Japan

In my previous post, I discussed how, after a surprising victory in May elections, and jubilation among supporters of the former opposition coalition that they had finally broken through, ending the ruling coalition’s domination of Malaysian politics, Prime Minister Mahathir Mohamad and other leaders of the governing alliance are now facing tough realities on many fronts. For one, they remain unsure of how much state money was allegedly stolen or lost by the previous government, and how much worse Malaysia’s national debt is than previous imagined—an issue of great significance to investors and ratings agencies. The new ruling coalition may well find it difficult to reconcile key planks of different parties within the governing alliance, especially on issues related to longstanding affirmative action programs for ethnic Malays—but also on other issues. Regarding the longstanding affirmative action programs for ethnic Malays, it seems almost impossible to imagine how Mahathir, supported by ethnic Malays, could take steps to reform the programs, even though other parties in his coalition would like to do so. Yet the programs have, in many ways, outlived whatever utility they had for the Malaysian economy and society. The new government also is struggling, to some extent, to balance demands from the various members of its somewhat unwieldy coalition for key cabinet positions—and, generally, for influence in the government’s decision-making processes. Prime Minister Mahathir Mohamad recently announced that his cabinet will have twenty-nine ministers, a larger number than he originally envisioned, probably in order to keep the peace within the ruling coalition. And, looming over the coalition government’s long-term viability is the question of whether Mahathir and Anwar Ibrahim can get along, and how long Mahathir plans to stay on as prime minister—staying too long could well lead to Anwar’s supporters eventually trying to push Mahathir to the exits. But the new government also confronts major challenges in foreign strategic and economic relations. During the election campaign, Mahathir had questioned a wide range of investments in Malaysia backed by the Chinese government, Chinese lenders, and Chinese state firms. In recent weeks, he has taken steps to try to bolster Malaysia’s economic ties with Japan, which Mahathir apparently sees as a key counterweight to China’s growing economic dominance in Malaysia. Mahathir went to Japan for his first overseas visit after becoming prime minister, and in Japan he called for several steps to reinvigorate the bilateral economic relationship. As the Diplomat noted, Mahathir “signaled his determination to reduce Malaysia’s indebtedness to China. He requested yen-denominated soft loans in a bid to reduce debt servicing costs, made a pitch to Japanese investors, and pledged to strengthen Malaysia’s overall relationship with Japan.” Japanese officials, who see Tokyo in an almost existential struggle with China for strategic and economic influence in Southeast Asia, may indeed be receptive to Mahathir’s strategies. (Even as China has, in recent years, become Malaysia’s biggest trading partner, Japan remained one of the most important investors in Malaysia, and the biggest source of inbound foreign investment in Malaysia last year.) Reuters has reported that Japanese firms may be interested in taking stakes in some Malaysian state-linked companies, and increasing investments in a wide range of sectors in Malaysia. And yet Malaysian leaders must walk a very tight balance beam. Mahathir indeed seems serious about avoiding working on megaprojects with Beijing that could result in high debt burdens, and in readjusting Malaysia’s external relations, to create a more even balance between Japan and China. But Beijing is a dominant force in trade with Malaysia, and has extensive diplomatic tools to deploy as well. China will respond forcefully if it believes Mahathir intends to seriously diminish Beijing’s influence in Malaysia.

Corporate data shows that Japanese companies lag behind their U.S. and European counterparts when it comes to cybersecurity. The government's new cybersecurity strategy aims to change that. 

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post, covering May 19 to May 25, was compiled with support from Alexandra Bro, Rebecca Hughes and Rebecca Turkington.

As part of a new cybersecurity strategy, Japan wants to deter adversaries through cyberspace. That might prove challenging given its pacifist constitution. 

The rapid pace of North Korean diplomacy makes it crucial that Japan and South Korea coordinate more closely on potential changes to Northeast Asian security. But they must first overcome some deep-rooted grievances.

Japanese Prime Minister Shinzo Abe will return to Florida tomorrow to meet with President Donald J. Trump. Much has changed since Abe’s first visit in February 2017, just a month into the new Trump administration. The Abe-Trump relationship has blossomed over the president’s first year in office, largely at the prompting of a growing showdown with North Korea. The sensitive task of how to manage Trump’s desire to renegotiate the terms of U.S.-Japan economic ties remains incomplete, however. Both leaders have been hobbled by political scandals at home and will want to avoid a summit that highlights their difficulties. Many in Japan believe that the personal relationship that has anchored the U.S.-Japan alliance throughout the tumultuous transition into the Trump administration has frayed, and Japan’s media will be paying careful attention to how Trump treats Abe and whether the relationship is resilient enough to negotiate some of the harder issues where the interests of Tokyo and Washington may not align.  To be successful, this summit needs to accomplish three things. First and foremost, Abe and Trump will need to talk about Kim Jong-un. Japan’s prime minister will want the United States and Japan to be on the same page on North Korea, and he will want assurances that President Trump will represent Japan’s interests when he meets with Kim. The surprise announcement that Trump will meet with the North Korean leader was a bit of a body blow to the Abe cabinet. Tokyo had worked throughout 2017 to ensure the U.S.-Japan alliance was militarily prepared to respond to a missile attack, at times synchronizing exercises with those of the U.S. and South Korean militaries. Pyongyang’s relentless stream of missile launches in 2017 were all aimed in Japan’s direction, and they revealed Tokyo’s vulnerability to a missile attack. Deterrence and defense were bolstered as the alliance sought to respond. Now that Kim Jong-un and Donald Trump have agreed to meet, however, Tokyo must also consider its stake in any potential negotiations over the future of the Korean Peninsula. This is a more difficult task for Japan’s prime minister. While the United States focuses on denuclearization, Japan must also consider the missile threat emanating from North Korea. Today, Kim’s missile arsenal may be the greatest immediate threat to Japan and one that Tokyo is unprepared for should conflict break out. Ballistic missile defenses will need improving, and even then, it would be hard to claim that Japan is fully protected from North Korea’s missiles. As important to the Japanese public will be President Trump’s willingness to work on behalf of those Japanese abducted by the Kim regime. Abe has been one of the most outspoken advocates on the issue of Japanese abductees, critical of the inability of past governments to get Pyongyang to account for the missing. Already, President Trump met with the families of the abducted during his November visit to Japan. Earlier this month, after the Trump-Kim meeting was announced, U.S. Ambassador to Japan William Hagerty met with the families to promise that President Trump will raise the issue of the missing Japanese in his discussions with Kim Jong-un. Second, we should expect a statement on how Tokyo and Washington see the future of the economic relationship. This is perhaps the most difficult topic of the meeting. Washington and Tokyo have yet to find a way forward on their trade relationship, as President Trump and his advisors continue to focus in on the bilateral trade deficit. While in Tokyo last fall, Trump seemed to chastise Abe for his economic accomplishments and noted that Japan would be buying more American weapons to help fix the deficit and provide more jobs for American workers. In February, Vice President Mike Pence visited Tokyo on his way to the Pyeongchang Olympic Games, but he did not hold consultations with Deputy Prime Minister Taro Aso, his counterpart in the U.S.-Japan Economic Dialogue. Rumor has it that the Trump administration was growing increasingly frustrated with meetings that had no outcomes. In March, Japan was conspicuously not given an exemption from the United States’ Section 232 sanctions on steel and aluminum, unlike other close partners, such as Canada, Mexico, and South Korea. This struck another blow to the idea of a special Trump-Abe relationship.  Coming into the summit, therefore, Abe will need to find a way to address these economic irritations, yet there is little evidence that Tokyo is interested in a bilateral free trade agreement. Instead, Abe is likely to offer a framework for the United States and Japan that looks a lot like what was negotiated in the Trans-Pacific Partnership (TPP). Only this year, the TPP has evolved, largely because of Abe’s leadership, to become a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—otherwise known as the TPP-11—agreed upon without the United States. Intriguing in the run up to this week’s summit was the president’s instruction to Lighthizer and the new director of the National Economic Council, Larry Kudlow, to review the U.S. interests in the TPP, although Trump continued to tweet about the need for an agreement on trade with Japan. Finally, both Abe and Trump need a political boost. The Abe cabinet’s approval rating percentages have dipped precariously into the thirties after new discoveries about the government’s handling of two suspicious cases of favorable treatment involving the prime minister and his wife. One scandal has it that a rightist kindergarten was given a discounted rate in a government land deal. The school claims political backing from Abe’s wife, who has denied knowledge of the details of the land sale. In the other, a friend of the prime minister’s was supposedly given preferential treatment to open a veterinary school in Ehime Prefecture. Neither of these cases has produced evidence of direct involvement by Abe, but both have exposed corrupt practices by bureaucrats trying to court favor with the prime minister’s staff. The Ministry of Finance doctored documents once the scandal broke in the land sale to the kindergarten, and the Ministry of Education, Science, and Technology was responsible for the alleged favoritism displayed in the veterinary school case. The prime minister has repeatedly stated that he will take full responsibility should it be proven that his office was involved. President Trump, on the other hand, has his own ongoing political tempest, and his own approval ratings at about 40 percent are only marginally better than Abe’s. Coinciding with the release of former FBI Director James Comey’s new book and the President’s Twitter response to it, the summit will likely be overshadowed by Trump’s distractions at home. There are also other foreign policy priorities for Washington. The air strike in Syria has set off a round of questioning of the Trump administration’s strategy in Syria, particularly its increasingly confrontational approach to Russia. Simmering in the background, of course, is the administration’s rising threat of a trade war with China. Abe will want to talk about these foreign policy challenges and will have thoughts of his own on how Japan sees both the Syrian civil war and the possibility of a trade war with Beijing. Worsening U.S. relations with Moscow also limit Abe’s ability to negotiate a peace treaty with Russian leader Vladimir Putin—a project that has stalled as Russia’s relations with Europe and the United States have worsened. Once again, the golf course beckons. Abe will want a success story at Mar-A-Lago to bolster his approval rating back home and to ensure that the alliance with the United States is still Japan’s best bet for security. He will urge caution with Kim Jong-un and a broad-minded approach to regional trade. President Trump too might like a bit of positive news. He will need to listen carefully to Abe’s worries about the summit with Kim, and he will need to find a good approach to claiming victory on trade with Japan. Both will want to spend time away from cameras, trying to resolve their differences and putting a strong statesman-like face on as they struggle through this increasingly fraught era.  

Southeast Asia is a lucrative market for tech investment, and the United Kingdom wants access to it. Japan can help. 

Japanese Prime Minister Shinzo Abe has introduced an audacious set of economic policies designed to spur the country out of its decades-long deflationary slump. The results have so far been mixed.

Japan’s choices in a changing Asia will define the region’s future and will have tremendous impact on U.S. policy in Asia. Japanese today, like their neighbors on the Korean peninsula and in China, are grappling with a rapidly changing geopolitical environment. Moreover, as a new generation of leaders comes to the fore, Japanese are also openly debating their postwar experience, asking new questions about what changes may be required to ensure their security and prosperity in this new era. Japanese politics and Asia’s geopolitics now intersect in ways that question Japan’s future strategic choices. Will Japan abandon its postwar constitution and pursue a more “normal” military strategy? Will Japanese leaders continue to embrace reconciliation and remembrance in their approach to relations with their Asian neighbors? Will the Japanese people continue to feel secure in the U.S.-Japan security bargain crafted over half a century ago? These are only some of the questions we address in our new podcast series, Nationalism, Japan, and a Changing Asia. This series contains eight podcasts with experts from Japan and the United States, which were recorded in Tokyo, in Washington, and at times by telephone, in the years since the nations of Northeast Asia commemorated the 70th anniversary of the end of World War II. These conversations reveal the complex interaction between geopolitical change in Asia and changing Japanese thinking about their security, their past, and their constitution. The first four discussions focus on Japan’s relations with its neighbors, and feature Hitoshi Tanaka, Akio Takahara, Yoshihide Soeya, and Yuichi Hosoya, who are among Japan's leading academic and policy experts. They analyze the external dynamics that affect policy making in Japan, and we try to separate the politics from the policy debate over Japan’s relations with the major powers of Asia. Following our discussion of foreign policy, I discuss Japan’s identity debate with America’s leading scholars of Japan, who have taken varying approaches to thinking about the nationalisms of Northeast Asia: Jennifer Lind, Nathaniel Smith, Celeste Arrington, and Thomas Berger. Looking within Japan and other nations, we examine the currents of change in thinking about Japan’s military and war memory, and consider the advocates that identify as the new “right” in Japan.   Please join us as we consider how Japan is contending with this challenging and unpredictable moment in world politics.    This podcast series is part of a project on Northeast Asian Nationalisms and the U.S.-Japan Alliance, which is made possible through support from the U.S.-Japan Foundation.

In September 2016, the Bank of Japan adopted a new strategy to boost the flagging Japanese economy: “yield curve control,” or YCC. The aim was to widen the gap between long- and short-term interest rates, by keeping shorter-term (10-year) government bond (JGB) rates at 0%, as a means of encouraging bank lending. As shown in top two figures above, it seemed to work. Bank lending growth soared as companies borrowed more for capital expenditures. BoJ Governor Haruhiko Kuroda has trumpeted the policy’s success in boosting lending. As shown in the bottom left figure, though, lending did not increase because of the mechanism underlying YCC—that is, a widening of the gap between what banks pay to borrow funds short-term and what they receive from borrowers longer-term. Banks’ net interest margins actually fell following YCC, only recently recovering to their original levels. Whatever was driving borrowing, it was clearly not YCC’s success in boosting such margins. What happened, then? After YCC was announced, the BoJ’s pledge to hold 10-year JGB rates at 0% pushed bond investors to find yield outside Japan. As shown in the bottom right figure, this caused the yen to fall sharply, which boosted exports. The uptick in bank loans was almost certainly driven by corporates investing in response to export activity, and not greater bank willingness to lend. Since this explanation is transparently logical, it may seem curious that Kuroda chose to ignore it and instead to highlight an explanation unsupported by the data. His reason was almost certainly political. Back in April 2013, shortly after Prime Minister Shinzo Abe took office, the Obama administration admonished Japanese authorities for public statements calling for yen depreciation. Abe and Kuroda learned the important lesson that one may only target the exchange rate if one does not speak of it. Since then, both men have been careful not to attract Washington’s ire by stating the obvious: that in an environment of depressed demand and zero inflation, depreciation works.