Strategic Asia 2006-07: Trade, Interdependence, and Security

Back to Normal? The Promise and Pitfalls of Japan’s Economic Integration

executive summary This chapter examines the three significant challenges facing Japan: to restore sustained economic growth, to maintain the positive momentum that has developed in relations with the U.S., and to deepen economic interdependence while improving security relations in its region. main argument: • Japan finally appears poised to return to sustained economic growth. Growth depends on an end to deflationary expectations, the stimulation of domestic demand, and continued progress in economic reform. • Though Japan has drawn closer to the U.S. in the past five years, even deeper relations with the U.S. may raise expectations unreasonably and may complicate Japan’s regional relationships. • Over the past decade Japan has become more integrated economically into East Asia; at the same time, however, Japan’s political and security relations with key neighbors have worsened. • Regional economic interdependence is, on balance, a positive factor in regional security but cannot be counted on to resolve regional conflicts or to forestall rivalry between Japan and China. policy implications: • As Japanese economic growth is in the national security interest of the U.S., Washington would benefit from encouraging continued economic reform. • The maintenance of a healthy and stable U.S. economy has a significant positive impact on regional stability in East Asia. • The U.S. is a pivotal player in the China-Japan rivalry. A U.S.-Japanese alliance that is too aggressive alarms China, whereas one that is too weak raises abandonment anxieties in Japan. • Given the high economic and security stakes, remaining deeply engaged in East Asia is critical for the U.S., notwithstanding the formidable challenges the country faces elsewhere in the world. Japan Michael Mastanduno (PhD, Princeton University) is Nelson A. Rockefeller Professor of Government and Associate Dean for the Social Sciences at Dartmouth College. He can be reached at . The author would like to thank Maia Fedyszyn for research assistance and the external referees for their comments on earlier drafts. Back to Normal? The Promise and Pitfalls of Japan’s Economic Integration Michael Mastanduno Japanese government officials might understandably look back on the Cold War with at least some degree of nostalgia. During this time of serious international tension, Japan nonetheless did enjoy remarkable economic success and prosperity, a high degree of security, and clarity in terms of its international identity. Japan, like West Germany, was forced by historical circumstance to accept the limited diplomatic and military role of a “civilian power.” Japan made a virtue of necessity by maximizing its wealth and competitive position in the world economy. The post-Cold War era has posed a different set of challenges for Japan. Since 1990 the Japanese economy has moved from success to stagnation, and international observers have shifted from admiring what went right to puzzling over what went wrong. In the area of security, the stable and predictable tensions of the Cold War have been replaced by greater uncertainty and fluidity. Japan’s East Asian neighborhood is a troubled one, characterized by an insecure rising power, a provocative and desperate smaller power, unresolved Cold War conflicts, and a political atmosphere of suspicion and resentment that continues to linger some sixty years after World War II. Tokyo retains a close security relationship with Washington, but the United States is now a unipolar power, unconstrained by any peer competitor and fashioning more unilaterally a provocative strategy for meeting threats and transforming world politics. 106 • Strategic Asia 2006–07 Japan faces three important and related challenges, the resolution of which will shape its future. The first concerns the domestic economy: will Japan finally return to steady economic growth? Signs of the longawaited transition have begun to appear in the last two years. Sustained growth requires Tokyo both to stimulate domestic demand and to continue reforms as Japan struggles to shed the consequences of the so-called bubble economy of the late 1980s. Steady economic growth not only matters for Japan’s prosperity but also has profound implications for Japan’s role in regional and global security. The second challenge involves relations with the United States. In the wake of the Cold War, Japan has staked its security on the continuity of a close relationship with the United States. As Washington’s demands have increased, Tokyo has done more in order to be an effective and reliable security partner. This dynamic has been especially true over the past five years, during which Japan, under the leadership of Prime Minister Junichiro...