap for Japan’s Steady, Sustainable Pathway Forward, Professor Daniel Okimoto delivers the speech "Infrastructure Investments: Japan's Historic Opportunity” looking at how energy, transportation, IT, healthcare, and tourism can help move Japan forward.

Okimoto, a specialist on the political economy of Japan, is Professor Emeritus in the Department of Political Science at Stanford University and Director Emeritus and co-founder of the Walter H. Shorenstein Asia/Pacific Research Center (APARC) at Stanford University. In 2004, he received the Japanese Foreign Minister’s Commendation in recognition of his contributions to US-Japan relations during the 150th year celebration of bilateral relations, and in 2007, he was awarded the “Order of the Rising Sun with Goldray Neck Ribbon” by the Japanese government, one of the highest honors that can be bestowed on a non-Japanese citizen.

--Lyle Sylvander

Is Japan’s Demographic Dilemma The #1 Challenge For Economic Recovery?

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Although not in the spotlight as much as the U.S. economic recession or the European currency crisis, Japan’s economy is experiencing its own set of challenges. The recent shutdown of all nuclear reactors, a public safety measure enacted in response to the Fukushima nuclear incident, has led to an increase in fossil fuel imports. This, coupled with an appreciating yen, has led to a trade deficit further pressuring an economy experiencing deflation and a growing fiscal deficit. Recently, the Bank of Japan (BOJ) enacted a new round of “monetary easing” to the tune of ¥15 trillion in the hopes of attaining an inflation rate of 1% and boosting moribund domestic spending. Despite these aggressive steps, many wonder if the BOJ is doing enough to kick start the economy and foreign investors remain largely unconvinced.

Professor Koichi Hamada addresses these concerns in his talk Monetary Policy & Japan’s Economic Recovery, Wednesday, June 13 at Japan Society. Professor Hamada is the Tuntex Professor of Economics at Yale University and Professor Emeritus at the University of Tokyo. According to a recent Wall Street Journal article, he is the former teacher of BOJ Governor Masaaki Shirakawa and a proponent of monetary easing. The talk will be moderated by Paul Sheard, Standard and Poor’s chief global economist.

While Hamada will focus primarily on monetary policy, another major area for Japan to tackle is its demographic dilemma. The median age of the country is around 45 and continually rising due to declining birth rates and a restrictive immigration policy. Spending on social security benefits accounts for a large chunk of the government debt, the value of which increases as the yen depreciates. As Paul Krugman pointed out in his classic 1998 article “Japan: What Went Wrong?,” BOJ monetary policy is relatively ineffectual in the face of aging population—a problem unique to Japan and not apparent in the U.S. or European crises. Perhaps it should be a primary focus for recovery. As Shirakawa stated in May, "The current difficulties come not from the continued population aging itself, but from the delayed response to it."

--Lyle Sylvander

Updated 6/12/12.

Japan’s Hunt For Former Glory: Recommendations From A Leading East Asia Expert

Via.

It is hard to imagine that Japan, the nation many look to for cutting edge technology and pop culture coolness, may be waning as a world power. The revolving door of a government saw six different Prime Ministers in five years led to what some view as unstable domestic politics, and the recent natural disasters devastated the northeast coast of the country and caused a major meltdown at the Fukushima nuclear power plant that is still affecting the city. Japan held the distinction of being an economic powerhouse second only to the U.S. for decades until China surpassed them this year, and the country now faces its third “lost decade” its bubble popped. While tensions surrounding the U.S. base in Okinawa eased a bit this year as a result of Operation Tomodachi, some believe South Korea is becoming a more viable strategic ally for the U.S.

In Losing Its Edge? Evans Revere on How Japan Can Remain a Leader & America’s Closest Partner in East Asia, former diplomat and revered East Asia expert Evans Revere tackle these issues. Sitting down with ForeignAffairs.com editor Andrew Bast on December 1 at Japan Society, Revere draws on his experience to offer insights on how Japan can return to its former glory.

Evans J.R. Revere is a Princeton University graduate, a U.S. Air Force veteran and has gone on to become a top foreign affairs specialist, with 35 years of government service under his belt and being fluent in Chinese, Korean, and Japanese. He is currently the Senior Director at the global strategy firm Albright Stonebridge Group and specializes in advising clients concerning Korea, Japan, and China. From 2007 to 2010, he served as the President and CEO of the Korea Society in New York and notably was part of the “New Beginnings” policy study panel that came up with recommendations for improving Korean relations with the U.S. before President Obama met with South Korea President Lee Myung-bak. He has negotiated between the U.S. and North Korea and was responsible for the State Department’s effective response to the tsunami disaster that hit Indonesia and other parts of South Asia in December 2004.

--Sean Tomizawa

Wilbur Ross: Ups From The Market’s Downs?

Wilbur Ross. Via.

Yesterday Wilbur Ross, chairman and CEO of WL Ross & Co. and chairman of Japan Society, sat down with Council on Foreign Relations’ Benn Steil to talk Greed vs. Fear: Making Sense of the Market Crash (watch the full video). The discussion used the August 2011 crash as a springboard to look at the economic situations of the U.S., Europe, China, and Japan, and how they can improve and fix their respective problems.

Reporting from the event, The Wall Street Journal noted that "Ross has to squint to see the bright side":

Wilbur Ross isn’t optimistic. He says he’s not totally pessimistic, but the financier is short on happy thoughts.

Over the course of an hour-long talk Wednesday afternoon at the Japan Society in New York, Mr. Ross voiced just about only one view that was in the not-totally-depressing camp. Stock markets, he says, “have priced in a very bearish scenario. Unless things get truly bad, the worst is probably over for the markets,” he said. 

While WSJ goes in-depth about the more pessimistic points, there were several observations and key takeaways for overall improvement from the discussion:

● The U.S. has gone two years with practically no budget. The lack of Democrat and Republican consensus on what needs to be cut is due to both sides aiming at each other’s "sacred cows". The resulting political inertia is the U.S. economy’s worst enemy. It prevents strong leadership and a lack of bold responses to various crises. The preoccupation with presidential and congressional elections, along with the Tea Party phenomenon, further polarizes the political structure doing little to help the economy.

● Greece has been at the brink of default for some time. The European Union never had preparations if a member leaves voluntarily or is forced to leave, which belies that a single currency means a cohesive political and fiscal union. European nations need to stop applying small fixes to crises and instead apply big changes to the point of overkill as soon as they come up.

● China is doing fairly well for itself despite a major housing shortage. The nation’s recent high economic growth means housing demand can be supplied without too much worry of a crash. Ross said that because of the economic success China is having, he would rather bet on their banks than the European ones.

● The U.S. and Japan both have cash rich economies, but they are not as liquid as they could be. True liquidity should be attained to help stimulate their respective economies.

● Japan, while the response to the recent earthquake was incredibly quick, needs to continue focusing on rebuilding the Tohoku region in order to help revitalize the economy. The cultural avoidance of change is also not helping progress, leading to further depression and low growth. Due to the labor shortage, Japan needs to incorporate more women and immigrants into the workforce.

● It would be most logical for Japanese companies to make more foreign investments especially while the yen is so strong. However, there is seemingly no push for that move, unlike in China where natural resources are in small numbers so they have dipped into Africa, South America, and even the U.S.

● Finally, there is a self-correcting mechanism in the economy that will only activate when governments decide to be more decisive with their actions, be more willing to invest, and generally be much bolder.

--Sean Tomizawa

Optimism And Hope Glimmer Behind Gloomy Realities Of Post-Quake Japan

Detail from Nikmak's "Japan is Arising". Via.

Two months after the devastating earthquake and tsunami, which unleashed a nuclear crisis in the Tohoku region of Japan, the enormity and complexity of the problems the country now faces are daunting. More than 14,000 people lost their lives and nearly 200,000 have been evacuated from the region and remain in emergency shelters. The Japanese government now estimates that the cost of the damage could reach $310 billion.

In a discussion on Japan’s prospects after the Tohoku earthquake entitled Why Japan May Surprise the World: Rebirth after the Tohoku Quake?, a panel of leading economists at Japan Society did not sugar coat the challenges the country must now overcome. “It will have a pretty darn big effect on GDP,” said Bruce Kasman, Chief Economist at JP Morgan. The panel however, said the economic outlook for Japan, like the people, shows signs of resilience.

The immediate impact of the disaster was serious said Bruce Kasman, with a 15% drop in production in March. Retail sales fell 8% and car sales were down 40% for March and April. Overall he estimated a drop of 4% of GDP on an annualized basis over the second and third quarters of this year. But he predicted that after all the “sound and fury” had died down, Japan would be back at 90% of production capacity by the end of the summer and back on a growth path by the end of the year in part because of fiscal stimulus programs launched in response to the quake.

Paul Sheard, Global Chief Economist with Nomura said the quake had been a huge blow to Japan’s national confidence. Many had been waiting for the next “big one” to strike Tokyo or Tokai not Tohoku. The result was that many now feel another earthquake could still hit elsewhere. However, he suggested the negative impact of the crisis could also have a positive outcome. While the supply chain disruption caused by the earthquake, could lead companies to shift production offshore, it also reminded the rest of the world just how crucial Japan’s technology sector is to the global economy. Reconstruction not just by the government but also by the private sector looking to protect its own infrastructure from future disasters, could create a major economic boost for Japan. He estimated that while GDP would shrink by 0.5% this year, next year Japan’s economy would grow by 3.1%.

The panel saw the crisis as an opportunity for Japan to address some hard questions. Mr Sheard said now was the time for Japan to grapple aggressively with its deflation perhaps by issuing bonds. He also recommended that Japan look at its immigration policy in the face of its ageing society. He said opposition to immigration might diminish and the government should draw up a new structured, strategic immigration plan. It is also a time when strong leadership and continuity would be essential, he said.

The impact of the earthquake will have ramifications in all sectors of the economy but Kyohei Morita, Barclays Capital Chief Japan Economist, felt that problems the economy is facing were there long before the earthquake struck. He predicted that while Japan now enjoys a healthy current account surplus, the ageing society and an outdated tax policy which relies too heavily on corporate tax, will mean that the surplus disappears by 2018. "A current-account deficit would change completely the way the Japanese economy looks," he said. Companies facing expensive power supply and a weaker yen could take their business overseas resulting in what he described as “hollowing out” of the economy. Mr. Morita said that the nuclear crisis would spark a debate in the near term about electricity production in Japan. He said use could be made of thermal and hydroelectric power but in his opinion it would be “impossible” to shift way from nuclear power completely.

Much has been made of the reduced capacity for electricity production with predictions of a shortfall of 20% by the summer months. But the panel felt this was being overplayed and that Japan would rise to the challenge and find ways to make sure that power could stay switched on.

The panel agreed that there was much to overcome and that strong policy initiatives would be essential to Japan’s success. Jeffrey Shafer, a former Citigroup executive, who chaired the event, said the panel had pointed out some gloomy realities but that there was “optimism and hope glimmers”.

-Juliet Hindell

Hindell was BBC Tokyo bureau chief and Daily Telegraph Tokyo correspondent and is now based in New York.

East Asia 2011: Measuring Perils, Managing Risk

Perils as persistent as time. Via.

A spotlight shone brightly on tensions in the East Asian region last year with the sinking of the South Korean warship, Cheonan, in March followed by collision of a Chinese trawler with Japanese coastguard vessels in the disputed waters of East China Sea in September, and shelling of South Korea controlled Yeonpyeong Island by North Korea in November. More recently, revelation of a new nuclear enrichment facility at Yongbyon, North Korea’s main nuclear plant, has only added fuel to the growing tension in the region and beyond.

The collision of a Chinese trawler and two Japanese coastguard vessels in 2010 around uninhabited Senkaku islands disputed between Japan and China (called Diaoyu Islands in China) propelled actions such as Beijing banning exports to Japan of rare earth minerals that are crucial for electronics and auto parts manufacturing and others including suspension of high-level contacts, Chinese travel agencies canceling package tours to Japan and withdrawal of invitation from 1000 Japanese youngsters who were going to attend the World Expo in Shanghai. While tensions continue, further damage was halted with Japan’s release of the trawler captain amidst growing pressure from China.

Within Japan, recent developments hint toward a shift in focus with regards to defense in face of changing geopolitical risks. In December 2010, Japan’s cabinet approved new guidelines that refocus its defense strategy on the rise of China rather than the “cold war threat of Russia”. The guidelines “also call for a stronger alliance with the US – Japan's biggest ally – and expanded security networks with partners such as South Korea and Australia.” The news report also states that “Japan will acquire new submarines and fighter jets, upgrade its missile defence capabilities and make its ground forces more mobile so that they can quickly respond to emergencies in south-west Japan.”

Military might is also on the rise in China. The Economist notes that “China’s army is planning to add impressive new capabilities—an aircraft-carrier, a “carrier-killing” anti-ship ballistic missile, and a “stealth” jet fighter—without offering much clarity about its strategic intentions”. China reportedly tested the J-20 stealth plane during Defense Secretary Robert Gates’s visit to China earlier this year in January.

Gideon Rachman notes in Foreign Policy that Fortune's latest ranking of the world's largest companies has “only two American firms in the top 10 -- Walmart at No. 1 and ExxonMobil at No. 3 while there are already three Chinese firms in the top 10: Sinopec, State Grid, and China National”. With unfaltering economic prowess and resulting power, China’s stance in the matters of regional security and stability has become as critical as in the matters of economics and trade. As South Korea, U.S. and Japan condemned incidents thought to be provocations by North Korea, i.e., the sinking of Chonan and the shelling of Yonpyong Island, China held a much softer stance on North Korea. It was only during President Hu Jintao’s visit to the U.S. last month that he agreed to a joint statement that emphasized the importance of North-South dialogue and expressed concern for the first time regarding the Democratic People’s Republic of Korea’s (DPRK) uranium enrichment program.

In a report titled "China and Inter-Korean Clashes in the Yellow Sea", The Crisis Group notes the “growing power and foreign policy confidence” as being important factors influencing China’s stance and underscores one of the complexities as follows:

In the past, Beijing’s willingness to at least calibrate its responses to North Korean provocations was seen by the West as essential for moderating Pyongyang’s behaviour. Over the past year, however, Beijing has not only escalated its claims to disputed territories in the South China Sea and Diaoyu/Senkaku Islands, but also increasingly resisted external pressure over Iran as well as North Korea. It feels under less pressure to yield to external demands and increasingly expects quid pro quos from the West in return for cooperation on sensitive third-country issues.

In cooperation with the National Committee on United States-China Relations and in honor of the launch of a new book on China-Japan tensions, Japan Society presents Perils of Proximity: Managing Risk in East Asia, a panel of three regional experts featuring President, Eurasia Group Ian Bremmer, Center for Northeast Asian Policy Studies Director Richard C. Bush, III, and Johns Hopkins Center for East Asian Studies Director Kent Kaldor. Moderated by Jan Berris, Vice President, National Committee on U.S.-China Relations, the [sold out] panel takes place at Japan Society on Monday, Feb 14, at 5:30pm.

A.T.

The East Asia Equation in American Monetary Policy

As developed economies including the United States try to crawl out of the effects of the financial crisis, China’s increasing influence on the global sphere has become a critical consideration in the equations of trade and finance. Daniel Franklin, Editor of The Economist’s World in 2011 opens his editorial with the following:

In a year that will delight numerologists (especially on November 11th, or 11:11:11), the most notable number will in fact be two. It will be a tale of two economies: a rich world struggling with a weak and jobless recovery, and an emerging world growing four times as fast. 

At home in the U.S., the Federal Reserve introduced a monetary policy called QE or quantitative easing in 2008 in an effort to revive the ailing U.S. economy. QE involves the government buying bonds to increase the money supply in the economy in order to stimulate lending and spur economic activity. A second round of pumping money into the U.S. economy ($600 billion), commonly known as QE2, was announced in November 2011. More recently, on January26th of this year, the Federal Open Market Committee (FOMC) reaffirmed its position to continue with the QE2.

While critics of QE2 point toward, among other things, Japan’s experience of implementing quantitative easing from 2001 to 2006 and whether or not it had any impact on the economy, there has also been a build-up of voices from abroad expressing concerns against the policy. Central to the concerns of China and the emerging world is the notion that a policy such as QE2 is an attempt to drive the dollar down.

Depreciation of dollar with respect to floating-rate currencies as a result of increased supply of dollars is a predictable result as the “rise in the volume of dollars [causes] the value of each dollar to fall relative to the floating currencies, whose volume has remained constant or risen more slowly”. Such an outcome worries China which has so far allowed only a slight appreciation of its currency (Renminbi, unit=Yuan) keeping its exports cheaper. The Chinese Prime Minister Wen Jiabao explicitly mentioned that China does not want more rapid appreciation of the Renminbi keeping in mind the potential adverse impact on Chinese exporters.

While the centrality of economic concerns in policy making is of the utmost importance, countries in Asia including Japan face an equally dominant concern. A special report on China’s place in the world published by The Economist links the twin concerns of Asian countries, namely economics and security, to the dual need that many Asian countries face, noting “naturally, Asian countries want to have it both ways: to resist China’s power but to continue trading with it; to benefit from American security but without sacrificing Chinese commerce.” The report also says China has risen as a chief trading partner for most of Asia and in the eyes of the economists and businesspeople, China getting richer means gain for everyone – the rest of Asia finding a bigger market in China and vice versa. However, from a security standpoint, the report states, “In a troubled continent like Asia, countries therefore look to America to save them from an increasingly powerful China—to ‘the water far away’ for protection from ‘the fire nearby’”.

In the specific case of the relations between Japan, China and arguably, the U.S., Professor Hugh Patrick, Director of Columbia’s Center on Japanese Economy and Business, notes that rapid growth in export has played a key role in Japan recovering from recession and that the increase in exports, for the most part, come significantly from “renewed growth and increase in demand of East Asian economies, especially China”. Patrick also notes that one of the major challenges Japan faces is how to deal with China. He states that the “two pressing issues that will define the relationship [between Japan and China] will be “[t]o what extent do Japan’s economic interests align with those of China?” and “[w]ill the two countries be able to agree on a common set of East Asian regional rules for trade, [Federal Direct Investment], or exchange rates?” The above questions, he argues, “raise issues that extend beyond economics, and, inevitably, the United States will be involved in trying to answer them”. On a much broader international level, the interconnectedness and interdependence between currency exchange rate, export and monetary policies such as quantitative easing are now culminating into a fear that a currency war may be imminent.


Akira Kojima, a Senior Fellow at the Japan Center for Economic Research (JCER) and Visiting Professor of National Graduate Institute For Policy Studies (GRIPS) articulates the current tensions and the resulting sentiment in Japan as follows:

In 2010, China overtook Japan as the second largest in the world in terms of total GDP, a position that Japan has held since 1968. How to come to terms with a rising and more demanding China will be an issue of increasing importance in Japan in 2011. Tension on the Korean peninsula is another of Japan’s worries, which, together with the China issue, is forcing Japan to reconsider the nature of its alliance with the United States. 

Echoing the changing dynamics of U.S.-East Asia relations in Davos at the World Economic Forum on 29 January was Prime Minister Naoto Kan of Japan. In his speech, Prime Minister Naoto Kan of Japan welcomed China overtaking Japan as the world’s largest economy and said, “the world faces major changes that can be likened to a tectonic shift both in the national security and economic fields”. Recognizing the importance of Japan’s relationship with China, he also noted that Asia is “the centre of major tectonic changes” and against this background the Japan-U.S. alliance “is becoming even more important” and should continue to play a key role in the Asia-Pacific region.

This Thursday, February 3, Japan Society presents the expert panel What Impact Will Monetary Easing Have on U.S. & Global Economies, featuring Nomura Securities’ top bank researcher Brian Foran and chief U.S. Economist David Resler, Columbia Business School’s Alicia Ogawa, and Financial Times’ U.S. managing editor Gillian Tett, the award-winning author of Fool’s Gold and Saving the Sun. Moderated by Bloomberg News anchor and reporter Kathleen Hays, the event is free to the public with pre-registration required.

A.T.

Japan & Korea: Decades Of Geopolitical Musical Chairs

This is not the sound of silence. Via.

Up and down--one chair pulled and the music continues. The players are Japan and South Korea, playing for decades in an international arena with their neighbor who has had an amazing growth spurt, China, and their cantankerous cousin North Korea. The music is the never ending (and often dissonant) song of diplomacy.

If we chronicle Japan and Korea’s quandary from 1990s to the present, it has been a continuing game of musical chairs. 720 miles apart, Seoul and Tokyo have faced economic strife and regional security detriments. Although many of the crises were similar, the two countries chose different paths with different geopolitical and domestic consequences.  

South Korea, historical and regionally, has always been at the mercies of their neighbors and the international community. Currently they are rekindling their relationship with the U.S. and cooling to China since the sinking of the South Korean Cheonan. They faced many of the same economic, political and demographic problems Japan now faces. They made strong and bold reforms, created a robust economy, strengthened a vigorous and interactive democracy—all to enhance their geopolitical weight so they are no longer at the mercies of the world. Yet despite these accomplishments, they remain at an impasse with North Korea, where things have heated up of late.

Japan’s game change happened in 2009, when the Democratic Party of Japan defeated the more conservative Liberal Democratic Party, ending the latter's near unbroken rule since World War II. This was celebrated as a major step in Japan’s democratic system, but has so far created risks in every level of Japanese life: political, bureaucratic, economic and public. The situation now threatens the efforts of Japanese leaders and their allies to promote economic recovery and ensure stability in the region.

On December 8, Japan Society welcomes Harvard University Kennedy School of Government’s William Overholt to lead the hard-hitting discussion Japan & Korea: Domestic Reform & Geopolitical Shifts. Overholt is a one-time investment banker who has become a prominent Asian policy expert over the last few decades, planning studies at one time for the U.S. Department of Defense, Department of State, National Security Council, and Council on International Economic Policy, as well as penning six books (most recently Asia, America and the Transformation of Geopolitics).

In the discussion, Overholt poses the question: can Japan revive without crisis amidst unstable internal power structures and with such alarming international security issues unfolding in East Asia? He also addresses Japan's importance for Asia and South Korea’s management of a deteriorating North Korea.

The lively and timely discussion is presided by Robert Fallon, a professor at Columbia Business School, who also serves on the boards of Japan Society and Korea Society. Chairs will be provided, and the music has already begun to play.

S.H.

News Blast: Kan Vs. Ozawa, Japan's Tea Party, Walkman Runs, Panda Twins, And More

Japan takes Little League world series championship. Via.

►The U.S. and Japan again missed their deadline to resolve the Futenma airbase debate. AFP blames Japan's politics and WSJ calls it good news for advocates of the base. The two countries, however, did release a report regarding construction of a new base, calling for a more environmentally friendly option. 

►Meanwhile, Nebraska Governor Dave Heinema is building better relations with Japan for his state.

►The battle for Japan's sixth prime minister in four years has officially begun, this time within one party. WaPo has an extensive article on the showdown between between the current PM Naoto Kan and DPJ power broker Ichiro Ozawa, noting that the "Kan-Ozawa contest serves as a reminder of Japan's search for a decisive leader." A vast majority of Japanese voters would like to see Kan reelected, and he was visibly moved at the DPJ rally of support. Observing Japan's Tobias Harris wrote about the unlikelihood of an Ozawa upset in Foreign Policy (he also discussed election issues and the "intellectual paralysis" plaguing Japan's economic policy with CNBC Asia). Ozawa says the two candidates will be as tight as Obama and Clinton regardless of the election outcome.

►Jetwit discusses the rise of Japan's brand of Tea Party, as reported in The New York Times.

►Asahi reports Japan's Defense Ministry may create a military force modeled after the U.S. Marine Corps "to strengthen the defense of remote islands in southwestern Japan amid the rapid modernization of China's military."

►Japan's Foreign Minister Katsuya Okada tells a China nuclear envoy that tensions from March's South Korean warship sinking are too high to continue the Six Party Talks with North Korea. WSJ carried an in depth interview with Okada on this topic and more.

►Japan approved further sanctions against Iran, "including an asset freeze on 88 entities, 15 banks and 24 individuals."

►A new Brazilian film concerns the unspoken history of Japanese immigrants in Brazil. (Background: in the chaos following World War II The Japanese divided into two groups: one accepted Japan's defeat and one didn't. Confusion swelled into a brutal rampage among the Japanese, fueled by the repressive Brazilian government, who had set up concentration camps as tensions between Japan and Brazil intensified during the 30s.)

►The Atlantic's James Fallows returns to his old Tokyo neighborhood and finds "an inward-looking country that has lost its ambition." Among many keen observations of Japan in the 80s and now, Fallows writes: "If you know China mainly through stories of its economic successes, you’re surprised on a visit that it’s still so poor. If you know Japan mainly through stories of its failures, which are real, you’re surprised that it’s become so rich. "

►Robert Ingersoll, who was the first ambassador to Japan from the business world (and served as Japan Society chairman in the late 70s and early 80s), passed away at 96. Japan Society remembers his contributions.

►Japan wants to help foreigners living in the country to learn Japanese.

►Reuters breaks down Japan's latest $10.8bn solution for economic recovery.

►Twitter Japan is raking in the yen the old fashioned way: ad sales.

►Yomiuri reports the Japanese government is setting up a new ministry to nurture culture industries, such as anime and fashion.

►Japan experienced its hottest summer since 1898. Not surprisingly "cool products" were hot sells.

►In Japan, the Sony Walkman outsells the iPod for the first time.

►Huffington Post shares some images from Japan's classic guide to American Ive League 60s style, that is back in print and for the first time in English translation.

►Japan took the Little League world series championship, ending the U.S.'s five year reign.

►Labor Day Weekend sees U.S. and Japanese all-star baseball teams face-off in a three-game friendship series.

►AFP profiles Japan's internationally renowned taiko troupe: "For decades Kodo's members have lived communally in the mountains of Sado, leading an austere and almost monastic life where trainees steel themselves with daily 10 kilometre (six mile) runs and hours of gruelling drum practice."

►In California's tough real estate market, LAist asks: is moving Pasadena's only Frank Lloyd Wright home to Japan the answer?

►Video: The Telegraph has the first look at baby panda twins born in a Japanese zoo in mid August.

S.J.

APEC Japan 2010

The Asia-Pacific Economic Cooperation (or APEC), which turned twenty years old last November, is seeking a fresh way forward against the backdrop of the global economic crisis and the need to further boost open trade and investment in the Asia Pacific region. The coming two years offer Japan and the U.S. a golden opportunity to coordinate their efforts in support of the shared APEC goals, as Japan will host the 2010 summit in November in Yokohama while the U.S. will host the 2011 summit in Hawaii.

Unfortunately, the private sectors of both Japan and the United States tend to have at best a vague understanding of APEC's goals and accomplishments. Japan Society is here to help!

APEC 2010 SOM Chair Ambassador Shigeru Nakamura of Japan and his U.S. counterpart, U.S. Senior Official for APEC Kurt Tong, are going to join us on March 15th for a corporate luncheon to discuss the principal themes for APEC Japan 2010. These include regional economic integration; a strategy for promoting balanced, inclusive and sustainable economic growth; and further emphasis on human security issues to protect societies against a multitude of threats including natural disasters, terrorism, food security and pandemics.

The internet has been buzzing about Japan's new role as the APEC chair. The Japan Times discussed the busy year ahead and on East Asia Forum, Christopher Findlay of Adelaide University intelligently analyzed APEC's goals:

"Balanced, inclusive, sustainable and knowledge-based – these are the dimensions of growth which APEC is talking about. Put their first letters together and you get BISK.

This agenda comes out of a number of forces for change, including the response to the global financial crisis, the concerns which have been raised about the distribution of the benefits of growth within economies (and between them), the intersection of these developments with the climate change debate, and the twittering rate of technological change in the digital world.

So BISK wraps up these forces for change. There are at least two sets of issues. One is what it really means. Is there a core component or is this another list in the APEC list of lists?"

Make sure to read the rest of the article to learn more and then, armed with knowledge, come to Japan Society on March 15th to participate in what should be a fascinating discussion!

Recovery & Future Challenges in Asia & the Pacific

Tomorrow, Asian Development Bank President Haruhiko Kuroda is coming to Japan Society to discuss with us over lunch how to achieve a regionally integrated yet globally connected Asia.

However, Joel Rathus of Meiji and Adelaide Universities recently said on East Asia Forum:

"Much has been made of late about the possibility of Japan drawing closer to China. But on the major issues of historical record, trade, and security, Japan’s China policy is unchanged under the DPJ, and is unlikely to change in the near future."

It will be interesting to see what Kuroda predicts the future holds for Asia in light of Japan and China's continuing tensions.

News Blast

Japan eclipses China as top US Treasury holder

China's holdings of US Treasury bonds tumbled in December, allowing Japan to take over as the top holder of American government debt, according to Treasury data released Tuesday. China's bond holdings dropped substantially to 755.4 billion dollars in the last month of December from 789.6 billion in November, said the Treasury's international capital data report. Japan's holdings increased to 768.8 billion dollars in December from 757.3 billion dollars in November, according to the data.

South Korea wants Japan to also introduce daylight savings time

South Korea hopes that Japan will join its push to introduce daylight saving time this summer in a move aimed at saving energy, Yonhap News Agency reported Wednesday. "It is true that Japan's stance is one of various factors in deciding whether South Korea will adopt the system," an unidentified official at the presidential office was quoted as saying. South Korea is contemplating whether to set the country's clocks forward an hour in summer, probably from April until September.

Japan's solar power capacity more than doubles in 2009

Solar power capacity in Japan rose to 483,960 kilowatts in 2009, 2.1 times more than the 2008 total, according to the Japan Photovoltaic Energy Association (JPEA). The new total -- based on shipments of solar energy systems -- marked a record jump in the nation's installed solar power base, with the previous highest increase coming in 2005.  

News Blast

Japan, China urged to take further steps in joint history research

Japanese and Chinese experts have compiled and released a report on the first joint research project they conducted on history. It is regrettable that its section describing the post-World War II period and the excerpts of their discussions are being withheld at the request of Chinese experts. Nevertheless, the move by the Japan-China Joint History Research Committee should be hailed as both countries, which have a bitter legacy from World War II, confronted historical facts and compiled a report.

Toyota on the hard shoulder

Japanese public debt is 200 per cent of GDP. Its economy is poised to be overtaken by China. Japan Airlines (JAL) is bankrupt. It is tempting to see Toyota’s defective accelerator pedal as part of the same story of failing Japan. To do so makes several mistakes. The first is to view Toyota as synonymous with corporate Japan, which it is not.

Full-body scanners for nation's airports in works

The government is considering installing controversial full-body scanners at airports following a failed attack on a U.S.-bound jet in late December, sources said Tuesday. The full-body scanners, which some other countries are introducing, are designed to produce images of the human body in white and all other foreign matter in black. They are considered more effective than metal detectors in spotting items hidden beneath clothes, but critics have raised concerns about invasion of privacy.