The United States and Japan in 2000: Seeking Focus

The Edwin O. Reischauer Center for East Asian Studies

The Paul H. Nitze School Of Advanced International Studies The Johns Hopkins University Washington, D.C. The Edwin O. Reischauer Center for East Asian Studies

The United States and Japan in 2000: Seeking Focus

The Paul H. Nitze School Of Advanced International Studies The Johns Hopkins University Washington, D.C. Requests for copies of this report should be sent to: The Edwin O. Reischauer Center for East Asian Studies The Paul H. Nitze School of Advanced International Studies 1619 Massachusetts Avenue, N.W. Washington, D.C. 20036 Tel: 202-663-5815 Fax: 202-663-5799

This report can also be found on line at: www.sais-jhu.edu/depts/asia/reischauer/index.html

Requests for the bilingual (Japanese-English version) edition of this report, available in the summer, can be made to:

International University of Japan Yamato-machi Minami Uonuma-gun Niigata, 949-72 JAPAN

Tel: 81-257-79-1111 Fax: 81-257-79-4442

Introduction ...... 1 One “Old” Economy and Two “New” Ones ...... 2 Why Focus on U.S.-Japan Economic Relations?...... 4 Security Dilemmas and Independent Diplomacy...... 4 Why Focus on Security and Diplomacy? ...... 5

Economy ...... 11 KeyEconomic Indicators...... 13 =GDP =Consumption =Unemployment

Security and Diplomacy...... 51 the Bilateral Relationship Military Base Related Issues Flare Up...... 53

P o l i t i c s ...... 9 5 U.S. Politics...... 98

P e r c e p t i o n s ...... 1 3 9 Domestic Perceptions:Beauty and the Beast...... 141

C O N C L U S I O N ...... 1 6 5

Year in Review...... 167

ACRONYMS...... 177

4 SAIS-IUJ Co-authors in Washington, D.C. (March 2000)

5 his is the 15th edition of the annual Reischauer Center briefing book on U.S.-Japan relations. This year the book is Tbeing published on the eve of National Diet elections in Japan and the G-8 Summit in Okinawa. The book also comes out in the midst of a tightly contested U.S. presidential race. These are important events that will set the tone for bilateral U.S.-Japan relations for some time to come.

In looking at the past year, however, the authors of this year’s book noted that Japan is in the middle of an even large r transformation. The political and economic system that created the Japanese “economic miracle” is under intense pressure. Popular Japanese views of security policy and the constitution are changing in ways that have not been seen since the end of the war. Th e Liberal Democratic Party (LDP) remains in power with a coalition government, but not terribly confident that the party will continue to dominate politics over the longer-t e r m .

We still do not know whether the information technology sector in Japan will add new dynamism to the economy as the “old” industrial and agricultural sectors go through restructuring. We cannot predict with certainty whether changing views of the constitution and security will lead to a more proactive Japanese role in the world. And we have been waiting for the dust to settle on political realignment for years. Nevertheless, we do know that these developments should be of central importance to the United States because our own leadership in Asia depends on a firm alliance with Japan and an ability to adapt our bilateral relationship to changing international and domestic circumstances. As the authors of this year’s book conducted their research and interviews, they were struck by the lack of attention to Japan

i The United States and Japan in 2000: Seeking Focus policy. At one point, the editors considered giving this year’s book the title “The United States and Japan in 2000: Who Cares?” Instead, they opted for a more sober assessment that makes the same point. The title “Seeking Focus” conveys their conclusion that, while both countries do recognize the importance of the relationship, we have lost our focus on why it is important and how each side can use it to advance our respective national objectives and international obligations. The authors have prepared a book that provides analysis of the trends in U.S.-Japan relations this past year and makes a compelling case why the alliance needs more focus from senior policy-makers in both countries. The book covers the period from the Obuchi-Clinton Summit of May 3, 1999 to the Mori-Clinton Summit of May 5, 2000.

The authors are graduate students at the Paul H. Nitze School of Advanced International Studies. They enter this project each year knowing full well the intense time commitment and professional standards required. This year the editor-in-chief, Nick Szechenyi, led a team of six sub-editors: Kurt Sanger and Sara Skalicky (economy); Kellie Lim and Naoki Shimizu (security and diplomacy); John Fitzgerald (politics); and Tim Rupright (perceptions). They were assisted by: Joe Coletti (chronology); Jasmin Chakeri (politics); Andrew Dilworth (perceptions); Yasutomo Tanaka (perceptions); and Justin Tilman (security and diplomacy). The entire project was coordinated by the Reischauer Center’s Assistant Director, Frank Shima. They have done a yeoman’s work.

To complete the book each year, the authors turn to a number of well-regarded experts on U.S.-Japan relations for input and guidance. This year, we were assisted by: Naotaka Matsukata, William Heinrich, Tsuneo Watanabe, Ayako Doi, Adam Posen, Ed Lincoln, Paul Giarra, Don Oberdorfer, Aki Nagashima, Yoichi Kato, Toru Maeda, Benjamin Self, Eric Altbach, Tsuyoshi

ii Preface

Sunohara, Chris Nelson, and of course, Professor Nat Thayer at SAIS. They have our thanks, and bear no responsibility for any shortcomings in the final product.

The Reischauer Center also works closely with the International University of Japan (IUJ) in Niigata to complete the briefing book. We exchange background papers and drafts throughout the year and then meet each March in Washington to review and debate the contents of the book. This year Professor Tomohito Shinoda led a group of nine students from IUJ: Tae Suk Hong, Daryl Bockett, Jaung-Kwang Choi, David Laporta, Kazuhiro Anshita, Haruo Oda, Anga-Raj Timilsina, Jee-Yang Yang, and Jing-Jing Bai. They each made important contributions to the final draft.

Finally, we note with sadness the collapse of Prime Minister Keizo Obuchi earlier this year. As Prime Minister, Mr. Obuchi demonstrated a great warmth for the United States and a strategic understanding of the importance of the U.S.-Japan relationship. We can only offer Mr. Obuchi and his family our most profound thoughts and prayers.

Michael J. Green Acting Director The Edwin O. Reischauer Center The Johns Hopkins University, SAIS

iii Most gratifying to me is the strong, equal partnership the United States and Japan have forged. Since they are the two greatest of the wo r l d ’ s democracies, they stand at the heart of the community of democratic nations. And since their partnership is the one grea t alliance that bridges major cultural and racial cleavages in the world, it is a model for a future worldwide community. Edwin O. Reischauer My Life Between Japan and America

s we enter the new millennium, the United States appears trapped in a “unipolar” moment, advocating the principles Aof democracy as the world’s superpower yet struggling to articulate consistent foreign policy goals in the absence of a major ideological rival. Meanwhile, Japan has entered a period of transformation driven by diplomatic, economic, and political developments that could challenge traditional norms and radically alter its image as a passive nation. Interestingly, these two members of a “strong, equal partnership” find themselves at opposite ends of the identity spectrum. The United States is still adjusting to its perceived role as an unrivaled leader as Japan seemingly strives to create a new role for itself while remaining aligned with the United States. This preoccupation with self- perception could very well weaken the U.S.-Japan relationship and negate all that leaders have done in recent years to facilitate cooperation between the two nations.

The fortieth anniversary of the 1960 Security Treaty presents an opportunity to refocus our attention on the bilateral relationship and its invaluable role in maintaining peace and stability in the

1 The United States and Japan in 2000: Seeking Focus

Asia-Pacific, but significant dialogue could be overshadowed by domestic events as both nations prepare for elections later this year and continue to redefine their respective identities. One could question the need to focus on U.S.-Japan relations at a time of unparalleled economic integration and security cooperation, but complacency can easily induce deterioration and dissolution that we cannot afford. We must strengthen bilateral ties at a time like this precisely because the U.S.-Japan relationship, once anchored in a struggle against communism, must now respond to new challenges that will require greater agility and flexibility from the international community.

Our theme, “Seeking Focus,” stems from a profound concern that the United States is not recognizing changes in Japanese society that could dramatically alter the nature of the bilateral relationship in the years ahead. We have therefore analyzed the economic, diplomatic, and political developments of the past year in an attempt to accentuate the signals of change that warrant our attention while recognizing strong areas of continuity such as the security alliance. Regardless of how long Japan’s “transformation” takes, it will likely emerge a very different country. The United States, as Japan’s closest ally, must monitor new developments to prevent the alliance from dissipating further and to seize new opportunities for leadership-sharing and strategic partnership. Our leaders must continue to focus on the U.S.-Japan relationship in this transitional period, for only with sustained commitment and repeated recognition of its value will we have a chance to realize the potential that Edwin Reischauer so eloquently envisioned.

One reason few leaders are paying attention to alliance cooperation is their concern with Japan’s economic stagnation. Th e Japanese government made only limited progress in implementing structural reforms that would yield a more open economy driven

2 Introduction by market forces. Meanwhile, the U.S. stock market boomed and confidence soared in the so-called “New Economy” characterized by steady growth and low inflation. Eager to reduce the trade deficit with Japan and take pressure off the U.S. economy to absorb other Asian exports, U.S. officials continued to call for demand-led growth to revive the Japanese economy. Though signs of deregulation and structural reform have emerged, former Prime Minister Keizo Obuchi raised doubts about the prospects for success when he argued that American-style layoffs are unacceptable and that Japan must pursue a “third way” of restructuring. The reform effort lost even more credibility when the head of the Financial Reconstruction Committee was forced to resign after promising to protect weak banks. In short, the public is not counting on the government to implement changes necessary for growth.

Frustrated by the lack of governmental leadership in economic af fairs, a new generation of Japanese entrepreneurs has emerge d that intends to use international capital markets to restructure the na t i o n ’ s economy. American investment in Japan is at an all-time high, and a new flood of venture capital will generate technological innovation that could allow the word “growth” to reenter the Japanese vernacular. The entrepreneurs hope to build their own “New Economy” based on electronic commerce that will leave the old mantra of government control behind. Though the high-tech boom is still in its infancy, capital flows, enhanced competition, and the rapid development of the Internet could indeed increase pressure for reform.

One issue that tends to take center stage in the economic arena is the trade relationship between the United States and Japan. According to the Office of the United States Trade Representative, the U.S. trade deficit with Japan reached $73.9 billion last year, up 15.5% from 1998. While controversies such as allegations of steel dumping and monopolistic behavior in the Japanese

3 The United States and Japan in 2000: Seeking Focus telecommunications market continue to occupy government officials, the lack of heated rhetoric compared to previous years led us in this report to focus more on the dynamic technological changes that are driving both economies. Given that new administrations will take over in both countries by the end of 2000, the trade issue could reemerge in the near future.

= Japan is the second largest trading partner of the United States, has an economy seven times the size of China’s, and records one of the highest household saving rates in the world. The direction of Japan’s economy will affect our own.

= Softbank Corp recorded a +1245.51% change in share price in 1999, ranked first in the world. This is an exciting period in Japan with the “old school” of government control battling the “new school” of entrepreneurship.

= Burgeoning internet businesses could generate competition and deregulation that will add a long-sought feature to the Japanese economy: transparency. Greater openness could have a profound impact on the bilateral economic relationship by further integrating the world’s two largest economies and expanding ever further the pace of U.S. foreign direct investment into Japan.

Particularly disconcerting is the current irritation and low-level conflict between the U.S. and Japanese managers of the bilateral security relationship. Despite the approval of the new U.S.-Japan security guidelines in spring 1999, officials on both sides realized that written commitments alone would not guarantee a smooth

4 Introduction alliance and continued implementation of defense cooperation. While both countries agreed on the relocation of a major military base on the island of Okinawa, momentum halted and frustration mounted when the local government demanded that the new lease be limited to fifteen years. Equally puzzling from a U.S. perspective was a Japanese government proposal to reduce the level of Japan’s host nation support (HNS) for U.S. forces. Deemed by Japanese politicians as an economic necessity, the proposal raised doubts in the Clinton administration about Japan’s commitment to the alliance. Even though popular and political support for the alliance remains strong, the squabbling over ownership and burden sharing could easily debilitate the alliance and prevent the policy coordination that the Guidelines were meant to engender.

The diplomatic arena also appears bereft of policy coordination as Japan pursues a vigorous agenda of economic diplomacy with the United States nowhere in sight. Eager to elevate Japan’s role as an international leader during the G-8 Summit in Okinawa this su m m e r , former Prime Minister Obuchi embarked on a tour of Southeast Asia to hear the concerns of Japan’s neighbors and ensure them that Asian voices would be heard at the Summit. This quest for leadership also revealed itself in a renewed effort to garner support for the “internationalization of the yen” despite great skepticism in Western policy circles. On the multilateral stage, cooperation between Japan and the European Union proved conspicuous during the World Trade Organization meeting in Seattle when both took aim at U.S. anti-dumping statutes and rejected many proposals offered by the host nation. Is Japan getting ready to “say no” again or is it simply taking a more proactive approach to diplomacy? This issue deserves our attention.

= Japan hosts approximately 45,000 U.S. troops and is the linchpin of our presence in As i a .

5 The United States and Japan in 2000: Seeking Focus

= The United States and Japan have fortified the security relationship on paper but are struggling to display cooperation in practice. Short-term disputes should not supersede long-term vision.

= Japan could be using economic diplomacy to amplify its role as an international leader. This initiative can develop either in tandem with or in lieu of U.S.-Japan cooperation. Presumably, we should avoid the latter.

In the United States, old-fashioned partisanship created a “do- nothing” label for the Congress this past year, and substantive legislation will not surface anytime soon as the presidential campaigns pick up steam. From the Japanese perspective, Congress appeared inward looking and focused solely on domestic affa i r s . This perception was reinforced by the Senate’s rejection of the Comprehensive Test Ban Treaty (CTBT), the failure (or unwillingness) to pay dues to the United Nations, and, most re c e n t l y , the heated debate over Permanent Normal Trade Relations (PNTR) status for China. While presidential candidates George W. Bush and Al Gore are internationalists committed to maintaining Am e r i c a ’ s leadership position in global affairs, one is left to wonder whether the Legislative Branch will follow suit and what influence this could have on the future of the alliance. This election is typical in that the favorites survived the primaries and domestic issues carry the day, but the secondary status of foreign affairs in this era of “globalization” is striking.

Japan also finds itself in the middle of an election year but is reacting to a flurry of legislative activity in the Diet (parliament) that was anything but typical. (For example, a “Diet Ac t i v a t i o n Bill” was passed to prevent bureaucrats from speaking on behalf of

6 Introduction cabinet members during parliamentary deliberations.) Unable to secure a majority in recent years, the Liberal Democratic Party (LDP) has often negotiated with smaller parties on a case-by-case basis, but former Prime Minister Keizo Obuchi favored a diffe r e n t approach: coalition governments. He used his political skills to pass a wide variety of legislation, but coalition members often disagreed with his agenda and produced a fragile majority. Unfortunately, because Obuchi suffered a stroke that removed him from office, the political situation is now even less stable. Prime Minister Yos h i r o Mori hopes to create enough momentum to secure an LDP vi c t o r y in the next election, but the opposition parties will do everything in their power to seize the reins and expedite political reform in their fa v o r . The name of the game is uncertainty.

= Regardless of what leaders in the United States or Japan might do to advance the relationship, legislators in both countries ultimately determine whether bilateral ties will flourish or fa l t e r . Given the perceived inward-looking trend in Congress and domestic political upheaval in Japan, neither side appears focused on the bilateral relationship. Legislators must remain engaged if the relationship is to retain its vitality.

= Japanese domestic politics is in a state of flux. The outcome of the upcoming election is unpredictable, the future composition of majority rule even more so. Weak coalition governments could obstruct the legislative process in the Diet and bring important initiatives such as economic reform to a halt. A lack of cooperation could also prevent consensus on defense issues and adversely affect the U.S.-Japan alliance. A recent poll conducted by the Yomiuri Shimbun indicates that 60% of the Japanese public favors constitutional revision, particularly the younger generation. We must understand new trends in thinking about the bilateral relationship.

7 The United States and Japan in 2000: Seeking Focus

= It is in Japan’s interests to monitor the U.S. presidential election and determine whether a leadership change will affect bilateral relations.

For a relationship as important as this one to survive, the citizens of both countries must understand the influences that motivate their counterparts as well as the perceptions, too often misperceptions, which reveal themselves in the diplomatic process. There is not much to misconstrue about the United States this year. Am e r i c a n s feel confident about the sustainability of the economic boom. Increased wealth seems to mitigate concerns about foreign policy, for recent polls do not indicate any great anxiety about international af fairs. Recent surveys did reveal consternation over the level of crime in the United States, and politicians have responded with a heated debate on gun control that will continue during the race for the White House. Overall, the United States feels good about itself and its role in the world. The exact opposite holds true for Japan.

In January 2000, a commission established by former Prime Minister Obuchi issued a blueprint of the way Japan could be perceived in the 21st Century. Suggesting among other things the introduction of English as a second official language, liberal immigration policies to address demographic pressures, and a greater leadership role for Japan on a global scale, the report depicts a Japan that most Americans cannot imagine. The report was criticized by the media and did not reflect public opinion, but polling data does indicate that Japanese citizens are frustrated and unsure of themselves in a period of economic stagnation and political turmoil. Analysis of popular culture also unearthed criticism of corporate culture and bureaucratic ineptitude. Clearly, a portion of the population wants change and has articulated its concerns. The question is whether the government has listened or if the people feel more secure about the new, more fluid economy and society that might be created.

8 Introduction

= Although one can be skeptical about the prospects for change in Japan, the fact remains that citizens are considering a ma k e o v e r . It behooves us to pay attention to trends in Japanese society so that our perceptions can foster mutual understanding instead of frustration.

= Public opinion polls in both countries reveal shared problems that could create opportunities for bilateral cooperation.

= How we view each other and ourselves says much about the prospects for future cooperation between our two countries. To be trite, the United States is “up” and Japan is “down,” but we are not talking solely about economic growth. The fundamental di f ference is now psychological: Japan is struggling with its identity while the United States attempts to redefine its role as a su p e r p o w e r . Both countries are looking inward and do not think first of cooperation. Perhaps we can solve this problem by reconstructing a common identity for the U.S.-Japan re l a t i o n s h i p .

Though government officials in the United States and Japan continue to address critical issues in the bilateral relationship, a failure to articulate a new strategic focus for the alliance could weaken the partnership between our two countries. The objective of this booklet is to generate renewed attention to developments on both sides of the Pacific and remind our respective leaders that there is plenty to focus on. The new administrations that will em e r ge in both countries by the end of 2000 will have plenty of material with which to construct a new agenda for bilateral co o p e r a t i o n .

9 10 t the conclusion of the 1990s, Japan’s lost economic decade, many Americans have become cynical and even Adismissive regarding the direct importance of the Japanese economy to the United States. After all, even as Japan wandered through 1999, the net wealth of many Americans rose in tandem with seemingly irrepressible stock prices. Meanwhile corporate America and policy makers emphasized China and the potential access to new markets arising out of the pending WTO agreement. With so much excitement, why focus on Japan?

After nearly ten years of economic distress, it is easy to think that the sun has set on Japan and that the United States should seek its future elsewhere. However, before dismissing Japan, consider some facts:

= Japan is the second largest trading partner of the United States with 1999 exports valued at ¥14.6 trillion and imports from the United States totaling ¥7.6 trillion.

= Japanese household savings are estimated at $10 trillion. The newly merged Dai Ichi Kangyo, Industrial Bank of Japan, and Fuji Bank have total assets approaching the GDP of France.

= The Fidelity Japan Smaller Companies Fund returned 227.29% in 1999.

= The Japanese economy is twice the size of Germany’s, seven times the size of China’s, and 70% of the U.S. economy.

11 The United States and Japan in 2000: Seeking Focus

The enormity of Japan’s economic impact on global trade and economic stability as illustrated above demands attention across a wide spectrum of Americans: government officials, blue and white-collar workers, and institutional and individual investors. This chapter will highlight areas of interest and provide an analysis of current trends in the Japanese economy. As economic developments continue to further intertwine our two nations, it is imperative that we understand the current trends of our preeminent global partner.

Bringing the two economies together are the globalization of information and capital. This dichotomy has been popularized as the “Old Economy” based on manufacturing and the “New Economy” based on information technology and capital markets. The United States is the envy of the world in its successful facilitation of the transformation from the “Old’’ to the “New. ” How far behind is Japan? After covering some economic fundamentals, this section addresses the state of the “Old Economy” and then analyzes Japan’s movements toward a “New E c o n o m y.” While impediments to this transformation exist, it appears that the momentum is too great for this transformation to be held back.

On March 13, 2000, Taichi Sakaiya, the head of the Economic Planning Agency (EPA), announced that fourth quarter growth for the 1999 calendar year was –1.4%. As the second consecutive quarter of negative growth, such a condition is better defined as a recession. Yet, on the same day Peter Morgan at HSBC Securities in Tokyo said, “A sustainable recovery has begun.” Is anyone c o n f u s e d ?

12 Economy

One of few things economists agree on is the mystery of Japanese statistics. Deemed volatile and unreliable, core statistics including GDP figures are fraught with fundamental sampling flaws. The International Monetary Fund (IMF) went so far as to say that Japanese statistical methods are “not well understood outside of the EPA” – a sharp criticism by IMF standards. As a result, much of forecasting is left to interpretation. Thus it is no surprise that opinion is divided on the short-term growth potential of the Japanese economy. Those with positive forecasts point to the more statistically reliable leading economic indicators such as January's 5.2% increase in private sector machinery orders. Pessimists look past the numbers to lagging economic reform, deflationary pressures, and an aging population.

The United States and Japan present stark contrasts. While the United States searches for the appropriate policies to dampen the economic exuberance that fueled growth of 7.3% in the final quarter of the year, Japan limps into the new millennium trying to find an economic pulse. Negative growth figures were expected, but few predicted such a dismal result. Mr. Sakaiya certainly did not, having publicly proclaimed that if Japan achieved anything short of 0.6% growth for fiscal year 1999, he would resign. To meet this goal Japan must grow at 2% in the final quarter of the fiscal year ending March 31, 2000. Such a strong result is not unthinkable given the degree of spending undertaken during the quarter stemming from the monstrous November 1999 stimulus package. But just in case, Mr. Sakaiya should be updating his resume.

13 The United States and Japan in 2000: Seeking Focus

Despite concerns, optimism that Japan is recovering remains high as the factors that suppressed growth in the third quarter, including limited electronics sales due to Y2K concerns and cuts in winter bonus payments, were seen as temporary.

As private consumption constitutes 61% of GDP, the 3% year- on-year (YOY) drop in January 2000 was alarming. In the same month real income fell 2.5% YOY as a result of lower December bonus payments. The source of the consumption problem is that consumer confidence remains low due to corporate restructuring that has resulted in limited overtime hours, a shift toward part- time labor, layoffs on unprecedented scales, and the dawning realization that future tax increases are likely.

Employment conditions remain bleak, particularly among youth. On March 1, the Minister of Education Hirofumi Nakasone appealed to companies to hire new graduates. At the time of the request only 75% of college graduates and 47% of junior college graduates had received job offers. As recent graduates were poised to enter the work force in April, the expectation was that the January unemployment figure of 9.7% for youths 16 – 24 years old would only climb. General unemployment remained high at 4.9% in February while the job offer to job seeker ratio for the same month held at 0.52.

14 Economy

The worst February figures on record followed the worst January to date. The continued economic malaise and deflationary pressures claimed 1,441 companies in January and another 1,443 in February. These figures represent year- o n - y e a r monthly increases of 43% and 51%, respectively.

For the investor who has spurned Japan since the descent of the Nikkei from 39,000 began ten years ago, 1999 was not a bad year to forgive and forget as the index climbed from just above 13,000 to around 20,000. The U.S. and Japanese markets mirrored each other as technology and telecom stocks were the most vigorously traded.

The Nikkei got a boost from $13 billion in foreign capital from April to September, topping the previous year-on-year record set in March in only six months. The enthusiasm came from signs that Japan was actively pursuing corporate and financial restructuring. Even after moderating their views, the interest of foreign investors continues, concentrating on technology and communications companies. The renewed interest in Japanese equity is in part due to a desire to diversify risk away from U.S. equities and in part due to the budding information technology revolution in Japan.

15 The United States and Japan in 2000: Seeking Focus

Where You Wish You Had Your Money in 1999 1999 % change in share price Global

Rank Softbank 1245.51 1 CSK (computer services) 545.64 3 Murata Manufacturing 443.23 4 Japan Telecom 416.40 5 Matsushita Communication 406.96 6 Source: Financial Times

Of concern to market watchers is the “two economies” theory that sees the upstarts in the technology industry surging while manufactures lag. This view is bolstered by the 12% annualized growth rate for the tech industry. The United States is experiencing a similar trend as the NASDAQ Composite flirted with 5,000 before a sharp correction in April of this year, a correction also experienced in Tokyo.

Mutual funds have become a standard investment tool of the American investor. According to the The Washington Post (March

16 Economy

13, 2000), 47% of U.S. households have put $7 trillion into over 7,000 mutual funds. Now mutual funds are catching on in Japan. American companies such as Fidelity are betting that the Japanese have tired of the near zero returns on savings accounts; domestic brokers are hoping for the same. Nomura Securities has attracted investors to its new fund, dubbed “Big Project N,” reaching capitalization of nearly ¥1,000 billion. This success has encouraged domestic competitors such as Daiwa and Nikko Securities to follow suit.

Domestic and foreign firms look to get a piece of the $1 trillion in fixed rate postal savings time deposits (CDs) that started to mature in April. These deposits, invested ten years ago at 6%, will mature over the course of the next two years. Investors can conceivably reinvest in postal savings time deposits, but current returns are a mere 0.2%. It is the ultimate fantasy of money managers that this nation of diligent savers will instead seek higher returns through mutual funds. However, if mutual funds are going to replicate their popularity in the United States, they will have to find a way to reach working class Japanese who remain risk averse and relatively uneducated about portfolio risk management.

Since the middle of 1998 the yen has appreciated relative to the U.S. dollar, moving from the ¥145/$1 range to around ¥105/$1. Th e o r e t i c a l l y , an appreciation of the yen should cause the U.S. current account deficit with Japan to shrink as Japanese goods become more expensive in the U.S. market. In reality, the United States consistently continues to register record deficits. Regardless, the Ministry of Finance (MOF) remains concerned with the relative strength of the yen and its potential impact on overall export levels. In order to limit the appreciation of the yen, MOF has been busy in 2000, already intervening four times in the currency market through March.

17 The United States and Japan in 2000: Seeking Focus

The financial markets see potential in the Japanese economy as witnessed by large capital inflows during the summer of 1999. H o w e v e r, the concentration of equity investment in telecommunications and technology indicates investors are betting on potential winners in the "New Economy", not necessarily on the prospects for the overall Japanese economy. Given the perplexing dilemma over consumer spending, government officials may need to consider alternative policy m e a s u r e s .

Currently, Japan has a zero-interest rate policy and a ballooning national debt. Yet, even with a combined loose-money policy and massive fiscal stimulus the economy continues to stumble along. Are the politicians and policy makers helpless to do anything more? While there are no definitive solutions to the confounding economic condition of Japan, there are policy adjustments that can be made in an effort to restore consumer confidence in the future.

Since last October the Bank of Japan (BOJ) has been under pressure to consider more creative policy measures in order to stimulate the limping economy. From the BOJ’s point of view, a zero percent short-term interest rate is as far as it can go. The Liberal Democratic Party (LDP), select officials of MOF such as Takatoshi Ito, and MIT economist Paul Krugman disagree. They are encouraging the BOJ to establish an inflationary target in order to induce consumers to spend now before prices increase.

18 Economy

The BOJ has offered several reasons for resisting such a move including the fear that inflation will rise out of control and that the behavior of private consumers will change only if expectations change. A more political argument is that the Bank is cautious about being in the business of funding the national debt. This happens as the BOJ injects more money into the economy by buying or retiring Japanese Government Bonds (JGBs). BOJ Governor Masaru Hayami said in February, “The theory that the central bank should do everything it can, including massive purchases of government bonds, to achieve a high inflation target is a very dangerous idea.” In response, Martin Wolf of the Financial Times argues that central banks do not exist to protect their own balance sheets, but rather the economy as a whole.

Although Governor Hayami has been vocal in his defense of the independence the BOJ achieved in 1998, since then the Bank has proven to be vulnerable to political pressures. In October 1999 the BOJ reversed policy and agreed to buy JGBs on a repurchase basis from the MOF's Trust Fund Bureau starting in April 2000. The latest conciliatory measure, taken at the end of February, was to indicate that the BOJ would more closely study the possibility of an inflation rate target. There is a fear that political gamesmanship will interfere with the pursuit of proper policy because if the BOJ decides that an inflation rate target is the best policy alternative, it may appear to be caving in to political pressures.

Basic Keynesian economics advises the use of deficit spending to generate growth during an economic downturn. The Japanese have some questions for Mr. Keynes. Over the last ten years

19 The United States and Japan in 2000: Seeking Focus

Japan has adopted 10 stimulus packages worth $1,135 billion. Paul Abrahams of the Financial Times compares Japan to a junkie “hooked on injections of government spending.” The latest hit authorized in November 1999 was advertised at ¥18,000 billion. Optimists feel that this could be the final push to send Japan into a cycle of growth led by private demand. In the wake of the disappointing fourth quarter GDP numbers, the economy is eagerly awaiting the effects of the package that Mr. Sakaiya suspects will bolster economic growth by 2.5% over the next year.

Analysts criticized the emphasis on traditional construction spending and the propping up of small and medium size businesses. Economists argue that Japan would get more economic return on spending directed toward the development of the "New Economy." This would be politically difficult for the LDP as its support base is heavily concentrated in the "Old Economy."

With fiscal stimulus comes debt. For Japan estimates put the level at 130% of GDP. The percentage nearly doubles to around 250% if we include off-book liabilities funded by money siphoned off the national postal savings system as well as future pension obligations. These numbers were enough for Moody’s Investors Service on February 18, 2000 to threaten to downgrade Japan’s sovereign debt rating.

20 Economy

While a serious situation, caution is called for when drawing parallels between Japan and the United States of the early 90s, or other heavily indebted countries, as there are fundamental differences to be considered:

=Unlike the United States, Japan’s debt is domestically funded. =Japan has a healthy pool of capital as it holds $10 trillion in household savings, $260 billion in foreign reserves and $1.2 trillion in overseas assets. =The government itself holds half of this debt in the social security fund. = Interest rates remain low and the government has resisted printing money to inflate its way out of debt.

Adam S. Posen of the Institute for International Economics summed up the situation by stating, “Debt is only a problem when someone can come to collect it.” In contrast to the United States, a relatively small percentage of Japanese debt is held by foreigners, 40% and 10% respectively. Simply put, given that most debt is domestically held, Japan is in the position to pay back its lenders by taxing them – clearly a catch-22 situation for domestic bondholders.

Premature fiscal tightening by the Hashimoto administration in 1997, a step to correct a debt to GDP ratio of 60%, sent the economy back toward negative growth. With the ratio climbing, Finance Minister Kiichi Miyazawa has stated his desire for Japan to return to fiscal austerity within two years. Such actions will unavoidably include a combination of spending cuts and tax increases. The intentions expressed by Miyazawa are disturbing in that they prompt real concern that premature fiscal tightening could once again threaten a nascent recovery. We can only hope MOF has learned from recent history and avoids jumping the gun again.

21 The United States and Japan in 2000: Seeking Focus

It is the long term that Mr. Miyazawa is thinking of when he speaks of the need for fiscal reform and higher taxes. In the near future an increasing number of retirees, supported by a narrowing base of workers, will turn to the social security system. The United States is facing a similar situation, but has the luxury of a budget surplus and a ten-year economic boom to factor into its solution. For Japan, as soon as economic growth becomes self- sustained reduced fiscal spending and increased taxes seem inevitable.

The financial condition of localities, exemplified by the “Ishihara Shock,” is a real concern. In a move to increase Tokyo's tax revenues, Governor Shintaro Ishihara announced a bill on February 8, 2000, since made law, that increases taxes by three percent on gross profits of banks with assets over ¥5,000 billion. This affects about 30 of the largest banks, none of which are foreign banks. Other cities such as Osaka are also burdened with heavy debt that, on the occasion of default, is ultimately the responsibility of the central government. “At the end of the day,” says Jesper Koll, economist at Merrill Lynch, “taxes will have to go up – not just in Tokyo, but across Japan.” A fear of tax increases could explain the stagnant consumption figures as people choose to save to meet future tax obligations instead of spending.

Monetary and fiscal policies that lead to sound economic growth for Japan are in the best interests of the United States. Japan cannot, as Governor Hayami recently indicated, continue a zero-interest rate policy indefinitely, nor can it continue massive fiscal spending. What is important is that Japan be encouraged to

22 Economy follow these extraordinary policy measures until its economy is firmly stabilized. Yet, monetary and fiscal policy will continue to clash with the consumer confidence problem if necessary economic reforms are not undertaken.

In response to a question on the substance of Japanese economic reform, a local Japan specialist responded, “It depends on the day, and even then I flip a coin.” Indeed this is a puzzling time to follow Japan. The consensus is that over the past two years Japanese companies have finally realized that restructuring is inevitable and ultimately necessary. The talk of the day concentrates on return on capital and return on assets above the traditional goals of market share. Indeed, the foreign press was high on Japan at the end of last year. In November, The Economist ran an 18-page special that ended with an analogy to the Meiji Restoration – once change is embraced it is embraced widely and quickly. Like the Tokugawa, the ruling coalition led by the LDP has made efforts to retard this evolution, but the momentum toward reform could be stronger than any attempt at containment. The two key components are the evolution of the financial sector and the transformation of corporate governance.

“We are not restructuring because the Ministry of Finance is telling us to. We are doing it because we need to survive.” These were the strong words of Kaneo Muromachi, the new president of Sanwa Bank Ltd. The opinion is shared by many in the financial sector who are moving to ensure the survival of their companies in a highly competitive global market. Although Japan has vast financial resources, the financial sector is underdeveloped relative

23 The United States and Japan in 2000: Seeking Focus to its strength. Tracy Wolstencroft of Goldman Sachs went as far as to say, “Japan is the largest emerging market in the world from an investment banking perspective.” Below are several positive trends indicative of the evolution of the financial sector.

To prevent the financial liberalization program begun in 1997, known as the “Big Bang,” from becoming the “Big Bust,” Japanese financial institutions have taken to consolidation. The global industry trend is toward the universal bank – a sort of one stop shopping financial institution that provides everything from savings accounts to insurance to brokerage services. Movements in this direction are encouraged by the new Financial System Reform Law that took effect on October 1, 1999. The United States has taken similar action as Congress repealed the Glass- Steagall Act in October, a law that prevented the likes of Citibank and Solomon Smith Barney from officially joining hands. The Sumitomo-Sakura tie-up makes sense in light of the universal bank concept, as the two will combine prowess in the wholesale securities business and retail banking, respectively. The Dai Ichi Kangyo-IBJ-Fuji merger, on the other hand, seems more like a desperate attempt at survival by three weak banks with no apparent synergistic benefit.

Japan made important moves to improve its accounting standards, standards that have been criticized internationally. In fiscal 1999, Japan enacted an enhanced disclosure system, which includes a switch to consolidated reporting as well as the introduction of accounting standards for financial products.

24 Economy

Brokerage commissions on transactions under ¥50 million were also liberalized on October 1, 1999 as a way to encourage competition in the industry. The new regulations facilitate the establishment of discount brokerages that have rapidly expanded in the United States. It is expected that foreign firms will provide positive competitive pressures.

The single most encouraging aspect of the recent consolidation trend is the crossing of keiretsu lines. This will challenge the traditional practice of lending based on relationships rather than cash flow analysis. Banks are beginning to shift emphasis onto corporate fundamentals when making loans, which partly explains the increase in bankruptcy rates and low levels of bank lending.

In a surprising move, Ripplewood Holdings, LLC, a U.S. private equity group, was selected to buy the nationalized Long Term Credit Bank of Japan. This little known group, which

25 The United States and Japan in 2000: Seeking Focus includes John Reed, former Co-Chairman and Chief Executive Officer of Citigroup, aims to transform the institution into an investment bank. The group announced plans on March 7 for the formation of its first investment fund to purchase hotels in a consortium with the Marriott Corporation.

Masayoshi Son, president of Softbank, continues to wait for final approval to acquire the nationalized Nippon Credit Bank as his consortium of investors has run into regulatory scrutiny. The consortium plans to use the bank to further develop its Internet business.

Masayoshi Son and World Bank President James Wolfensohn formalize agreement to develop Internet infrastructure in developing countries. (February 2000. Photo courtesy of Mainichi Shimbun.)

Sony is poised to make a similar move by next year as well as retailer Ito-Yokado. These ventures do raise legitimate concerns about the combination of financial and non-financial companies, viewed as taboo for moral hazard implications. The government is set to establish guidelines to allow only the bluest of blue chip companies to utilize this Big Bang deregulation.

26 Economy

The Japanese economic model based on group affiliation, known as keiretsu, is no longer considered appropriate for a mature economy in the global market place. Yoshifumi Nishikawa, president of Sumitomo Bank, stated bluntly, “It has been clear for some time that these corporate groups do not work any more.” While the redefinition of the Japanese model will continue at a gradual pace, the trends below are coming to the forefront.

The recent spate of bank mergers is putting pressure on the keiretsu for several reasons. One is the reduction of cross shareholding of group member equity. Member companies are unloading these holdings in part to clean up their own balance sheets. As a result of the decrease in lending by the group banks discussed above, companies increasingly turn to bond and equity markets, which are much less forgiving in their assessment of corporate health. These markets have expanded recently with the debut of MOTHERS and the pending debut of NASDAQ Japan – both offering access to vital capital to small companies that cannot meet the strict requirements of the Tokyo Stock Exchange.

Business in the United States has been most affected by the Internet not through business-to-customer communications, but business-to-business connections that save time and reduce inventory costs. Japan trails the United States in this area but is learning. Examples include Nissan and Renault, as well as Toyota and Honda, all announcing their intention to join in Ford Motor Company’s e-supply chain. This establishes supply relationships based on cost, not on historical ties. It is doubtful that Japan will

27 The United States and Japan in 2000: Seeking Focus holistically embrace this as rapidly as cost-conscious Americans, but it is a positive movement toward a modern rationalization of supply chain management.

Blue-chip companies have become willing to make difficult decisions on scaling back their workforces. NEC, Sony, and Nissan announced plans to cut 15,000, 17,000, and 21,000 workers respectively. Cuts have not been in the “brutal” American style, but rather primarily through hiring freezes and early retirement. The danger is that these companies will lose access to the crucial technological skills that only recent graduates possess. Further, graduates have begun to embrace once spurned foreign institutions such as Merrill Lynch and Microsoft, helping to integrate these firms into the local landscape.

Merger-and-acquisition activity reached an all time high in 1999 exploding 343% from 1998 to $78 billion. Cross-border M&A deals comprised 32% of the total. Japan even witnessed its first domestic hostile takeover bid. Yoshiaki Murakami challenged the management of Shoei, a small real estate and electronic components group. Although he failed by a wide margin, it was encouraging to see a shareholder pressure management to provide better returns.

American consultancies are expanding in Japan as such services are often being used as an excuse to bypass traditional consensus building in efforts to implement drastic reforms. The recent mega- mergers, particularly in the banking industry, have made use of such services in which American firms are dominant. The larger issue is allowing outsiders access to sensitive company

28 Economy information. This trend has the potential to lead to greater degrees of disclosure that will ultimately have a positive impact on the development of capital markets.

In March 1999, the French car manufacturer Renault announced it was buying 36.8% of the struggling Nissan Motors. Since then Carlos Ghosn, formerly chief operating officer and now president, has laid out his painful recovery plan earning him the nickname, “Le Cost Killer.” The plan reflects several of the positive trends discussed above. It is important to note that Renault does not own Nissan. With

29 The United States and Japan in 2000: Seeking Focus

Carlos Ghosn spells out reform plan. (November 1999. Photo courtesy of Mainichi Shimbun.) only a minority 36.8% owner stake, Renault can vote on issues such as stock issuance and bankruptcy, but it does not have authority to determine dividend dispersion. Many of the tie-ups we have seen this past year establish only minority positions for the foreign firms. If foreign participants are to convince Japanese management of the importance of shareholder value, it will have to be from a minority position.

The LDP has proven to be a Jekyll and Hyde of sorts – it turns ugly toward reform come election time. This is evidenced by key economic policy measures from which the LDP has backed away. Sadly, the longer the ruling coalition puts off the Lower House election with a deadline of October 2000, the longer the reform movement is bogged down. Further, the LDP also confronts an Upper House election next year – the house that it currently does not control. In his acceptance speech, the new Prime Minister, Yoshiro Mori, pledged to continue the economic reforms of the Obuchi administration. It is yet unclear as to which half of the fallen Prime Minister’s administration Mr. Mori will emulate, that of the reformer or that of the campaigner. A low point for the reform movement was the resignation of

30 Economy

Michio Ochi, the minister of the Financial Reconstruction Committee (FRC), on February 26. Appointed as minister in October 1999, Ochi replaced the strong-minded reformer Hakuo Yanagisawa who championed consolidation of the banking in d u s t r y .

Ochi was forced to step down after being caught on tape saying to credit union and banking officials that in the event that auditors were too strict, the institutions would be given the “utmost consideration.” These are not exactly the words of a reformer. Nor were his actions.

The most disappointing move under Ochi was the December 31 Backsliding on Reform Date Reform Policy Revisions Implications November Suspension of nursing insurance premium Will require an additional $9.64 Billion 1999 collection system. in government debt issuance. December Reduction of safety net on bank deposits Protects under capitalized banks from put off as far as 2003. mass exodus of depositors. January Delay of consolidated taxation system for Measure would have made companies 2000 companies to 2002 or beyond. pay one tax bill ultimately encouraging a sharper focus on business operations.

suspension of the introduction of a cap on bank deposit insurance. Expected in April 2001, certain measures will be delayed as far as April 2003. In so doing Ochi and the LDP threw a lifeline to a loyal constituency, the credit unions, in the run-up to the general election. The fear was that without unlimited Michio Ochi during his brief tenure as insurance many depositors head of the FRC. (December 1999. Photo would withdraw their courtesy of Mainichi Shimbun.) savings and seek the

31 The United States and Japan in 2000: Seeking Focus services of more financially sound institutions and as a result weaker banks and credit unions would collapse. Ochi has been open about his concern that the failure of small credit unions would have adverse effects on many communities, but in his speech he overstepped ethical bounds by suggesting that government power could be used improperly.

Sadakazu Tanigaki has been tapped to lead the FRC. A politician from the Koichi Kato faction of the LDP, he is viewed favorably in the financial community and speaks in favor of further consolidation in the banking industry. Mr. Tanigaki must now face the next step, which will prove to be the most difficult from a political standpoint, as the government must allow weak institutions to fail.

The government also sent mixed signals about reform in the private sector. In the wake of the Nissan restructuring announcement, for example, Obuchi advocated a “Third Way” for Japan, a combination of Japanese-style management and business practices from abroad. Regardless of the fact that most analysts put Nissan within two months of bankruptcy, Obuchi criticized the restructuring plan as too harsh. The Prime Minister appeared to have been influenced by anti-reformists in the party who formed the 100 strong “anti-deregulation” committee.

Nissan reflects many of the trends foreign economists would like to see from corporate Japan. Yet, it would be an overreaction to expect the economy as a whole to embrace rationalization measures in such a holistic, accelerated manner. Nissan had no choice; other corporations are not in such dire straits. Nonetheless, positive signs in the private sector, and even in certain sectors of the government, toward enacting a new economic model are encouraging. To be successful, this transition must include the financial sector, which has shown vigor in

32 Economy embracing a new economic environment where it has much to learn from its competitors. This includes lending based on proper due diligence, not purely on relationships. Unfortunately, it appears that political interference will remain an obstacle for the foreseeable future as major segments of the LDP constituency are threatened by the rationalization process.

The first half of this section concentrated on the retooling of what has come to be known as the “Old Economy.” Next we will concentrate on the “New Economy” centered on technological innovation and free flowing information and capital. While trailing the United States in many areas of this “New Economy,” Japan shows signs of finally embracing the new economic reality and has begun to weave this new environment into its own economic system.

American growth has been largely fueled by the value of the Internet in business. Despite warnings of stock overvaluation, Americans continue to flood the NASDAQ with dollars, pushing the capitalization of "dot-coms" to record levels on a regular basis. Large, traditional U.S. corporations are recognizing the need to adapt their businesses to the Internet and are merging with technology start-ups and newly public companies. The most publicized merger was that of Time Warner and America Online (AOL). These hook-ups provide established companies with Internet savvy operators and marketers who can bring them into the twenty-first century. In return, the Internet start-ups increase their value by locking in the brand name and global resources of a large U.S. corporation. Many Japanese are now looking toward the U.S. Silicon Valley

33 The United States and Japan in 2000: Seeking Focus tech start-up model as a paradigm for surviving Japan’s economic downturn. Generally, business creation in Japan was slow, due primarily to the Japanese tradition of government-led development in everything and a lack of adventure on the part of businessmen who gravitated toward the security of large corporations. No longer able to rely on the traditional lifetime employment system held as a tenet by Japanese companies since World War II, more and more Japanese are taking chances by starting their own businesses.

Japan’s small business sector already accounts for more jobs than the large, well-known corporations. However, what distinguishes Japan’s small business sector from the United States’ is that many of these businesses are not profitable. Rather, they are sustained by relationships with government leaders and the big companies with which they do business. This situation is slowly changing as entrepreneurs use technology to support their independence. The Internet allows for just in time sales that limit inventory and cut operating costs while reducing the number of links in the supply and distribution chain.

Business leaders who were once regarded as renegades in their field are now commanding attention from corporate leaders. The most prominent example is that of Masayoshi Son. As the creator of Softbank he is held up as an example of the triumph of the new wave of entrepreneurship. Perhaps the most telling sign of Mr. Son’s acceptance into the Japanese business culture is that former Prime Minister Obuchi asked him to be a member of the Competitiveness Commission which will seek to improve Japan’s global economic position.

But while Mr. Son is being held up as an example of the new entrepreneurial spirit flourishing in Japan, his success is most certainly not the norm. Few know that most of Mr. Son’s fortune was amassed through business dealings in the United States.

34 Economy

While it is true that it is becoming easier to create start-ups in Japan, structural and societal obstacles remain.

The Japanese government has acknowledged that existing laws and regulations do not support an entrepreneurial business environment. Because tax conditions are not favorable for start- ups, efforts are being made to develop a tax structure that favors investments in venture businesses and assists entrepreneurs with fund-raising. In 1999 the Lower House revised the Small and Medium Enterprise Basic Law of 1963 to encourage innovation and competition among small and mid-sized businesses. Also, Japan is re-evaluating its costly and complicated bankruptcy procedures, as less stringent bankruptcy laws are cited as a major impetus for U.S. entrepreneurial activity.

Societal pressures also serve as obstacles. For many Japanese, entrepreneurship clashes with traditional values in two ways. First, the entrepreneur acts as an individual and breaks away from the traditional career path. Secondly, if the business fails, the Japanese entrepreneur brings shame to self and family. Since many recent entrepreneurs are young, it is possible that the emerging trend signifies a shift away from the cultural emphasis on “group think” and “group pride.”

35 The United States and Japan in 2000: Seeking Focus

Any MBA graduate of a U.S. university knows that there is a systematic way to develop a business. You start with an idea. Next you revamp it into a marketable format. From there, you lay out a business plan, search for sponsors, and proceed under management guidance from venture capital investors.

In Japan, the flood of venture capital is outpacing structural changes. Estimates of the total size of the venture capital pool (both foreign and domestic) in Japan range from $3-7 billion.

A February 2000 article in The Washington Post cited two women who posted a five-sentence query about their idea, a Website aimed at women, on an e-mail list run by a Tokyo forum for high-tech entrepreneurs. Within a week the women were inundated with approximately $100,000 in seed money and start- up help, before they even had a business plan.

DIFFERENCES IN VENTURE CAPITAL FUNDS UNITED STATES JAPAN = Invest large amounts in fewer companies. = Invest small amounts in many companies. = provides management advice. = provides little management guidance. = invest in the early stages of development. = Invest in the late stages - typically 10-20 years = Insist that the business owner pays a large after incorporation. portion of the up front capital investment. = Ultimate goal is to bring the company to the stock market where the venture capital firm can cash in on underwriting fees.

While venture capital has been an integral part of the United States financial system for decades, it is only beginning to show its influence in Japan. For years, investors in the United States have been willing to take a chance on small businesses. An appetite for risk and a growing affluence of dollars have propelled equity investors to give a good idea a solid platform for take-off.

36 Economy

In contrast, banks have traditionally dominated Japan’s capital flows. Exhibiting a general aversion to risk and relying on business connections fostered through the cultivation of personal relationships, investors in Japan have squirreled yen into conservative savings plans such as the postal system or city banks. As a result, banks have filled the lending gap in Japan, obfuscating the need for venture capital firms. This traditional lending system was shaken by the banks’ bad-loan scandals of the 1990s. Banks are no longer willing or able to lend as easily, despite the Bank of Japan’s zero interest rate policy.

Source: The Washington Post

Recognizing an unprecedented opportunity to break into the Japanese market, American venture capital firms have stepped in. Goldman Sachs, J.H. Witney, Warburg Pincus, Particoff &Co. and other American firms have already set up shop in Japan. Signs of budding entrepreneurship signal to these firms that there will be life in Japan after this decade-long recession. Future profits can be assured now by getting in on the ground level, especially in an economy where technology is prominent in development.

37 The United States and Japan in 2000: Seeking Focus

This influx of venture capital has led to changes in Japan’s stock exchange system. In the United States, many high-tech start ups have found early IPO launches an easy way to cash in on U.S. investors’ desire to build up technology based portfolios. This trend is spreading to Japan. In response, two new trading exchanges are being developed that will cater to Internet-based businesses.

The emergence of MOTHERS and NASDAQ Japan reflects both the growth in IPOs in Japan and the growth in investment interest in these new companies. The Economist states that from the mid- 1990s until last year the new-issue market in Japan had been declining. Last year, only 98 companies had IPOs on Japanese stock markets, compared with 544 in the United States. However, things are changing as about 250 companies plan to launch IPOs this year. In addition, more stock market investment is anticipated from Japanese savers, who will likely be transferring funds into the market from postal savings accounts in 2000.

Going public on the Tokyo Stock Exchange, on average, takes a company 34 years versus 10 years in the United States. MOTHERS was created to reduce this disparity. Investors have responded well thus far. For instance, Internet Research Institute (IRI), which became one of the first companies to list on MOTHERS last December, has seen its share price surge some 20% since listing. Now, IRI, which has 40 employees, has a market cap of around ¥842 billion. This is larger than the ¥532 billion market cap of Mazda Motor, which employs nearly 24,000.

38 Economy

The government is also retaining some of its interest in directing the business sector. The Ministry of International Tr a d e and Industry (MITI) has been given $305 million to invest in start-ups through private venture capital funds. It has modeled itself on U.S. venture capital firms and invests only in the equity of young companies. But it has been cautious with its funding, investing only ¥1 billion of the ¥10 billion it received from the Ministry of Finance (MOF), mostly in information technology and e-commerce firms.

MITI used its influence this past autumn to grant tax breaks to venture capitalists. It is pushing for further tax reforms that would enable investors to offset losses against income-tax liabilities. This minimizes some of the risk that discourages Japanese investors from putting their money into start-ups. Critics claim that government interference in the equity markets amounts to a small business subsidy that could keep unprofitable businesses alive and hinder long-run economic recovery.

Japanese now have money for start-ups, but do they have the ideas and the stomach for risk that it takes to initiate a new company? Despite all the publicity venture capital has been receiving lately, Japan still only invests about 1/16 of the money the United States does. There is no doubt that money is available,

39 The United States and Japan in 2000: Seeking Focus but if investors do not see positive economic recovery in Japan, it is not likely to be there for long.

“At the touch of a button,” “From the comfort of your favorite ch a i r ,” and “It’s easy – just point and click!” are all slogans used by companies to encourage individuals to convert their buying habits to e-commerce. In the United States, the trend is increasing. US A Tod a y estimated that 25 million customers shopped online during the Thanksgiving – Christmas period in 1999, spending about $5 billion. Growth is expected in the range of 25% of total

retail sales being conducted online in five years. Although e-commerce got off to a late start in Japan, Japan is now adapting the U.S. online sales paradigm to fit Japanese needs.

The key to advancing e-commerce is making technology accessible. There are major disparities between the United States and Japan in this regard. For instance, PC penetration is low in Japan and less than 12% of the population has access to the Internet. Why the delay? For two main reasons: most sites are in English and Internet connection fees remain high.

Nevertheless, according to a survey released in June 1999 by Japan’s Ministry of Posts and Telecommunications, 17 million Japanese (13.4% of the population) now log onto the Web, up

40 Economy from 1.5 million in 1995. The number of houses wired to the Internet is expected to grow to 52% by 2003, about the current level in the United States. According to MITI, the Japanese government intends to wire every Japanese household with high- speed Internet capabilities by 2006. Even so, Japan’s population is aging rapidly and usage among the elderly is still very low. Despite its rapid growth, Japan remains about two and a half years behind the United States in terms of web usage.

One area in which Japan is surpassing the United States is in hand-held technology. Currently over 40 million Japanese use mobile telephones. In February 1999 NTT DoCoMo, Japan’s leading mobile telecom carrier, introduced iMode which allows users to connect to the Web via cellular phone. In its first year iMode had nearly 4 million subscribers and claims to receive over 100,000 new subscribers per week.

Even if Japanese are connected to the Web, will they buy online at the same pace as Americans? Buying and selling in Japan has developed in a different way than in the United States. Shopping is a social and leisure activity in Japan. Buyers develop rapport with their retailers and prefer to pay in cash rather than with credit cards. Sellers in Japan form close relationships with suppliers and buyers who protect each other and remain loyal. The Internet industry has the potential to shatter these relationships by eliminating the need for a middleman. During this period of economic downsizing in Japan, this could bode well for businesses, but poorly for employment figures. Increasing domestic consumption will aid economic recovery, but it could also lead to increasing unemployment.

E-commerce is definitely catching on with Japanese corporations. Some analysts theorize that the major Japanese corporations will learn from the grass-roots evolution of Internet

41 The United States and Japan in 2000: Seeking Focus business in the United States and will capitalize on the opportunity to deploy established brand name superiority and resources to the Internet industry before small start-ups become a threat. In this way, the Sonys and Fujitsus of Japan will avoid the competitive battle that major U.S. companies are having with Internet sites.

Sony was one of the first Japanese companies to start selling its primary products online at SonyStyle.com. Retailers who depend on a network of small suppliers, such as Sony and Mitsubishi, are burdened by excess merchandise that consumers have been unwilling to purchase during the recession. Operating an on-line store enables corporations to keep inventory at a minimum. While the company acknowledges that this operation risks alienating its traditional relationships with retail vendors, it has calculated that returns to its online storefront will outweigh this effect.

Fujitsu is also reinventing itself, with a keen eye on the Internet. Systems integration and web solutions are now key services offered. Fujitsu has also positioned itself as the nation’s leading Internet service provider.

Conversely, other analysts are speculating that trading companies are well positioned to dominate the Internet industry. These large companies already have the ability to acquire resources worldwide and can control management and technology flows. However, their size could also have a negative impact on their ability to harness Internet technology quickly and efficiently. In the past, management has been slow to act. Rapid mobilization of their available resources is imperative if they are to maximize their competitive advantage. Mitsui and Mitsubishi are breaking into the scene now, setting up online ventures for selling steel through business to business e-commerce.

Several analysts predict that Japan serves to gain more from

42 Economy business to business e-commerce transactions than from online retail sales. At present, Japanese businesses can face up to six or seven layers of distribution channels. Corporations could save a lot of money by cutting out the middleman. For the moment, Japan’s business-to-business e-commerce is still in the nascent stage. In 1998, business to business e-commerce accounted for 1.8% of GDP or ¥8,620 billion compared with ¥19,500 billion in the United States.

Business to customer e-commerce in Japan is developing to fit the unique buying habits of Japanese consumers. Unlike in America where credit cards have soared in popularity, Japanese consumers have been reluctant to spend on credit. In addition, E- Shopping! Books, a joint venture between Softbank, 7-Eleven Japan, Yahoo!Japan, and Tohan (a publisher) to sell books over the Internet, has discovered that 92% of its customers prefer to pick up their online purchases at their local convenience stores, rather than have them delivered to their homes. As a result, Sony, 7-Eleven, NEC, Nomura Research, and Japan Travel Bureau

(JTB) aligned to form 7dream.com. This is an online shopping network that enables customers to pick up their orders at the 7- Eleven convenience store chain. These tie-ups allow Japanese consumers to shop for the best

43 The United States and Japan in 2000: Seeking Focus prices and buy online, yet still pay with cash. They can also maintain the personal relationships that have been a valued component of the Japanese shopping experience. Several other convenience stores are joining similar tie-ups. Consequently, e- commerce transactions are expected to rise from $83 billion to $400 billion in the next four years, reports MITI.

According to the U.S. Office of Management and Budget, approximately $9 billion was spent making U.S. federal systems Y2K compliant. Despite rumors of potential mass chaos due to computer glitches on New Year’s Day, Americans enjoyed a relatively problem free welcome to the year 2000. Japan prepared for the Y2K threat as well, although official spending figures have not yet been released. While both nations prepared for the worst, by the time it became midnight in the United States, it appeared evident from the experience of Japan and other nations that Y2K fears amounted to little. Thousands of Americans could not help but feel a little cheated out of their holiday revelry as they sat monitoring computer systems for potential dangers that never came.

But not long after Americans and Japanese settled into the new ye a r , network computer corruption appeared. Disturbances in January and February came as a surprise to both American and Japanese online patrons and presented both countries with their first major battle with cyberterrorism. Hackers invaded corporate and government sites in the United States and in Japan. Yah o o ! , E* T rade, Amazon.com and CNN were all hit as well as two Japanese ministries that admitted to not having firewalls, or a series of security filters that limit the flow of information through

44 Economy

Internet sites. Hackers bombarded the sites with a preponderance of entrance requests routed through innocuous third-party computers.

These attacks have caused consumers, retailers, and government of ficials in both countries to question the security of Internet based transactions. The Japanese government responded to these attacks by announcing it would strive to improve the nation’s computer security and privacy standards by 2003. Plans are underway for a defense unit to uncover and repulse cyberterrorism and bills are being considered that would mandate stricter penalties for cyber attacks. A bill tightening restrictions on electronic certificates and signatures could be approved by this summer.

The U.S. government is also strengthening its web security standards. Speaking on cybercrime to the Senate on February 16, 2000, United States Attorney General Janet Reno emphasized the need for nations to share information about hackers and to develop a coordinated tracking system to monitor Internet attacks. Furthermore, she insisted that this be placed at the top of the U.S. agenda of national security priorities. Industry should also be brought into the process, she asserted, as attacks of this nature result in yearly losses to businesses of millions of dollars. Th e s e losses stem from website disruptions and a subsequent lack of consumer confidence. The U.S. Justice Department is asking for $37 million in FY2001 to improve its computer crime fighting techniques.

Cyberterrorism affects both Japanese and American consumers and businesses and threatens the global expansion of the Internet. Thus, combating hackers is viewed by public officials and industry representatives as an area in which the United States and Japan

45 The United States and Japan in 2000: Seeking Focus should cooperate. By joining forces, the two technologically advanced nations can present a formidable obstacle to computer pirates.

Trade relations between the United States and Japan have been characterized as intensely competitive in the past but did not take center stage this year. Is this because trade conditions between the two nations are improving? No. According to the Office of the United States Trade Representative (USTR), the United States trade deficit with Japan has expanded to $73.9 billion, up 15.5% from $64 billion in 1998. Focusing its attention on China, the Clinton Administration has paid less attention to the trade issue. And has Japan done much to change this? No. Rather, the focus of the Obuchi Administration was on rebuilding the economy at home, and this is likely to remain the case until economic recovery is realized. However, one can find examples of economic tension that could have adverse affects on the bilateral relationship if left unresolved.

One issue that did ignite both sides this year was telecommunications, but it is currently at an impasse. As it stands, Japan remains dominated by one company: Nippon Telephone and Telegraph (NTT). The profit opportunities supported by the growth potential of the Internet have led to calls for Japan to liberalize its telecommunications sector, but Japan is dragging its feet. The U.S. government is threatening to take its case to the World Trade Organization (WTO) but will wait until July when Japanese lawmakers are expected to vote on legislation governing interconnection rates.

46 Economy

NTT has significant influence over the Internet industry in Japan since, according to Nikko Salomon Smith Barney, it controls 98% of local phone traffic and collects fees from 94% of fixed-line Internet traffic. In addition, it has extended its reach to capture wireless business as well. Its mobile phone branch, NTT DoCoMo, controls more than 50% of wireless access. Consequently, NTT has been able to set prices for Internet usage at monopolistic price levels. This has led to connection fees that are 8-10 times higher than in the United States.

American companies have been quick to highlight to the Japanese government that this monopoly is stunting the growth of the cyber industry in Japan. In addition to charging high access fees, NTT has failed to push the introduction of the higher- technology DSL service because NTT’s current infrastructure is based on ISDN (integrated services digital network) connections.

Market expectations in Japan are that NTT will retain its dominant position. The share price of NTT DoCoMo has risen to five times its original value, signaling that market watchers see great potential for continued growth.

In the United States, the Internet was able to take off before government officials were able to discern its impact. As a result, it remains largely unregulated and driven by consumer demand. In contrast, Japan’s development of the Internet has been impeded by the government’s protection of its monolithic telecommunications industry. Although the Japanese government is realizing this and is stripping away some of the barriers to cheap access to the Internet, it is doing so slowly. While many analysts predict that NTT will face more competition in the near future, U.S. companies are unlikely to gain the level of access they desire.

47 The United States and Japan in 2000: Seeking Focus

Financial Times Editorial, February 8, 2000: “ There has been much talk of changes to the corporate culture, and a few high-profile examples, but the reality lags behind the rhetoric. Japan’s economic weakness is, instead, a product of a chronic lack of confidence, an absence of corporate dynamism and years of economic mismanagement.”

Richard Jerram, chief economist, ING Barings Securities: “As Disraeli might have said, ‘there are lies, damn lies and Japanese statistics’ and the idea that the Japanese economy fell back into recession in the second half of calendar year 1999 is about as absurd as the claim that it boomed in the first half of calendar year 1999.”

Damien McElroy from the Scotland on Sunday: “It is the fiscal equivalent of borrowing on a credit card to pay off the mortgage.” - a negative relation to the Japanese government bypassing the country’s bond market and borrowing directly from the country’s banks.

Keizo Obuchi, former Prime Minister: “Japanese are known in this world as the most reliable people when it comes to paying back borrowed money. (Japan) always lives up to its promises. So we can certainly trust in this Japanese tradition.” - An attempt to justify the extension of loan guarantees to small and medium sized businesses.

Kentaro Aikawa, former chairman of Mitsubishi Heavy Industries, Ltd.: “I don’t give a hoot about things like ‘return on equity.’ I openly brag that I don’t cater to shareholders.”

Shotaro Watanabe, worker at consumer products giant, Kao Corporation: “Those guys at Mitsubishi Heavy…they’re Japanese, I guess. But if you ask me, they’re weird Japanese. Among managers at the really good Japanese companies, hardly anyone thinks like that these days.”

Hakuo Yanagisawa, former minister of the Financial Reconstruction Committee: “The profitability of Japanese financial institutions is noticeably lower than that of U.S. and European banks, despite the fact they have larger assets. Ripplewood and other foreign institutions have a clear vision of how to improve profitability. I expect their attitudes will provide a major stimulus for Japanese banks.”

Financial Times, Obituary, October 4, 1999: “Mr. Morita was the personification at home – and even more so abroad – of his country’s rapid recovery, dazzling industrial success and, in latter years, insecurity with its place in the world.” – Akio Morita, founder of Sony, died at the age of 78.

48 Economy

Japan is not only trying to rediscover economic growth, it is also mired in the process of deconstructing an economic culture – a daunting task that will take time. The first step of the process is rationalizing the “Old Economy,” which will continue to be imperative to economic success. The United States went through this painful process in the 1980s; Japan spent most of the 1990s fighting this process. The “Big Bang” reforms begun in 1997 should provide enough momentum to keep this transformation flowing.

Added to the difficulties of rationalization is the technological revolution. How each country embraces the changes presented is vital to future economic health. The United States leads the race, but the case has been made that Japan is not far behind. As the pioneer in the technology revolution, the United States made mistakes and misguided investments along the way. Expect Japan and others to learn from the experiences of the United States – lessons that will allow for a smoother adoption of technological innovation.

Americans should not expect Japan to create a new economic model that exactly mirrors that of the United States. But there are parallels in the changes that the world's two largest economies have experienced in the past year. Since these two economies have such a powerful influence on each other and the world at large it is myopic to focus on one at the exclusion of another. Instead, it is imperative to focus on their interaction in the global economy.

49 50 n March 17, 2000, Secretary of Defense William Cohen told a room full of Japanese newsmen in The Japan ONational Press Club Building in Tokyo: “Our alliance has never been so critical and cooperation has never been so close.” Meanwhile, twenty-five miles southwest of the city, 3,000 American servicemen and their families inhaled record levels of poisonous dioxins from a nearby Japanese incinerator plant while U.S. Government frustration mounted at the inability of the Japanese government to deal with the problem. Back in Tokyo, the Japanese Ministry of Finance adamantly continued to support its December 1999 proposal to scale back financial support of U.S. military forces in Japan by decreasing the Host Nation Support (HNS) Budget. Is there a contradiction here?

This past year, the U.S.-Japan Alliance maintained its strategic focus on Asian regional stability through engagement with North Korea and agreements on Theater Missile Defense (TMD), defense guidelines and satellite development. But disagreements over U.S. base issues and the Host Nation Support for the 47,000 Am e r i c a n troops stationed in Japan exposed weaknesses in U.S.-Japan relations. Almost a decade after the collapse of the Soviet Union, the United States and Japan are still struggling to define the partnership in the post-cold war environment. Both sides know that they must have a robust alliance to deal with uncertainty in the region, but neither has found a way to implement the defense guidelines that dictate how the security relationship should be managed under these new circumstances. Despite recent tensions, the United States and Japan are poised to cooperate and further strengthen the Alliance. But they must focus.

51 The United States and Japan in 2000: Who Cares Unilateralist trends in American foreign policy were reflected in overdue United Nations (UN) dues, a failure to ratify the Comprehensive Test Ban Treaty (CTBT), the collapse of the World Trade Organization (WTO) Ministerial in Seattle, and continued discussions of National Missile Defense (NMD). These developments prompted worldwide criticism that the United States has become what National Security A d v i s o r Samuel Berger called “a hectoring hegemon.” In a presentation at the Council on Foreign Relations in October 1999 entitled, “American Power: Hegemony, Isolationism, or Engagement,” he acknowledged unilateralist trends in Congress but then emphasized the need to keep America engaged internationally. Meanwhile, with seventy percent of Japanese concerned with the possibility of war in East Asia, according to an August 1999 Yomiuri poll, the Japanese press addressed security issues at length this past year. While members of the Japanese Diet have introduced legislation reflecting the debate on increasing Japan’s military role within the Alliance, political turmoil and economic uncertainty have stifled efforts to formulate a clear strategy. Change could be incremental.

Why should we focus on these issues? The U.S.-Japan Alliance is indispensable to the stability of the East A s i a n region. The United States has always urged Japan to play a more active role in the partnership, hence the Guidelines, and this year Japan has demonstrated its desire for more security responsibilities and a greater leadership role in the region in the diplomatic arena. What is the problem? First, Japan must gather the necessary political support to show that it means business. Second, Tokyo must assure Washington that an enhanced security role will enhance, not undermine, the partnership, and show that Japan is willing to share risk. Third, the Allies must acknowledge that the current basis of the relationship does not accommodate an increased military role for Japan. Continued

52 Security and Diplomacy dialogue is necessary to keep both countries engaged and create an alliance that can remain both “close” and “crucial” in the years to come.

Diplomatic wranglings over the level of Japanese Host Nation Support (HNS) and specific military base issues exposed tension in the management of the Alliance. Although Japanese support for the Alliance is broader than ever—eighty percent believe that the United States and Japan will remain strong partners in the twenty- first century according to a Yomiuri Gallup poll in October 1999—the desire for cuts in HNS and military base disputes reflect Japanese dissatisfaction with the status quo.

The debate over Host Nation Support—commonly referred to as the “sympathy budget” (omoiyari yosan) by Japanese politicians— gets to the core of the U.S.-Japan relationship. The fundamental security bargain during the Cold War was American agreement to protect Japan in return for strategic access to military bases and Japanese financial support. In December 1999, the Ministry of Finance (MOF) reviewed the host nation budget for the first time and recommended a cut of 2.8% for the fiscal year 2000 budget. Since Japan traditionally accepted without question the level of support determined by the U.S. military and Japanese Defense Administration Ag e n c y , this re-examination was unprecedented. Later that month, the Japanese cabinet approved a record $772.6 billion state budget and followed MOF’s suggestion to decrease funding for the U.S. military presence. Japan began host nation support in 1978 when weakened U.S.

53 The United States and Japan in 2000: Seeking Focus economic conditions were stressed by financing military commitments in Japan (hence the “sympathy budget”). To k y o now supports 70% of all direct costs related to U.S. forces in Japan with an approximately $4.5 billion contribution. T h i s amounts to about $100,000 per U.S. serviceman stationed in Japan. In addition to setting annual spending, Washington and Tokyo negotiate the terms of additional host nation support every five years in a Special Measures Agreement, and working level discussions are underway since the current agreement expires in March 2001.

MOF cited the reversal of economic and fiscal conditions in both countries since the 1970s as justification for the recommended budget cut. Japan’s record debt levels (at 130% of GDP) concern officials in Tokyo. They were further frustrated by U.S. requests in January 2000 that Japan shoulder additional expenditures such as maintaining school buses that provide transportation for children of U.S. personnel. However, U.S. o fficials have been adamant in asserting the strategic significance of the maintenance of Japan’s current commitment level. Ambassador Thomas Foley reiterated this point in a letter to the Asahi Shimbun in February 2000, and U.S. Deputy Secretary of State Strobe Talbot, and Undersecretary of Defense for Policy Walter Slocombe, also visited Japan that month to express their concern.

Washington insists that the current expenditure level is crucial to maintaining stability in Asia. There is also concern that a cut in HNS would revive the “free-rider” argument and invite backlash in Congress, where the U.S. trade deficit with Japan is often criticized. To k y o ’s desire to cut the budget makes the United States question Japan’s commitment to the A l l i a n c e , especially since approximately $550 billion was budgeted in the fiscal year 2000 for Japan’s development of indigenous intelligence satellites. But MOF is not backing down from its

54 Security and Diplomacy proposal to cut the host nation budget despite strong U.S. opposition. The Ministry of Foreign A ffairs (MOFA) and the Liberal Democratic Party (LDP), traditionally allies of the United States within the Japanese government, were conspicuously quiet on the issue.

Defense Facilities Administration Agency Officials interpreted the February 2000 resumption of United States nighttime landing and takeoff exercises at U.S. bases—in Atsugi, Kanagawa Prefecture, Iwakuni, Yamaguchi Prefecture, and Yokota, To k y o — as possible signs of U.S. frustration with the ongoing dispute. These noisy exercises are disruptive to Japanese citizens in the v i c i n i t y, so they typically occur on the island of Iwojima or with the special permission of the government. Japanese officials were surprised that the U.S. Navy did not consult them in advance about the exercises on the mainland.

During talks with then-Liberal Democratic Party (LDP) Secretary General and current Prime Minister Yoshiro Mori, U.S. Undersecretary of State for Political A ffairs Thomas Pickering emphasized that HNS should be settled before the Okinawa G-8 Summit in July 2000. Although the United States will try to capitalize on Japan’s desire for a successful summit, MOF does not show signs of compromise on the principle of a budget cut. The amount, however, will likely be subject to discussion. But at 2.8%, the proposed reduction is more psychological than financial, suggesting Japanese dissatisfaction with the current bilateral security arrangement more than any specific budgetary pressure. This dispute will continue until regular working dialogue is established to further define the respective roles of Japan and the United States in their security relationship.

Source: March 1999 “Report on Allied Contributions to the Common Defense”

55 The United States and Japan in 2000: Seeking Focus

Comparing Host Nation Support Among U.S. Allies Saudi Arabia 88% Japan 76% Italy 65% Spain 47% South Korea 40% Greece 34% Norway 30% Germany 26% by the Secretary of Defense

The 1995 rape of a 12-year old girl by three Am e r i c a n servicemen in Okinawa heightened U.S. awareness of the tension between U.S. military forces in Japan and their hosts. In 1996, the U.S.-Japan Special Action Committee on Okinawa (SACO) agreed to gradually return 21% of land used by the U.S. military to local residents. Although Okinawa is only .6% of Japan’s total area, the U.S. military currently occupies almost 75% of that space.

In particular, SACO called for the relocation of the heliport at Marine Corps Air Station Futenma—a 1,200-acre facility that occupies 45% of Ginowan city. There are two plans for relocation—an offshore helicopter landing facility and a civilian- military facility to be built in the northern part of the mainland. Ok i n a w a ’ s Governor Keiichi Inamine announced in October 1999 that the Heneko area of Nago city would host the new heliport. Ho w e v e r , he attached several non-negotiable conditions: dual Japanese civilian and U.S. military use, complete U.S. withdrawal after 15 years, and commitment to an economic development plan for Northern Okinawa by the central and prefectural governments. In December 1999, Nago city Mayor Takeo Kishimoto accepted the same conditions for relocation. Despite a majority of public

56 Security and Diplomacy support for relocation in Nago city, there is no consensus on which relocation plan should be implemented. During a conference held at the School of Advanced International Studies (SAIS) on May 1, 2000, Mr. Yoshihiko Higa, an aide to Governor Inamine, said that if the central and Okinawa prefectural governments can reach agreement on the 15-year time limit, there is no need for Tokyo to obtain official consent from the U.S. government.

During his visit to Japan in March 2000, United States Secretary of Defense Cohen flatly rejected the 15-year limit, stating, “Security needs are determined by circumstance and not by any artificial limitation.” Because this condition is crucial to gaining local support for relocation, it is a major obstacle in resolving the issue. But, with the approaching G-8 Summit in July 2000, there is pressure to find a solution quickly. President Clinton turned up the heat in June 1999 at a press conference when he stated, “I don’t want to go over there and have all these things hanging out. I hope they will all be resolved.”

Another issue in the relocation of Futenma is how the Tok y o central government will deal with the demands of Okinawa, which is demanding economic incentives in return for political support. Tokyo has already promised to distribute ¥100 billion ($943 million)* over the next ten years to stimulate the local economy. Many Japanese feel that national security supersedes local interests in this prefecture, where U.S. bases occupy approximately one- fifth of the main island of Okinawa. How Tokyo responds to the economic demands of Naha, the capital of Okinawa, will set a precedent for other prefectures in the same situation where support will be necessary for Japan to fulfill its duties under the U.S.-Japan security treaty.

* All conversion based on UN Operational Rate of Exchange $1=¥106, effective May 1, 2000.

57 The United States and Japan in 2000: Seeking Focus

The Shinkampo incinerator plant run by a firm called Enviro- tech, located 150 meters (50 feet) south of the U.S. Atsugi naval base, has been an irritant in the relationship for most of the past decade. In October 1999, joint U.S.-Japan monitoring exposed a concentration of poisonous chemicals 70 times Japan’s standard, and a U.S. Navy study revealed children in the area under 6 years old face a risk of cancer 100 times greater than in most A m e r i c a n neighborhoods. In February 2000, Secretary of Defense Wi l l i a m Cohen wrote Ambassador Thomas Foley, suggesting that service members and their families could be moved out of Atsugi if this problem was not resolved, even though “it would not be in the best interests of our alliance with Japan.”

Tokyo announced a plan to combat the air pollution when Cohen visited Japan in March 2000. The Japanese initiative includes the construction of a 330 foot smokestack; the installation of filters on its burners by the end of March 2000; temporary off-base housing for U.S. military personnel; and joint U.S.-Japan monitoring of the air surrounding the incinerator. Japan will foot the entire bill for these measures. Despite expression of U.S. satisfaction with the proposal, the issue remains unresolved as the U.S. Justice Department is suing the Shinkampo incinerator plant for spewing unacceptable amounts of toxins. Even though the Japanese government has conceded that Enviro-Tech gave off the worst dioxin levels ever recorded in the country, the legal process will take time. There remains aggravation on the U.S. side as to why the Japanese government did not deal with the problem sooner.

58 Security and Diplomacy

The issues of heliport relocation and environmental pollution point to fundamental weaknesses in the operation of the alliance in the post-Cold War era. A decade after the fall of the Soviet Union, the alliance’s strategic bargain—bases for protection—is strained. There have always been irritants in the Alliance, but both governments cannot allow this tension to fester. Despite the pressure of the approaching G-8 Okinawa Summit in July 2000, these disputes will not be fully resolved until the partners reconfirm the longer term strategic vision for the Alliance. Japan Defense Agency Director General Tsutomu Kawara summarized the Japanese perspective during his visit to the United States in January 2000 when he noted that Japan “must first address domestic issues.” Until Tokyo and Washington can more clearly define their expectations of each other and themselves, these conflicts could persist.

The United States is a major East Asian military power with 47,000 of its 100,000 troops in the region stationed in Japan. Even in the post-cold war world, both countries remain committed to the alliance as the foundation for regional security based on the April 1996 Joint Security Declaration. The phrase “Spear and Shield” describes their respective roles in the alliance, since the United States has offensive military capabilities while Japan focuses on the self-defense aspect of the partnership. Responding to Washington’s pressure that Tokyo expand its roles and missions in the alliance, in 1997 the Allies agreed on a framework to allow Japan to more actively support the United States during a regional crisis.

The U.S.-Japan Defense Guidelines passed in the Japanese

59 The United States and Japan in 2000: Seeking Focus

Lower House in April 1999 and in the Upper House in May 1999. They outline how Japan will cooperate with the United States in regional crises through activities such as search and rescue operations, maritime patrol, evacuation of non-combatants and “rear area support” in the form of transportation and medical assistance. The Guidelines were a first step, but before Japan can effectively increase its security role, Tokyo must create a supporting legal framework beyond the legislation already passed. Several proposed bills and existing laws are currently under discussion.

Yuji Hosei (The Crisis Law): This is not yet a proposed bill, but the LDP is now examining how to create legal arrangements that would coordinate local governments and government agency cooperation with U.S. or Japanese forces in a regional crisis within the framework of the guidelines. Currently, there is no clear law to delineate how these parties would support the U.S. or Japanese military in a contingency.

Performance of Police Function Law: Prohibits the Japanese Self Defense Forces (SDF) from firing potential damaging shots in Japanese territorial waters. The sighting of two Korean spy boats in Japanese waters in March 1998 prompted a desire for revision allowing the SDF to deliver offensive fire during em e r gencies when national security is at risk.

International Peace Cooperation Law: Passed in 1991, this legislation requires that five conditions be met before Japan can send its SDF to participate in logistical aspects of peacekeeping operations. Japan’s limited involvement in East Timor highlighted the need for revision to provide Tokyo with the necessary legal framework to participate more actively in international crises. The United States encourages Japan’s participation in peacekeeping operations (PKO) in cases like

60 Security and Diplomacy

East Timor because it would demonstrate commitment to an increased role in regional security and create opportunities for operational cooperation.

In addition to the consideration of several bills in the Diet, the “5 Principles” of the International Peace Cooperation Law: 1) Establishment of a cease-fire agreement 2) Acceptance of UN peacekeeping operations by both warring parties 3) Preservation of UN neutrality 4) Guarantee of Japan’s ability to withdraw its troops at its discretion 5) Restriction of SDF equipment to small arms used only for self-defense establishment of research commissions on the constitution in both the Lower and Upper Houses was a groundbreaking development this year. The focus of the debate is on Article IX, which denounces war and the use of force as a sovereign right for resolving international disputes. Consequently, Japan has interpreted its constitution to permit armed forces for self defense, but the SDF cannot participate in combat or supply weapons to its allies in a U.N. sanctioned war. Another important interpretation is that Japan has the right to collective defense (with the U.S.) but is prohibited from exercising that right. Many say that U.S.-Japan relations cannot be based on truly eff e c t i v e military-to-military ties until the right of collective defense is recognized, creating a more reciprocal partnership by requiring Japan to come to the aid of the United States (and vice-versa) if it were attacked.

The discussion of these laws and bills (The Crisis Law (Yuji Hosei), Performance of Police Function Law (PPF Law), International Peace Cooperation Law) and the lifting of the long- time taboo on constitutional debate reflect the public’s increased willingness to debate broader roles and missions for the SDF. The “military allergy” has subsided and Tokyo now appears ready to take on increased responsibility. However, the degree of this

61 The United States and Japan in 2000: Seeking Focus expanded role is unclear among politicians, defense officials, and the public. Hisashi Owada, former Permanent Representative of Japan to the U.N., indicated at a conference at The Center for Strategic and International Studies (CSIS) in February 2000, for example, that the “Japanese psyche is not totally ready for this new role.” The United States must pay attention to this ambiguity. For the Allies to successfully address how these initiatives in Tokyo will fit into the U.S.-Japan partnership, there must be a greater incentive from both sides to increase regular dialogue.

The United States and Japan were pushed to closer levels of cooperation after the August 1998 Taepodong missile launch over Japan, which exposed Japanese civilians to the threat of North Korean missiles. This incident further accelerated the decision in October 1998 to conduct joint research to develop a sea based theater missile defense (TMD) system called the Navy Theater- Wide Defense (NTWD). Despite collaboration and the positive potential of the agreement, TMD is far from a “done deal,” and the implications for the Alliance are uncertain.

In June 1999, Tokyo and Washington decided on specific responsibilities. Japan will develop components that would launch the defensive interceptor missile and the United States will be responsible for the guidance system and overall design. So far, Japan has committed $8 million (¥848 billion) of the 1999 fiscal year budget for research. This latest agreement covers only the design of the necessary equipment and the first three years of study, after which the partners will decide whether to pursue the next steps of testing and finally, acquisition.

Both military and political issues must be resolved before the project can be implemented further. There is a conspicuous lack of operational coordination on missile defense; talks have been

62 Security and Diplomacy limited to research and not yet development or deployment. Such coordination is crucial to the success of TMD because the nature of missile defense strategy requires effective bilateral management to respond quickly to an attack.

Politically, Tokyo and Washington must also agree on how to handle China’s response. Beijing is opposed to missile defense in general, but is most concerned that U.S.-Japan TMD might be extended to Taiwan, which it considers a renegade state. Beijing also asserts that deployments also constitute interference in internal affairs since Taiwan could use the TMD shield to declare independence from China. But recently, Chinese officials have softened their criticism of U.S.-Japan TMD somewhat, while stepping up their attacks on U.S. National Missile Defense (NMD).

TMD presents an opportunity to strengthen and solidify the U.S.-Japan partnership—but it is not clear whether the Allies will collaborate beyond joint research and development. That being said, even the current five to seven year commitment stabilizes the Alliance and reinforces a desire to maintain peace in the Asian region.

In December 1998 Japan announced a $1.4 billion (¥148 billion) plan to launch four reconnaissance satellites by the year 2002. The threat of the August 1998 Taepodong launch, together with a longstanding desire for indigenous surveillance technology prompted Japan’s development of the satellites. Initially, the U.S. reaction was skeptical, but Secretary of Defense Cohen later expressed support for Japan’s plan to develop intelligence- gathering satellites during his July 1999 visit to Japan. In September 1999, the United States and Japan agreed that Japan

63 The United States and Japan in 2000: Seeking Focus would manufacture four satellites but would purchase eleven of the main parts from the United States. Japan is required to share surveillance information with the United States and not sell it to a third party. The project is already underway and the government is publicly recruiting 100 civilians and 200 bureaucrats to coordinate the effort.

Many incidents have recently demonstrated how far behind Japan is in aerospace technology and rocket launching capabilities. Valued at a loss of $340 million, the November 1999 failure of an H-2 rocket was a serious setback. Tokyo decided in December 1999 to terminate the development of the H-2 rocket, and postponed the launch of the next generation H-2A rockets that were supposed to carry Japanese military satellites. The failure of the smaller, experimental M-5 rocket in February 2000 was yet another blow to the program. But with the threat of North Korean long-range missile development, Tokyo is firmly committed to launching its first spy satellites in 2002. American assistance and support is notable, especially given the sensitivity surrounding technology transfer in the past. During the 1980s, joint development of FSX fighter planes drove a wedge in the Alliance when Japan reluctantly agreed to share its expertise with the United States. But this time, it is Japan that is in need of U.S. assistance, and American willingness to transfer technology reflects strength in the partnership.

In September 1996, the United Nations adopted the Comprehensive Nuclear Test Ban Treaty (CTBT), calling for a ban on underground nuclear testing. It has been signed by 154 nations but must be ratified by the governments of the 44 named

64 Security and Diplomacy nuclear capable states. The remaining 15 states that have yet to endorse the agreement are awaiting ratification by the United States and China.

The U.S. Senate rejected the CTBT on October 13, 1999 by a vote of 51-48 that fell short of the 2/3 ratification requirement. Voting was overwhelmingly partisan, with Republican opponents of the treaty insisting that U.S. weapons would become unreliable without testing. But supporters of CTBT fear that U.S. failure to ratify will encourage emerging nuclear powers such as North Korea, India, and Pakistan to conduct more nuclear tests.

As the only country to ever suffer a nuclear attack, Japan is a vocal advocate of the CTBT and was one of the first countries to ratify it. In October 1999, Japan chaired a ministerial meeting convened by the U.N. for “Facilitating the Entry into Force of the CTBT.” Parliamentary Vice Minister of Foreign Affairs Ichita Yamamoto visited Washington in November 1999 to express Japan’s concern, and ironically lectured his former Georgetown professor Madeline Albright on arms control. European allies accused the United States of hypocrisy since it was the first country to sign the agreement. The rejection of CTBT was a major foreign policy defeat for the Clinton administration because it appeared to show a lack of American interest in global issues. As the United Nations members debated the review of the indefinite extension of the Non-Proliferation Treaty (NPT) in early May 2000, the Japanese delegation was pushed to call for more stringent disarmament policies partly because of the CTBT rejection. The United States and Japan have generally coordinated non-proliferation policies well in the past, but new pressures since the CTBT vote convinced the Department of State and the Ministry of Foreign Affairs to establish a bilateral commission on arms control and the NPT to prevent any further divergence.

65 The United States and Japan in 2000: Seeking Focus

President Clinton is scheduled to decide by the fall of 2000 whether the United States will commit to the first stage of a limited National Missile Defense (NMD) system. The $12.7 million project would continue over the next six to ten years. It consists of about 100 interceptor missiles that would be guided by satellite and deployed to intercept limited missile threats headed toward the United States. Missile testing related to NMD development has yielded mixed results. The first test in October 1999 failed to meet expectations, and the second test in January 2000 failed due to a plumbing leak. A third test is scheduled tentatively for May 2000.

Some arms control advocates consider ballistic missile defense systems to be destabilizing because of their potential to encourage the proliferation of offensive missiles. The development of this defense system has aroused serious concerns in Europe, China, and Russia—criticism that indirectly affects U.S.-Japan cooperation on the similar TMD project. In the immediate aftermath of the 1998 Taepodong launch, there was strong enthusiasm in Japan for joint development. But the controversy surrounding NMD and easing of tensions on the Korean peninsula have precipitated ambiguous views on TMD in Tokyo.

Political uncertainties in Russia, China’s increasing military capabilities, American discussions of NMD, and the rejection of the CTBT in the Senate generated global apprehension that the non-proliferation movement has slowed down since the 1995 indefinite extension of the Non-Proliferation Treaty (NPT). This concern prompted the first review of the NPT since 1995 that began at the United Nations in April 2000. Both the United States and Japan attracted that organization’s attention this year.

66 Security and Diplomacy

In December 1999, the U.S. Congress finally agreed to pay $926 million of the approximately $1.7 billion in United Nations dues it owes. This legislation prevented the United States from losing its vote in the U.N.’s general assembly. However, there were 22 unilateral “strings attached” to the payment of arrears that include the U.N. waiver of $600 million of the contested arrears and a request that the U.S. peacekeeping budget be reduced from 31% to 25%, and the regular budget from 25% to 22% . Some in Tokyo view this as another sign of unilateralism in Washington. With unprecedented economic growth and projected budget surpluses, it is difficult for Japan to understand why the United States can no longer afford to pay its current U.N. commitments. The demands attached to the payment of arrears fueled global criticism of the United States. Meanwhile, Japan continued to lobby unsuccessfully for a permanent seat on the U.N. Security Council. The Allies seem to have different opinions of the United Nations, but U.S. Ambassador to the U.N. Richard Holbrooke made an attempt at mutual understanding when he visited Japan in March 2000 to exchange views on U.N. reform.

In 1999 –2000, Japan made concerted efforts to take a more active role in its own security matters, and the United States displayed a willingness to cooperate. Although the struggle to provide a legal framework for Japanese defense policy continues, Tokyo moved ahead with TMD and indigenous satellite development. On the other hand, a series of events in the United States prompted international criticism of a perceived unilateralist trend that could put a damper on recent efforts to solidify the U.S.-Japan alliance.

67 The United States and Japan in 2000: Seeking Focus

The United States, Japan, and South Korea all engaged North Korea in 1999-2000, and tensions on the peninsula have decreased since the August 1998 Taepodong missile launch over Japan. Although Tokyo insisted the missile was a medium-range missile, Washington initially concluded it was a failed attempt to put a satellite in space. These differing reactions initially undermined U.S.-Japan attempts to deal with North Korea last year, but in 1999–2000 there were many joint diplomatic initiatives that increased dialogue with Pyongyang.

Former Secretary of Defense William Perry was appointed to lead a review of U.S. policy toward North Korea in November 1998. Since the collapse of the Soviet Union in 1991, and the formation of official ties between China and South Korea in 1992, North Korea has become a pariah state. The Taepodong launch over Japan and the North Korean spy boats incident in March 1998 brought more attention to the North’s nuclear weapons development. These events increased U.S. Congressional and Japanese criticism of North Korea and led to the “Perry Review” of policy and, eventually, to a meeting in May 1999 between Perry and DPRK Premier Kim Yong-nam. As the highest level of intergovernmental talks since the Korean War, the meeting kicked off a series of formal bilateral exchanges with the United States.

In April 1999, the United States, Japan, and South Korea institutionalized a trilateral approach to coordinate policy toward North Korea with quarterly meetings of a Trilateral Coordination Oversight Group (TCOG). This process of close consultation at a sub-cabinet level is important because the three states must coordinate their overlapping but differing priorities toward Pyongyang. The United States is mainly concerned with nuclear and missile reduction, while South Korea and Japan must consider other factors to gain the necessary domestic mandate to continue

68 Security and Diplomacy their dialogue with North Korea. South Korea focuses on avoiding confrontation that would disrupt its “Sunshine Policy”—opening up relations with North Korea through business and cultural ties—and Japan must address North Korean abductions of eight to ten Japanese nationals in the 1970s and 1980s.

Concerns about perceived U.S. unilateralism made Japan and South Korea eager to create the public appearance of influencing the process. Tokyo and Seoul were concerned that Washington and Pyongyang might reach decisions without them. Sensitive to their anxiety, Perry stopped over in Tokyo before and Seoul after his visit to Pyongyang. In Pyongyang, he focused primarily on U.S. policy but delivered messages from both President Kim and Prime Minister Obuchi in his meeting with Vice Premier Kim Yong-Nam. In September 1999, the unclassified conclusions of Perry’s policy review revealed North Korean nuclear development concerns as the highest U.S. priority and recommended continued support of the Agreed Framework of 1994.

Former Secretary of Defense William Perry discusses U.S. policy toward North Korea. (March 1999. Photo Courtesy of Mainichi Shimbun.) The Agreed Framework (1994)

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In exchange for North Korean agreement to freeze nuclear activities, the United States, Japan, and South Korea will provide financing for two Light Water reactors (LWR) and heavy fuel oil (HFO) to meet North Korea’s energy needs until the first of the reactors is constructed. This $4.6 billion project is funded through the Korean Peninsula Energy Development Organization (KEDO) with South Korea shouldering 70% and Japan and the international community the rest. The United States is the primary source of HFO to North Korea.

Improvements in North-South Korean relations slowed when vice-ministerial level talks broke down in Beijing in July 1999. These meetings collapsed when Pyongyang demanded an apology for a naval conflict south of the North Limit Line (NLL) (the sea area west of the Demilitarized Zone (DMZ)) in June 1999. This put pressure on the United States and Japan to step up their bilateral efforts towards Pyongyang. But even with the excitement surrounding President Kim’s April 2000 announcement of an unprecedented meeting scheduled for June between the leaders of the two countries since their division at the end of World War II, there continues to be tension between the North and South.

The Allies’ concern that North Korea would attempt another missile test in July 1999 prompted a strong display of trilateral cooperation. Later that summer President Kim visited the United States, Secretary Cohen visited Seoul, TCOG met twice, and Clinton, Obuchi, and Kim met on the sidelines of the Asia Pacific Economic Cooperation (APEC) summit in Auckland to declare that they would not tolerate another missile test.

North Korea’s agreement to suspend its missile program during the bilateral Berlin talks with the United States in September 1999 was a major diplomatic breakthrough. Pyongyang followed up with an informal moratorium on missile testing in return for Was h i n g t o n ’ s commitment to economic assistance. Later that month, President Clinton formally announced the easing of

70 Security and Diplomacy economic sanctions, and Japan indicated it would resume chartered flights to North Korea in an effort to fall in line with U.S. policy. At the same time, senior U.S. defense officials told Congress that Pyongyang had developed 100 NODONG missiles capable of hitting parts of China, and that the North Korean People’s Ar m y expanded training exercises this past year. These developments reinforced the notion that the stabilization process on the Korean peninsula will be gradual, despite some small victories.

With the U.S. success at Berlin and South Korea pushing ahead with its “Sunshine Policy”, Japan was falling behind in diplomacy toward North Korea. In December 1999, the Murayama Mission secured a commitment from Pyongyang to resume normalization talks. Former Prime Minister Tomiichi Murayama led a multi- party delegation to North Korea, and the three-day visit resulted in meetings between Japanese and North Korean Red Cross officials in Beijing later that month. But bilateral talks in Pyongyang ended inconclusively in April 2000. What was different about attempts at normalization this time around? The North Korean missile threat and Washington’s progress with Pyongyang at Berlin have increased Tokyo’s motivation. Japan’s resumption of food aid through the U.N. World Food program in March 2000 shows tangible efforts to engage its unstable neighbor. Diet approval for reinstating Japan’s $1 billion contribution to the Korean Peninsula Energy Development Organization (KEDO), suspended after the 1998 Taepodong launch, is another indication of goodwill from Tokyo to Pyongyang. In December 1999, KEDO and the primary South Korean contractor, KEPCO, concluded a contract to begin construction, but the process is already behind schedule. Moving forward with light water reactor (LWR) construction is key to the process of stabilizing relations with North Korea.

Famine and economic mismanagement in North Korea are forcing Pyongyang to deal with the international community—as

71 The United States and Japan in 2000: Who Cares evidenced by developments such as the creation of diplomatic ties with Italy in January 2000, and working-level discussions with France and Canada in February and March 2000. Improved external relations may fuel Pyongyang’s efforts to take advantage of the overlapping but differing priorities of Washington, Tokyo, and Seoul. During his testimony before Congress in October 1999, Perry emphasized the importance of coordination when he said: “no policy toward North Korea will succeed without the support of our allies, the Republic of Korea and Japan.” Closer cooperation between the United States and Japan is more important now than ever to the maintenance of stability in the East Asian region.

On March 18, 2000, Japanese education minister Hirofumi Nakasone arrived in Seoul to meet his counterpart, Moon Yon g - l i n , and discuss differences over how Japanese textbooks depict Tok y o ’ s military expansion into Asia during World War II. Th i s was the first such visit since 1965 and symbolized a remarkable improvement in Japan’s relations with South Korea. The security threat from North Korea, tension in the Taiwan Straits, and increasing economic interdependence pushed Tokyo and Seoul closer together, and there were steps toward a broader and deeper dialogue that included the first combined military exercises (search and rescue operations – August 1999) and the establishment of “hotlines” between the respective militaries and foreign ministries.

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Japan and South Korea conduct search and rescue naval exercise. (August 1999. Photo courtesy of Mainichi Shimbun)

A summit between former Prime Minister Obuchi and Prime Minister Kim Jong-pil in October 1999 reinforced strong ties on the security and economic fronts. They reiterated their commitment to work closely with the United States to strengthen relations with North Korea and emphasized the success of the trilateral approach. Following Seoul’s lifting of the “1978 diversification program” that banned the importation of 258 Japanese goods, Obuchi and Kim discussed a potential free trade zone. The leaders also agreed on the elimination of double taxation of capital gains in a move to increase mutual investment, and expressed joint protest against Washington’s anti-dumping position, the charge of unfair pricing that the United States often uses against other countries.

Despite continued good relations between Tokyo and Seoul, the sustainability of these deepened ties is tenuous because it has been largely a top-down process led by the President of South Korea, Kim Dae Jung. Amidst criticisms of his “Sunshine Policy” and what some in Seoul perceive as an overly conciliatory attitude toward Japan, the April 2000 general elections reflected

73 The United States and Japan in 2000: Seeking Focus the limitations of his political base and may have negative implications for relations with Tokyo. Without President Kim to provide initiative toward Japan, there is no guarantee of cooperation with South Korea.

The Jiang-Obuchi Summit in July 1999 was more significant for what was not addressed than the cooperation that the two leaders emphasized. They conspicuously avoided major issues such as TMD, the U.S.-Japan Guidelines, and Taiwan. Chinese President Jiang Zemin did not use the “history card” to pressure Japan and only touched upon it before the conclusion of the meeting. The highlight of the summit was a bilateral WTO accession agreement, and Obuchi expressed his desire that this would expedite U.S.-China negotiations on the same front.

Strategic issues were not addressed at this year’s summit, but this was deceiving given Beijing’s sensitivity to Japan’s security posture. China felt threatened by Japan’s cooperation with the United States, and the TMD agreement last summer increased fears of joint American-Japanese plans for regional hegemony. Although the North Korean threat was the impetus for Japan’s involvement in TMD, Beijing insisted that the goal of the missile defense system was to contain China. Beijing has since realized that its harsh criticism of TMD may have actually increased Tokyo’s fear of a military threat from China, and thus indirectly pushed Tokyo toward finally agreeing to TMD. Beijing has subsequently toned down its rhetorical opposition to the agreement. However, it will continue to perceive TMD as one aspect of Japan’s ultimate remilitarization plan that could also include: Tokyo’s indigenous development of reconnaissance

74 Security and Diplomacy satellites, debate in the Diet over possible revision of Article IX, and passage of the U.S.-Japan Defense Guidelines.

The passage of the U.S.-Japan Defense Guidelines prompted two concerns in Beijing: first, that the guidelines and their accompanying legislation might lead to Japanese military expansion in the region; and second, that of their vague operational scope might lead to conflict over Taiwan. Japan parallels the American “One-China” policy, but Tokyo Governor Shintaro Ishihara’s official visit to Taiwan in November 1999 to establish a sister-city relationship with Taipei undermined Japan’s intentionally ambiguous policy toward Taiwan. Beijing, threatened by the improvement of relations between Tokyo and Taipei, canceled a ceremony to celebrate the twentieth anniversary of friendship with Tokyo. The passage of the Taiwan Security Enhancement Act in the U.S. Congress also put Japan in an awkward position with respect to China.

Another continual conflict in Sino-Japanese relations is Japan’s historical legacy of World War II. South Korea and China often use the memory of wartime atrocities to drive hard bargains and receive economic and security concessions from Japan. Since the improvement of relations with Seoul on this issue, Obuchi made it clear that Tokyo wanted to move forward with Beijing as well. Ho w e v e r , a January 2000 symposium titled, “The Verification of the Rape of Nanking: The Biggest Lie of the 20th Century,” sponsored by the government-funded Osaka International Peace Ce n t e r , hit a nerve in Beijing. But given the traditionally explosive potential of the issue, the response in China was relatively muted. There was some protest from Beijing, but Tokyo responded that constitutional freedoms allowed for these types of events.

On August 2, 1999, China successfully tested the DF-31 Intercontinental Ballistic Missile (ICBM), a weapon capable of

75 The United States and Japan in 2000: Seeking Focus reaching North America. When Beijing defended its right to test as a sovereign right, Tokyo saw parallels to Pyongyang’s justification of the 1998 Taepodong launch, and grew concerned that it might provide a mandate for another North Korean test. Later that month, Beijing and Tokyo agreed on the resumption of bilateral security dialogue for the first time in two years. This expanded dialogue between defense and diplomatic officials began in October 1999 and addressed issues such as China’s military modernization and transparency of defense policy. Both Tokyo and Beijing recognize the value of these exchanges and are expected to continue them in the future. The April 2000 visit of the first Chinese high-level military official to Japan since 1986 demonstrated a commitment to maintain security dialogue.

The biggest blow to U.S.-China relations was the North At l a n t i c Treaty Orga n i z a t i o n ’ s (NATO) unintentional bombing of the Chinese embassy in Belgrade. Beijing responded by suspending military ties, and arms control and human rights talks with the United States. In the following months, a U.S. delegation formally presented conclusions from an extensive investigation, but Beijing rejected explanations of the mistaken bombing. December 1999 negotiations concluded a deal in which the United States awarded China $28 million for damages to the embassy in Yugoslavia, and China offered $2.87 million for damages to the American embassy in Beijing during rioting in the aftermath of the bombing. Th e incident marked an all time low in U.S.-China relations, and fueled feelings of mistrust between the two countries.

The Congressional release of the declassified results of an investigation of Chinese espionage in May 1999 further strained tense U.S.-China relations. The “Cox Report,” named after

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Republican Christopher Cox (R-CA), concluded that Chinese thefts of classified information from National Laboratories began in the 1970s and would likely continue into the present. Th i s caused a severe backlash against the Clinton Ad m i n i s t r a t i o n ’ s policy of “constructive engagement,” and led to Republican presidential candidate George W. Bush’s suggestion that the United States view China as a “strategic competitor” rather than a “strategic partner.”

Another major conflict focused on the status of Taiwan. Because Beijing considers Taiwan a renegade province, tension in the Straits intensified when Tai w a n ’ s then President Lee Teng Hui declared something close to defacto sovereignty with his “state-to- state” relations remark in July 1999. President Clinton immediately reaffirmed the “One China Policy” (that Beijing is the sole legitimate government of China), but Beijing expected more pressure from Washington on Taipei to recant its assertions of independence. The February 1, 2000 passage of the Tai w a n Security Enhancement Act in the House of Representatives contributed to the downward trend in U.S.-China relations. Beijing viewed this development as an obstruction of its goal to reunify China and warned in a White Paper later that month that it would not rule out the use of force in attempts to achieve this objective. Tensions in the Taiwan Straits heated up even more when Premier Zhu Rongji cautioned the day before the Taiwanese Presidential election that “blood would be shed” if the new President made moves toward independence. On March 18, 2000, the historically pro-independence Democratic Progressive Party’s (DPP) Chen Shui-bian won by 2.5% in a close three-way race, but he promised not to move the island toward independence. The rhetoric will continue, but these verbal attacks do not translate into an immediate departure from the status quo: China’s outspoken intimidation tactics to reunify “One China” in the absence of military aggression.

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On the economic front, U.S.-China relations went somewhat smoothly. Congress granted China Normal Trade Relations status in July 1999, and Washington and Beijing concluded the long awaited bilateral WTO agreement in November 1999. China will most likely receive Permanent Normal Trade Relations (PNTR) status, which would scrap the yearly Congressional trade review and allow the United States to benefit from China’s accession to the WTO.

U.S. National Missile Defense (NMD) development efforts require a renegotiation of the 1972 ABM Treaty with Russia since the agreement bans missile defense systems. Because this military strategy involves intercepting airborne missile threats, Moscow believes it encourages a stockpiling of nuclear weapons and proliferation of more sophisticated missiles. U.S. objectives for NMD are to avoid arms races with Russia and China while defending itself against rogue state threats. But Russia remains firm on the 1972 treaty and cooperated with China to seek support from the United Nations against NMD. Despite the much delayed April 2000 ratifications of START II in the Duma that will cut Russia’s nuclear arsenal in half by 2007, as well as the CTBT, prospects for further arms control cooperation are dim since this may prompt Moscow to further harden its stance on sticking to the ABM treaty.

Russian intervention in Chechnya attracted international attention when Moscow began a military campaign in October 1999 that displaced 250,000 Chechens. Although Moscow

78 Security and Diplomacy claimed that terrorist attacks by rebels from the breakaway republic justified intervention, Washington was critical of its heavy-handed tactics. Russia’s “leave or die” ultimatum to the citizens of Chechen’s capital Grozny before the December 25, 1999 invasion sparked further outrage in the United States. The International Monetary Fund (IMF) canceled the next $640 million tranche of aid to the troubled Russian economy, citing a lack of structural reform, but it clearly reflected international disapproval of the Chechen situation.

In the quiet period between NATO’s actions in Kosovo and the Russian military campaign in Chechnya, a money laundering scandal emerged in Russia. This alleged transfer of billions of dollars from Russia to the Bank of New York involved the Russian Central Bank, principal banks, Russian mobsters, and even the Yeltsin family. Although Moscow quickly denounced the allegations, Americans working at the Bank of New York were arrested on embezzling charges related to the scandal. With the military campaign in Chechnya taking center stage, the issue has been relatively low profile but may emerge in the future.

At the “no necktie” Krasnoyarsk Summit in 1997, former President Boris Yeltsin and former Prime Minister Ryutaro Hashimoto agreed to resolve the dispute over the Northern Territories by the end of the year 2000. Japan lays claims to these islands that the Soviet Union occupied at the close of World War II, and this territorial conflict prevents the countries from signing a peace treaty to formally end the war between them. Japan experienced only a small victory when Russia agreed in September 1999 to allow visits to the Northern Territories by former residents and spouses. Although Tokyo continuously prodded Moscow to commit to a date for then President Yeltsin to visit Japan, he canceled scheduled trips three times. His

79 The United States and Japan in 2000: Seeking Focus unexpected resignation in December 1999 provided even further uncertainty over the territorial dispute. Although Prime Minister Yoshiro Mori visited Russia in April 2000, domestic political transition in both countries suggest that they will not meet the December 31, 2000 deadline.

Tokyo’s desire to conclude a peace treaty before the end of 2000 prompted economic and political support of Moscow this past year. In November 1999 Japan became the first country to resume lending to Russia (a $375 million loan) since the International Monetary Fund (IMF) suspended credit due to allegations of money laundering. Tokyo also stood apart from other G-8 nations on the political front when the Ministry of Foreign Affairs (MOFA) announced that Chechnya was an internal conflict. Although Japan did not join American criticism of Russia, it provided $1 million in humanitarian aid for Chechen refugees in the North Caucus Region.

Port calls and personnel exchanges showed some progress on the security front. Japanese officials visited naval bases in Vladivostok in August 1999, a once closed Russian port, for the first time. A month later, the first Russian naval vessel visited Yokosuka, Japan’s fleet headquarters. During talks between Japanese Foreign Minister Yohei Kono and his Russian counterpart Igor Ivanov in February 2000, Japan pledged $120 million to assist Russia in dismantling its nuclear submarines and $20 million to finance a science research center in Moscow.

Bilateral relations with Russia diverged, with U.S.-Russian relations at their lowest point in a decade, and Russo-Japanese relations enjoying some progress. Despite failure to move forward with the territorial issue, Tokyo made many attempts to re-energi z e relations with Moscow. Yeltsin’s resignation in December 1999 stunned both the United States and Japan, and Tokyo is concerned that current President Vladimir Putin will give priority to mending

80 Security and Diplomacy relations with the United States instead of Japan, stabilizing the situation in Chechnya, and rebuilding its battered economy. But Putin’s emphasis on strict order and a centralized state troubles some in the United States who are concerned with political reform. This divergence in relations with Russia could result in complications for the Alliance if Tokyo continues to reach out to Moscow while Washington’s relations with Moscow continue to deteriorate.

The United States and Japan could not have managed relations with North Korea without the Alliance, but there were divergent pressures on their respective foreign policies toward Russia and China that suggest a need for a stronger dialogue between Washington and Tokyo on regional strategic issues. The developments on the Korea peninsula and in Taiwan-China relations that had the potential to threaten a mutual interest in regional stability highlighted the necessity for close consultation and policy coordination between Japan and the United States. Japan succeeded in making some independent initiatives toward Russia and China, a trend that spilled over into the economic sphere. It appears that Japan seeks a greater leadership role in Asia that continues to be defined by financial contributions to its neighbors.

“A Japanese as leader of the International Monetary Fund (IMF)?” Former Ministry of Finance official Eisuke Sakakibara stood as a formal (and the first Japanese) candidate to succeed Michel Camdessus, who vacated his position in February 2000. Although this top seat is traditionally reserved for a European,

81 The United States and Japan in 2000: Who Cares Sakakibara, supported by the Japanese government and some Asian neighbors, was determined to exert Japan’s leadership in one of the most influential multilateral organizations. Sakakibara was not selected, but the nomination was symbolic in revealing Japan’s aspirations for a larger role in international financial policymaking.

In 1999-2000, former Prime Minister Keizo Obuchi enthusiastically explored stronger diplomatic relationships within Asia while struggling with the prolonged economic recession. With the July 2000 Okinawa Summit in mind, Obuchi designed a diplomatic agenda to display Japan’s commitment to a greater leadership role in the international community. He also pushed for a move beyond what was once ridiculed as Japan’s “yen diplomacy” based on high levels of official development assistance (ODA). “It is so regretful that Obuchi could not chair the summit after all his endeavors,” commented the Finance Minister Kiichi Miyazawa to the media when Obuchi was suddenly hospitalized in the beginning of April. Nevertheless, newly appointed Prime Minister Yoshiro Mori noted that Japan would proceed with Obuchi’s mission. That will prove to be an arduous task.

The June 1999 Cologne Summit focused mainly on Kosovo. As a top priority for the United States, Kosovo overshadowed the rest of the summit agenda, but the G-8 then turned its attention to Japan. The question was simple: “Is there any sign of recovery?” The Japanese economy, often associated with terms such as “weak”, “old” and “stagnant,” had not shown any signs of demand-led recovery for nearly a decade. Japan stressed its fiscal stimulus program to tackle the growing unemployment rate, but other G-8 members remained skeptical about the prospects for

82 Security and Diplomacy short-term growth.

The “international financial architecture” discussion was another American priority for the summit. Behind Bill Clinton was a U.S. Congress that demanded reductions in public spending, reflected in initiatives to reduce the responsibilities of the IMF to short-term capital lending and promoting the idea of “private-sector involvement in crisis prevention.” On the contrary, Japan, as the largest ODA creditor, ended up shouldering more financial responsibilities in the area of debt relief of the heavily indebted poor countries (HIPC). There were growing concerns, particularly among non-governmental organizations (NGO), that the G-8 countries should create an environment in which the HIPC could demonstrate their commitment to reform and poverty alleviation and not be crippled by an accumulated debt burden. The G-8 agreed to the Cologne Debt Initiative, which would reduce ODA debt by $50 billion (¥5.3 trillion) with the condition that poverty reduction efforts would be initiated with multilateral institutions.

“A one percent growth target is not enough!” Seven months later in January 2000, at the G-7 finance minister and central bank governors meeting in Tokyo, Treasury Secretary Lawrence Summers met Obuchi and urged this more ambitious policy goal from Japan. The United States was not the only one to criticize Japan during the meeting; Canada and Europe also expressed disappointment at the persistent weakness of the Japanese economy. This time, Japan stressed its implementation of a second supplementary budget for fiscal year 1999 and announced a fiscal year 2000 budget proposal with another stimulus package. Japan wanted to reach agreement on the weakening of the yen, but no one was willing to aid Japanese exporters by intervening in global currency markets and enhancing the competitiveness of Japanese firms through cheaper export prices. Japan was not able to manufacture its own “Plaza Accord” and simply continued its own

83 The United States and Japan in 2000: Seeking Focus market interventions to weaken the yen.

Japan moved quickly to promote China’s entry to the World Trade Organization (WTO), and former Prime Minister Keizo Obuchi reached a bilateral accession agreement with the Chinese during his visit to China in July 1999. The United States followed four months later with its own bilateral agreement that was more comprehensive. The U.S.-China agreement is now subject to the approval of Congress, where a debate continues over whether the United States should provide China with permanent normal trade relations (PNTR) status. With the realistic possibility of China’s accession, the rest of the WTO’s 135 members await the broad array of opportunities opening to them and will benefit from enforcement of the WTO’s own codes and from China’s specific concessions. Thousands of people turned out to protest and delay the opening of the WTO Ministerial held in Seattle at the end of November 1999. Insisting that the current global trading system destroys jobs and harms the environment, the head of one NGO group was quoted as saying, “ We are going to talk about what’s wrong with the WTO: the fact that they put corporate greed above human rights!” The four-day meeting attended by delegates from more than 100 countries was scheduled to launch the next round of multilateral trade negotiations in the year 2000 with the aim of further liberalizing global trade. No agreement was reached, and the United States, as the host nation, came under a storm of criticism from both developing and industrialized countries regarding its management of the meeting. United States Trade Representative Charlene Barshefsky was driven into a tight spot as the chairperson, perhaps recalling the smoother passage of the North American Free Trade (NAFTA) agreement, which lowered barriers between the United States, Canada and Mexico, that was reached despite concerns about labor and environmental issues.

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It appeared that every single U.S. proposal on agriculture, antidumping regulations, and trade and labor issues was rejected at the negotiating table. Japan and the European Union (EU) stressed the importance of the multi-functionality of agriculture. Japan challenged the United States and called for W TO dumping rules to be rewritten and enforced. The fact that the demand for increased hot-rolled steel sheet exports from Japan came directly from U.S. steel-makers prompted Japan to advocate the elimination of “unfair” antidumping allegations by the United States. As for trade and labor, President Clinton infuriated many developing nations with his comment that core labor standards “ought to be part of every trade agreement, and ultimately I would favor a system in which sanctions would come for violating any provisions of the trade agreement.” Developing countries reacted bitterly, and contended that “the United States plans to impose new protectionist measures in the guise of labor standards that were actually designed to keep the poorer counties p o o r.” Clinton’s comment also fueled resentment among other participants who interpreted it as a strategy to give his party the edge in the upcoming presidential election by supporting labor unions and certain industries that are behind the Democratic P a r t y.

Japan cooperated significantly with the EU during the W TO talks, working together to lay out rules on antidumping, labor and other issues in addition to agriculture. European Tr a d e Commissioner Pascal Lamy conveyed the European stance during his visit to Japan in November 2000 prior to the W TO conference. The EU and Japan followed up in discussions on January 11, 2000 and reaffirmed their commitment to a comprehensive agenda to include not only talks on agriculture and services, which WTO members are committed to, but also the establishment of additional rules for investment, competition and

85 The United States and Japan in 2000: Seeking Focus trade facilitation.

The breakup of the Seattle meeting revealed a fundamental difficulty in creating a rule-based trade environment acceptable to every member country. It was a setback for globalization and exposed differing economic priorities between the United States and Japan. The Seattle Ministerial also showed Japan-EU collaboration against the United States. This may further strengthen existing Japan-EU ties under its agreement entitled, “Global Partnership in the 21st Century,” and place additional strains on a traditionally tense bilateral economic relationship between the United States and Japan. However, in 1999-2000, “traditional” U.S.-Japan disputes over Japan’s trade surplus were unusually quiet, although in 1999, 57% of the total Japanese trade surplus was attributed to the surplus with the United States.

Political undertones dominated the annual summit of the Asia Pacific Economic Cooperation (APEC) forum held in Auckland, New Zealand, in September 1999, since the sideline agenda gained more international attention than the substance of the conference. While this economic summit was expected to tackle issues such as initiatives for recovery in crisis-hit Asian countries and the new WTO negotiation round, the meeting was more memorable as President Clinton’s political stage: discussions of East Timor; a summit with Jiang Zemin over China’s WT O bid and rising tension with Taiwan; and the U.S.-Japan-South Korea trilateral summit over North Korea’s missile threat. Th e politicization of APEC raises fundamental questions about its value as a regional forum. Japan and other East Asian countries discussed moves toward closer integration, including a potential regional free trade zone and an East Asian security forum that would aim to manage and

86 Security and Diplomacy resolve disputes within the region. In November 1999, the Association of Southeast Asian Nations (ASEAN) and Japan, China and South Korea held an informal summit conference in Manila to target tariff reductions of 0 to 5 percent for up to 90 percent of the goods traded between them. These “ASEAN-plus- three” countries are attempting to create a largely free market of 500 million people with a combined economic output of $700 billion. There is a growing mood of self-confidence in East Asia as the region recovered faster than expected from the economic slowdown caused by the 1997 financial crisis. In addition, Japan pledged $500 million to foster human resource development that would support the growth of ASEAN countries in addition to the $30 billion already pledged under the Miyazawa Initiatives. It remains to be seen whether these idealistic goals will be implemented in the near future.

Japan’s growing determination to take a leadership role in Asia was also reflected by former Prime Minister Obuchi’s visits to

Cambodia, Laos and Thailand in the beginning of this year. Obuchi used this trip to collect views from Asia and allow these countries’ voices to be represented at the G-8 Summit. Most noteworthy was Thai Prime Minister Chuan’s response, who

87 The United States and Japan in 2000: Seeking Focus stressed the importance of reflecting the developing countries’ stances in policy coordination among multilateral agencies such as the IMF and WTO. During his visit, Obuchi committed to Japanese assistance in administrative, financial and economic reforms in Cambodia and Laos, assuming their greater participation in the international community.

Asia remains interested in establishing a regional fund to protect its economies from currency speculation, widely believed to have been the chief cause of the region’s recent economic turmoil. The idea is controversial and was opposed by Washington and the IMF, forcing Tokyo to shelve its “Asian Monetary Fund” proposal of 1997. Despite this setback, finance and central bank officials from the ASEAN-plus-three countries met in the capital of Brunei in March 2000 and agreed to consider a fund to ensure quick disbursement in times of crisis. At the same time, Japan continues to have a strong interest in increasing yen-denominated transactions. The United States, however, remains skeptical of the “internationalization of the yen” due to Japan’s relatively uncompetitive financial sector, and because Asian countries are likely to continue to hold the dollar as a major reserve currency. Tokyo believes yen promotion would reduce the effects of dollar- yen volatility, thereby stabilizing the Asian regional economies. As part of Japan’s effort to mitigate the current excess dependency on the dollar in Asia, Finance Minister Kiichi Miyazawa has been suggesting the introduction of currency baskets that would contain more yen.

Japan has drawn an explicit linkage between the economic development of neighboring nations and Japan’s security, thus explaining its emphasis on economic cooperation within the Asia- Pacific. Despite Obuchi’s attempt to move beyond “yen diplomacy,” Japan still extends substantial financial support through grants, loans, and technical assistance. Indeed, despite

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Japan’s persistent recession, budget allocations for ODA have remained almost constant. The government has proposed ¥1.9 trillion ($18 billion) of ODA to be allocated in the fiscal year 2000 budget. This contrasts with the attitude of the U.S. Congress that public spending on aid should be reduced.

Despite Japan’s growing involvement in Asian affairs, its leadership has yet to emerge on a larger scale, particularly in the case of international crises. If Japan is to shed its reputation as a mere purveyor of funds, it must demonstrate diplomatic initiative in other areas.

Hostilities between Kosovo’s ethnic Albanian majority and Yugoslavian authorities prompted the North Atlantic Tr e a t y O rg a n i z a t i o n ’s (NATO) attack of Serbia in March 1999. T h e N ATO bombing campaign of Yugoslavia that began in May 1999 ended after 11 weeks with the signing of a peace treaty by Serbia and NATO, and the U.N. Security Council approval of the Kosovo Peace Plan. Russia and China observed unilateralist tendencies in the NATO bombings since the United States did not attempt to consult the U.N. before intervening. Japan expressed its “understanding” but refrained from expressing full support of the United States, probably due to its strong belief in multilateral institutions. Tokyo did not participate in the peacekeeping operations but sent approximately 50 people through non- governmental organizations (NGOs) to provide administrative and medical support. Japan also donated supplies and pledged $237 billion in humanitarian and reconstructive assistance through the U.N. Mission in Kosovo (UNMIK).

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East Timor collapsed into chaos in September 1999 following a referendum that showed 78.5% of its citizens favored independence from Indonesia. Under pressure led by the United States, the Indonesian government finally accepted an international peace keeping force to curb the violence, and the first peacekeepers arrived on September 30, 1999. The situation stabilized in December 1999, despite sporadic clashes between the peacekeepers and anti-independence paramilitary groups.

I r o n i c a l l y, historical and economic ties between Japan and Indonesia paralyzed To k y o ’s policies toward East Ti m o r. As the l a rgest ODA donor to Indonesia, Tokyo was in a position to exert pressure on Jakarta, but it was the United States that finally persuaded the Indonesian government to accept the peacekeeping forces. Tokyo also disagreed with the United States on the e ffectiveness of economic sanctions, insisting that they would further destabilize the region. Japan sent no troops to East Ti m o r, but provided financial support of $200 million for the peacekeeping operation (PKO). Since the Gulf War in 1992 when Tokyo was the target of criticism for its $13 billion contribution, Japanese have been sensitive to the importance of burden sharing beyond just monetary support. Because the first phase of the PKO was under Australian auspices, Japan could not legally participate. But even when it became an international eff o r t , Japanese military support was limited. Although members of the Air Self Defense Force (SDF) assisted refugees in West Ti m o r, the absence of Japanese personnel in the peacekeeping forces was conspicuous. J a p a n ’s limited role in East Timor was criticized internationally and domestically. The dilemma for Tokyo was how to contribute to the effort without violating the constitution, which renounces

90 Security and Diplomacy the use of military force in Article IX, and the 1992 Peacekeeping Support Law that restricts SDF role to logistical support in peacekeeping missions. Japan responded that the situation did not meet its five domestic conditions for sending troops abroad. These legal obstacles brought attention to the need to amend legislation so that Japan can play a more active role in PKO in the future.

There is a sense among many in Washington and Tokyo of lost opportunity in how Japan dealt with the crisis in East Ti m o r. A greater degree of participation would have showed support for the Guidelines and commitment to the multilateralism it strongly advocates. Unlike the situation in Kosovo where the United States was accused of dominating NATO forces, the approach to handling the crisis in East Timor was truly international. It would have also been a chance to practice operational coordination with the United States within the multilateral framework. To k y o ’s limited role contradicted its growing desire for an increased security role and contrasted with bilateral initiative towards its Asian neighbors. The failure of deeper Japanese involvement in East Timor highlights the lack of consensus and need for legal reform in Tokyo.

91 The United States and Japan in 2000: Seeking Focus

Japanese poliemen depart for East Timor. (July 1999, Photo Courtesy of Mainichi Shimbun.)

In 1999–2000, the U.S.-Japan Alliance remained structurally strong, but disputes over host nation support and military bases created an underlying irritant in the relationship. The partners experienced some success in engaging North Korea, but relations with Russia diverged and each country engaged China separately—reflecting the political situations in Tokyo and Washington. Domestic politics in both countries tested the

92 Security and Diplomacy global affairs. Although Japan expressed a desire to accept greater responsibility in maintaining regional security, the lack of military support in Kosovo and East Timor suggested that change will be incremental. This assumption is reinforced by a failure to move beyond yen diplomacy in Southeast Asia. If Japan is to continue to be “the anchor of our strategic stability throughout the Asia Pacific region” as Secretary of Defense William Cohen contends, then Washington and Tokyo must reaffirm the basis of the Alliance to adjust to new domestic and regional dynamics. Given the long record of U.S.-Japan cooperation, there is no doubt that they will do so.

93 94 ver the past year, politics remained a sideshow to the amazing economic growth in America and the prolonged Orecession in Japan. U.S. politics displayed a preoccupation with domestic issues, often focusing less on international affairs. In Japan, the Obuchi administration introduced fiscal stimulus and economic reform packages in an attempt to pull the economy out of recession. However, continued political realignment and differing opinions toward economic and social reform inhibited Japan’s leaders from building the consensus needed to formulate effective policy solutions. Japanese politics remain in a period of transformation—new institutions and processes are slowly being shaped that will engender a higher level of policy expertise in elected government. Although these changes in Japanese political culture are glacial in nature, they will affect ways in which policy is coordinated between U.S. and Japanese off i c i a l s .

Why should we care about A m e r i c a ’s distorted partisan politics and Japan’s transforming political scene? For years, the United States has pushed for the development of a strong party system in Japan—a system with room for competing political views and a strong opposition that forces Japanese politicians to debate the nature of Japan’s economic, security, and political structures. A s Japan finally begins to open up its political decision-making process, the United States must also begin to reevaluate its focus on the bilateral relationship. Japan’s growing pains in the political sphere could generate a reevaluation of the alliance and fundamental shared economic and security interests. Japanese politicians are already questioning A m e r i c a ’s unilateralism and emphasis on defining Asia-related policy around the U.S.

95 The United States and Japan in 2000: Seeking Focus relationship with China. Political leaders in both countries need to pay attention to the changes taking place in order to encourage dialogue that leads toward a mutual understanding of shared interests and goals, rather than turn their backs in frustration over such issues as steel dumping, Host Nation Support (HNS), and World Trade Organization (WTO) negotiations.

The American domestic political environment contrasts starkly with the energy and vitality of the economy. The past year has been marked by the politics of “personal destruction,” bitter partisanship, negativity, and general inaction on many issues. T h e inertia of domestic politics continues to spill over into the international sphere, where the United States still struggles with its perceived unipolar world role. Although its commitments abroad have never been as deep or complex as they are now, the United States has displayed inward looking tendencies as discussed in the previous chapter. Bold congressional initiatives will remain scarce as the country is sucked into the vortex of a presidential election season. Presidential election issues have remained domestic, with few signs of a clear foreign policy d e b a t e .

J a p a n ’s political arena is still recovering from the dissolution of the international Cold War political structure that tied its policies to those of the United States. Japanese political leaders are now exploring new international political and diplomatic roles for Japan in the face of American self-absorption. Scandals over the past few years have diminished the bureaucracy’s power and pushed politicians to the forefront of policymaking. Politicians are now responsible for creating initiatives to engender a new sense of Japanese identity to offset domestic and international criticism of its social, economic, and political systems. Debates over the direction of future policy are also taking place in an environment in which the political ideology of the left has

96 Politics weakened. This shift has facilitated such changes as the passage of the National Flag and Anthem bill (explained below) and approval of the U.S.-Japan Defense Guidelines. This does not signify a resurgence of right-wing militarism but rather a healthy dose of nationalism that has shocked citizens into reassessing J a p a n ’s inner identity and its relations with the United States and the rest of the world. Approval of the “Diet Activation Bill” will make it easier for more policy-savvy politicians to occupy positions of government, bypassing the traditional seniority- based advancement system. The creation of a parliamentary Constitutional Research Committee to debate possible revision of J a p a n ’s famous “Peace Constitution” will also force legislators to openly debate the merits and/or liabilities of the current constitution, especially in relation to controversial issues such as collective defense and Peace Keeping Operations (PKOs) conducted by the United Nations.

Both countries are inward looking, but for different reasons. The United States remains preoccupied with domestic concerns, often neglecting opportunities to further support economic and diplomatic changes around the world. Few groundbreaking initiatives are expected from the legislative and executive branches as election posturing begins. Conversely, Japan’s internal focus reveals a more complex dynamic of unpredictable political transformation. Positive changes are taking place, but they are often lost in a matrix of unstable political realignment and shifting coalition alliances. New leaders and new ideas could e m e rge within a decision-making environment that is more fluid and unpredictable. Officials in both countries need to reevaluate how their respective domestic political environments affect the bilateral relationship.

97 The United States and Japan in 2000: Seeking Focus

In Japanese eyes, the United States displayed inward looking tendencies in terms of foreign policy, deflecting attention from Japan-related issues. Domestic debate over U.N. dues, the CTBT Tr e a t y, and further development of National Missile Defense (NMD), combined with a change in focus toward relations with China, overshadowed the U.S.-Japan bilateral relationship over the past year. The United States seems not to expect much from Japan—there has been little for U.S. policymakers to respond to, other than Japanese requests to review Host Nation Support (HNS), the Shinkampo episode (conflict over toxic emissions from an incinerator plant near the U.S. Atsugi naval base), and J a p a n ’s nomination of Eisuke Sakakibara to head the IMF. Until Japan begins to get its own economic and political house in o r d e r, there is little reason to expect the United States to deviate from its domestic priorities and engage Japan seriously on issues other than defense before the G-8 Summit in July 2000.

Over the past year, President Clinton has moved past his impeachment trial and has attempted to proceed with new ideas and initiatives. A lame-duck president has difficulty promoting new policies, and given Clinton’s soured relationship with the Republican leadership, few executive proposals have been taken seriously on Capitol Hill. President Clinton’s ability to forge meaningful foreign policy was sorely hampered by the impeachment crisis and the partisan nature of Congress. While Clinton does seem to know where he wants to go in terms of foreign affairs, his inability to forge effective bipartisan relationships with Congressional leaders inhibit the introduction of innovative agendas.

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Economic policies toward Japan were a mainstay of Clinton foreign policy in the early 1990s. On the trade side, the first Clinton administration worked hard on negotiations for numerical targets that resulted in burnout for both governments by the 1996 election. Since Clinton’s reelection, the administration has instead focused its criticism of Japan on macroeconomic issues—pushing for banking sector reform, tax-cuts, and other measures meant to spur Japanese domestic demand-led growth. However, significant debate still continues over trade problems such as steel dumping, telecommunications (Nippon Telephone and Telegraph’s [NTT] high access fees), and unfulfilled commitments in insurance agreements. Most of these issues have yet to develop into political problems because the U.S. economy continues to surge. For the time being, it appears that Japan is off the radar screen.

President Clinton delivered his final state of the union address on January 28, 2000. Clinton used the occasion to press for several issues, including tax-relief, handgun legislation, and other social spending. On foreign policy, a responsibility for which he would like to be remembered, President Clinton lobbied Congress to give China Permanent Normal Trade Relations (PNTR) status and reiterated the need for the United States to remain engaged in the world at a time when other countries are questioning America’s resolve. Clinton highlighted the country’s role as mediator in the Middle East and Northern Ireland peace talks, and as a defender of human rights in Kosovo. The President also stressed that the world trend toward globalization was “the central reality of our time,” and called for a new, bipartisan consensus on trade, urging Congress to approve his agreement with China on WTO accession and to ease trade barriers with African and Caribbean nations. In addition to trade, Clinton announced a proposal to offer tax credits to pharmaceutical companies to speed development of vaccines against malaria, tuberculosis, and AIDS in poorer nations.

99 The United States and Japan in 2000: Seeking Focus Conspicuously absent from Clinton’s 2000 speech was any significant reference to Japan, fueling Japanese concerns about American inward-looking tendencies. During last year’s speech, Clinton stressed alleged Japanese steel dumping as a focus of U.S. trade policy for the next year. There are few signs that Japan- related issues will be an executive priority now, especially in a presidential election year.

The bitter partisanship in Congress that developed during the Lewinsky scandal, the relentless Independent Counsel investigation by Kenneth Starr, and the House Republicans’ decision to impeach the President all contributed to a year in which little policy consensus could be reached on Capitol Hill. With the exception of bills concerning banking and financial services laws, issues in education and Y2K liability, the 106th Congress has agreed on few major policy proposals to date. Policies regarding gun and crime control, managed health care, and a minimum wage hike were deferred, while other important bills, such as the nuclear test ban treaty, tax cuts, social security and Medicare reform, and campaign finance reform were rejected.

In what may have been the most significant treaty decision in years, the U.S. Senate rejected the Comprehensive Test Ban Treaty (CTBT) by a 51-48 margin (specifics covered in previous section). Against the exhortations of 62 senators and President Clinton who urged a delay of the treaty vote to prevent its defeat, Senate Majority Leader Trent Lott (R-MS) proceeded, knowing full well the vote would be defeated and therefore publicly humiliate President Clinton. Clinton and the Democratic leadership made several tactical mistakes and underestimated the coalition needed for the treaty’s ratification. The Republican rejection was condemned around the world as evidence of U.S.

100 Politics unilateralism in the face of a major international agreement that had already been signed by 154 nations. Japan is a major supporter of the CTBT Tr e a t y, again reinforcing Japanese perceptions that the United States is not focused on international issues that are in both countries’ i n t e r e s t s .

Congressional action toward China dominated Asia policy over the last year, subsequently pushing Japan policy out of the mainstream. The quarrelsome U.S.-China relationship over human rights, the Taiwan issue, and Chinese W TO entry continue to prevent Congressional consensus on how to relate to China, let alone develop a long-term approach to the U.S.-Japan relationship. Legislative focus on Japan over the past year revolved mostly around issues of steel dumping, telecommunications, and wartime concerns.

Just over a year ago, allegations of Japanese steel dumping were a major focal point of congressional debate. The House of Representatives had voted overwhelmingly in March 1999 to impose quotas on steel imports, which had peaked at $19 billion in 1998. The quota bill sought to impose monthly quotas on steel shipments equal to pre-July 1997 levels. The bill also would have established a system to monitor future imports of steel to better keep track of yearly fluctuations. President Clinton threatened that he would veto the bill even if the Senate approved it, saying quotas would violate W TO agreements. T h e Senate rejected the House bill on June 22, 1999, eff e c t i v e l y killing the steel import legislation. The Senate then introduced the Steel Trade Enforcement Act of 1999 in September, hoping to eliminate market-distorting practices affecting the global steel i n d u s t r y. This bill has yet to be seriously addressed. Now that steel imports have decreased and U.S. steel companies are showing some signs of recovery, the atmosphere of urg e n c y seems to have passed. However, long-term distortions in the

101 The United States and Japan in 2000: Seeking Focus industry still remain, which could be further highlighted if the U.S. economy suffers a downturn.

A problem that will continue to be a focal point of debate leading up to the G-8 Summit in July is the issue of fair access to the Japanese telecommunications market. Washington contends that Japanese governmental regulations heavily favor Nippon Telephone and Telegraph (NTT) regarding telephone and Internet interconnection fees, as well as overall market access. The Japanese government has taken the position that the access fees should be cut by 22.5 percent in the next four years. The U.S. Government, however, has demanded that the fees be slashed by that amount in just two years. While most trade talks regarding this issue have taken place at executive and bureaucratic levels, Congress is beginning to address the issue. On March 20, 2000 Senator Max Baucus (D-MT) introduced a resolution that expressed the “sense of the Senate regarding fair access to Japanese telecommunications facilities and services.” The resolution called for access to telecommunication interconnection at market-based rates, unrestricted access to unbundled elements of the network belonging to NTT, and access to public roads for the installation of facilities. It is expected that this issue will receive more attention over the next few months, with the possibility of stronger legislation being introduced in both houses of Congress.

Other Japan-related policy that did emerge focused on the past. An interesting development in Congress over the past year has been the introduction of bills that address actions by Imperial Japan and advocate redress for forced labor by U.S. soldiers during World War II. This legislation has been spurred by recent developments in Europe (Swiss authorities investigating and awarding “abandoned” assets to Jewish survivors of the Holocaust) and the introduction by Senator Charles Schumer (D-

102 Politics NY) of legislation that would allow World War II-era laborers in Europe to sue companies that profited unjustly under Nazism. Senator Jeff Bingaman (D-NM) introduced a bill in October 1999 that would authorize the payment of a gratuity to certain members of the Armed Forces who performed forced labor in Bataan and Corregidor, or the surviving spouses of such members. Furthermore, a class action lawsuit was filed against the Japanese industrial giants Mitsui Corporation, Mitsubishi Corporation, and Nippon Steel Corporation on behalf of former prisoners of war who were used as forced laborers.

In November 1999, Senator Dianne Feinstein (D-CA) introduced the Japanese Imperial Army Disclosure Act that would require full disclosure of classified records and documents in the possession of the U.S. government regarding chemical and biological experiments carried out by Japan during the course of the Second World Wa r. The American government is seen as reluctant to release these records, as evidence may reveal American cover-ups of known atrocities committed by the Japanese military. Although both bills have yet to pass through Congress, there is a possibility of more public debate and attention being drawn to the issues in light of recent victories by Jewish victims of German aggression. Mitsui and other companies have argued that the United States waived all reparations claims against Japan under the terms of the San Francisco Peace Treaty negotiated in 1951. On the other hand, lawyers for the POWs argue that the treaty covered only state-to- state claims and does not address claims by individuals against Japanese corporations. The Clinton administration has endorsed the Japanese position. However, many Japanese have expressed frustration over these developments and wonder how U.S. courts would feel if atomic bomb victims filed suit for crimes against h u m a n i t y. These are controversial issues that could produce tension in the near future.

103 The United States and Japan in 2000: Seeking Focus Although inward-looking tendencies are much more pronounced on Capitol Hill now than in recent years, one cannot associate this with a declining interest in foreign affairs. For example, cuts in funding for the U.N. concern the need to find politically acceptable ways to cut federal spending. Congressional efforts to force U.N. reform were not necessarily a message that the U.N. is insignificant, but rather a reflection of bipartisan agreement that it is a poorly run organization. However, Congress continues to be viewed as inwardly focused, placing a priority on domestic issues and economic growth rather than international responsibilities as the country enters the 2000 election cycle.

Election year politics are in full swing. The Republican establishment is confident that it will take back the White House, believing that Americans are tired of Bill Clinton’s personal problems and reputation and not terribly excited about Vice President Al Gore. After decades of minority status in Congress, Republicans have reveled in their new-found majority, but their margins are thin at best and their leadership weak after the scrapping of the Contract With America reform plan, former House Speaker Gingrich’s departure, and overall lack of focus following the failure to convict President Clinton during the impeachment hearings last year. While occupying the White House the past seven years, Democrats have seen their position diminish at every other level of elected office—congressional, state, and gubernatorial. Both parties have shifted to their ideological poles and have begun to outline their agendas for what promises to be a typically rhetorical race for the White House.

After an unusually interesting primary season, the Republican candidate, Texas Governor George W. Bush, and his Democratic opponent, Vice President Al Gore, both locked up their respective

104 Politics nominations with overwhelming victories in “Super Tu e s d a y ” primaries on March 7, 2000. Since then, both candidates have been actively re-stocking their political campaign funds after grueling primary challenges by Republican Senator John McCain and former Democratic Senator Bill Bradley.

The presidential primary season featured domestic issues with little mention of concrete foreign policy objectives. The United States is in the middle of an unprecedented economic expansion, is at peace and is unquestionably the world’s remaining s u p e r p o w e r. However, few candidates have mentioned specifically how they would handle two of the most important responsibilities exercised by the president—serving as commander in chief of the armed forces and overseeing foreign a ffairs. It will be interesting to observe how the two candidates address these issues over the next few months.

Vice President Gore is expected to continue the policies of the Clinton administration. A known environmental activist, most expect Gore to press for labor and environmental changes overseas to maintain this image. This may lead to tougher trade policies in relation to the W TO, issues that could be at odds with developing countries in Asia, notably China. After years of reduced military spending, the Clinton administration increased defense outlays in the fiscal 2000 budget and Gore has maintained his commitment to the notion that U.S. forces should be prepared to fight wars on two fronts without assistance. Gore is also a proponent of missile defense systems, but has not stated a clear position on these systems toward Taiwan. In relation to China, Gore seems to be espousing a policy of “constructive ambiguity”—a combination of Clinton’s “constructive engagement” policy and that of the Dulles-era’s “strategic ambiguity” to avoid the Taiwan issue. Interestingly, Gore has not emphasized the U.S.-Japan relationship in foreign policy

105 The United States and Japan in 2000: Seeking Focus discussions, but is likely to mimic the approach of the Clinton Administration.

Texas Governor George W. Bush’s foreign policy plan is seen as a reversion to the Republican internationalist policies that characterized the presidencies of his father and Richard Nixon. Bush is supportive of increases in military spending to improve the armed forces’ ability to wage two major engagements abroad simultaneously. Bush has asserted that he will provide steadier leadership and better focus than the Clinton administration has exercised in international affairs. Bush supports China’s entry into the WTO, but would redefine the relationship between China and the United States as one of “strategic competition,” not a partnership. He is also a strong proponent of missile defense systems and the Taiwan Relations Act. Bush has emphasized the importance of Japan, describing it as America’s most valuable ally in Asia.

Overall, American politics have remained bland and predictable, with both Democrats and Republicans engrossed in the build-up to this year’s presidential and congressional elections. This is not the case in Japan, where changes in administrative reform and shifting coalitions are making domestic politics more fluid and unpredictable.

Since the collapse of the so-called “1955 system” that featured Liberal Democratic Party (LDP) rule for almost 40 years, Japan has suffered from a succession of unstable coalition governments. Because of administrative reform that began under former Prime Minister Hashimoto and a series of recent scandals involving senior officials of government ministries, the bureaucratic side of

106 Politics the so-called “iron triangle” (consisting of the bureaucracy, politicians, and industry) has weakened. While the bureaucracy’s influence has suffered from reform and scandal, observers question whether politicians will be able to take up the slack and provide the strong leadership that is necessary to advance economic and social reforms. The rapidly expanding economy of earlier decades provided jobs, increased real incomes, and offered security for the future. Politicians did not serve as vehicles of political change. Rather, the LDP’s political network served as a distributive agent of the fruits of economic success. Policy planning and regulation was left to bureaucrats and the business elite.

Now, faced with drastic economic and social planning choices, politicians find they must make trade-offs and carefully reallocate resources. The factors that renowned Japan scholar Gerald Curtis once referred to as the four pillars of the post-war Japanese system—1) a public consensus on national goals; 2) the presence of large, integrative interest groups; 3) a powerful and highly prestigious bureaucracy; and 4) one-party dominance—have all weakened. Curtis also emphasizes that finding new goals, innovating new policymaking mechanisms, creating new channels for public influence over the policy process, and restructuring the party system present formidable challenges to elected officials. Politicians in Japan have never been expected to formulate the policies they propose and have relied on the bureaucracy to defend policy choices in parliamentary debate. Under the Japanese constitution, the Diet was established as the highest organ of state power in Japan, but in practice, it has more often served as the final, formal stage of law making. Bills have been planned, developed and defended by bureaucrats, then passed by politicians in the Diet.

Why should United States policymakers care about the state of

107 The United States and Japan in 2000: Seeking Focus Japanese politics? Politicians are slowly beginning to reclaim the Diet from the bureaucracy. Often derided as stagnant and corrupt, politics in Japan is gradually changing through administrative reforms such as the Diet Activation Bill. A new breed of politicians is coming to the table—leaders who understand the policies they debate and that are ready to take back their pedigree as defined by the constitution. Although this change is glacial in some regard, current reforms will begin to open up the legislative system to new ideas and bring in politicians who are able to understand and debate policy choices. Juxtaposed against positive strides in administrative reform is a confusing process of political realignment. The LDP has been forced to grope its way through successive informal alliances and official coalition governments in order to implement policy. As the country gears up for general elections for the House of Representatives (Lower House) that are required to take place before October 2000 (now expected in late June), American policymakers need to be aware that the success and/or failure of these coalitions will have a significant impact on the government and political climate the United States will deal with in the near future.

When elected to the prime minister’s office in July 1998, Keizo Obuchi was confronted with a nation hit by financial crisis and an economy facing a prolonged recession. The Obuchi administration made economic recovery its main priority and attempted to address economic problems through fiscal stimulation packages and reforms aimed at stabilizing the financial system. Trillions of yen were poured into public works projects and pumped into rebuilding the financial system. Due in part to some of these measures, depressed stock prices began to rally and considerable progress was made toward a realistic accounting of troubled financial institutions. However, consumer

108 Politics spending has not returned to previous levels and unemployment has risen. Corporate restructuring has forced job and salary cuts, further increasing a sense of gloom among the public that the economy has yet to bottom out.

Obuchi often turned to independent panels and other interest groups for advice—hoping to portray himself as a consensus builder open to a broad range of opinions. However, this has also resulted in a series of patchwork reform measures that severely limited the creation of long-term policies that could lead to a structural reform of Japan’s economy. Obuchi and the LDP appeared to be more concerned with the pursuit of legislative power based on the number of seats it controlled in the Diet. To offset the losses the party incurred in the 1998 House of Councilors (Upper House) elections, the LDP has been forced to pursue coalition governments to maintain its hold on power, often at the expense of policies and political philosophy. The first of these coalition governments involved the Liberal Party of Japan.

January 1999 marked the beginning of the LDP/Liberal Party (LP) coalition government. This was a questionable political marriage of convenience (ideological differences exist but were smoothed over to move closer to the LDP’s goal of controlling a majority in the Upper House) because the LDP needed support for legislation such as the defense guideline bills, while the Liberals, under the leadership of Ichiro Ozawa, sought influence as a partner in the ruling government. The coalition led by Obuchi secured the Diet’s approval of a number of important pieces of legislation during the session that ran through August 1999. In total, the government pushed through 108 of 124 bills it presented during the 207-day Diet session, making it one of the busiest in

109 The United States and Japan in 2000: Seeking Focus history. The session started out with the fastest post-war approval of the government budget in February, well ahead of the start of fiscal 1999 in April. The Diet also moved quickly to pass legislation concerned with the 1997 U.S.-Japan Defense Guidelines in April and May 1999.

Diet Activation Bill

• Creates a deputy minister system (of two to six posts for politicians within each government ministry and agency to allow them to play a larger role in the administrative system) that will give the Diet greater control over the institutionally strong bureaucracies. Under the former system, each political minister was served by two or three appointed vice ministers—usually one career bureaucrat and the other (s) from parliament. The new posts will be introduced in January 2001, when the current 23 ministries and agencies are to be re-organized into 13 entities. • Abolishes the governmental interpellation system whereby bureaucrats attend question and answer sessions in the Diet and answer on behalf of cabinet members. The former system was criticized as perpetuating the dependency of politicians on bureaucrats for policymaking. With their small staffs and relative lack of other sources of policy advice, cabinet members have traditionally relied on bureaucrats to draft laws and regulations. The new system took effect in the fall 1999 session of the Diet. • Establishes a new Diet committee in which the prime minister and leaders of the opposition parties hold debates on key policies. The debates are to be modeled on those conducted by party leaders in the British parliament. The new committee was launched in the regular Diet session that started in January 2000. One of the most interesting yet hardly publicized bills of the January-August session was the passing of the “Diet A c t i v a t i o n Bill”—an important measure that will give politicians a larg e r role in the decision-making process of government.

This new piece of legislation is expected to have important ramifications over the next ten years as politicians with policy expertise assume higher positions in government where they can influence policymaking.

Perhaps one of the most controversial aspects of the session that ended in August 1999 was the swift passage of three bills dear to the hearts of conservatives—and ridiculed by the

110 Politics Japanese left—just before adjournment on August 13.

Controversial Legislation

• Wiretapping Law—The law authorizes wiretaps and intercepts of e-mail and other communications by law enforcement authorities in order to combat organized crime and protect public safety, giving Japanese investigators a tool their counterparts in G-7 countries have had for years. The government now has a year to write enforcement rules, including how to handle cellular phone conversations, and whether to exempt the media, before the law actually takes effect. • ID-Number Law—This law is unnerving to citizens who fear an expansion of government power. Municipal governments will assign 10-digit codes to each citizen, and issue integrated circuit ID cards, which will be used to receive welfare and pension payments, or access registration data anywhere in the country. The measure was passed only after guarantees that the government would pass additional privacy measures before the law takes effect in 2002.

National Flag/Anthem Law—This law formally adopted the Hinomaru flag and the Kimigayo • anthem as national symbols. The bill passed despite the uneasiness of both many Japanese and citizens of other Asian nations because of the symbols’association with the country’s militarist past.

To pass the legislation before the close of Diet business, the L D P pushed the wiretap bill through committee and invoked a rarely-used Diet rule to skip a committee vote altogether on the ID-number bill. During the vote on the wiretap bill, the opposition, led by the Democratic Party of Japan (DPJ), resisted by sponsoring no-confidence motions, filibuster-like speeches, and a rarely-used tactic, the “cow walk” (slow-motion walking during the vote-casting process).

Although the main sponsor of the bills enacted during the session was the LDP/LP coalition government, one could not help but notice the helping hand of the New Clean Government Party (Komeito—CGP). The policy shift of this party, once critical of the LDP, highlights the decreasing ability of opposition parties to formulate counter-proposals and also signals attitudinal changes in political philosophies across party lines.

111 The United States and Japan in 2000: Seeking Focus

The postwar confrontation between Japan’s conservatives (mainly the LDP) and progressives (Socialists and Communists) centered around two major cleavage points:

= A struggle between those wishing to restore key elements of the pre-war social/political setup (a strong, centralized state power) and those determined to preserve postwar pluralistic democracy.

= A split between those wanting to strengthen the security arrangements with the United States and develop Japan’s own military capabilities and those advocating strict pacifism.

Since the postwar constitution posed a huge obstacle to remilitarization (namely Article IX), the debate on issues of national security revolved around whether or not the constitution should be amended. When the Socialists, long considered the main progressive element in Japanese politics, entered into a coalition government with the conservative LDP in 1994, they revised their party platform to accept the constitutionality of Self-Defense Forces (SDF), the continuation of the U.S.-Japan Security Tre a t y , and the use of the national flag and anthem. This about-face on the pillars of the progressive movement in Japan seriously weakened the progressive opposition’s role as an alternative to traditional Japanese conservatism.

As a result of this and other developments (poor handling of the 1995 Kobe Earthquake and continued economic recession), the Social Democratic Party (SDP), headed by then Prime Minister Tomiichi Murayama, suffered record defeats in the 1995 Upper House election (dropping to 16 seats) and the 1996 Lower House election (dropping from 70 to 15 seats). The party has not recovered since. The SDP, once the main opposition force under

112 Politics the “1955 system,” has also lost most of its labor union support base to the Democratic Party of Japan (DPJ), becoming a virtual non-entity in Japanese politics. The Japanese Communist Party still remains an ideologically progressive pole in the political spectrum, balanced on the other side by the ultra-conservative Liberals, who favor a more expanded security role and smaller government. The other two major parties, the DPJ and Komeito, have remained somewhat centrist on national security as well as economic policy. This “collapse of the left” has allowed coalitions of conservative and centrist elements to form, perceived by many as a neo-conservative movement.

A number of bills passed over the past year do carry a conservative trend. The aforementioned defense guidelines legislation passed with over 70% approval in the Diet, showing a shift in legislators’ views, most notably the DPJ and Komeito, on defense-related issues. These guidelines specified the form of Japan’s support (from the national to the local government level) for U.S. military action, declaring Japan’s readiness to put national security above all else, even at the risk of encroaching upon the war-renouncing clause in the constitution. The wiretapping bill, which legalized eavesdropping by law enforcement authorities investigating organized crime, was defended as necessary to preserve law and order in society, taking precedence over protecting the rights of individuals. The assigning of ID registration to every citizen enables the government to centralize control of all individual personal information kept by government agencies.

All of the above bills revolve around the concept of the state as the supreme holder of authority, enhancing power that the government has not utilized in the past. While decried by some as a resurgence of right-wing militarism, the Hinomaru and Kimigayo law can be seen as part of a series of state-enhancing

113 The United States and Japan in 2000: Seeking Focus legislation enacted by the Obuchi administration. This is not a return to militarism, as some opponents of the flag-anthem law have posited. It can perhaps be seen as an attempt by Obuchi to deflect a sense of national crisis among many Japanese and instead focus the public on questions of national pride and patriotism.

In addition to this “conservative” legislation, Constitutional Research Committees were formally opened in both houses of the Diet in February 2000. These commissions will “study” the constitution as research bodies and discuss the validity of amending the constitution—a subject that had been taboo in Japanese politics since the intensification of the rivalry between the LDP and the Socialist Party in the 1960s and 70s. While seen as “progressive” by some observers, the commissions will actually prove to be a conservative force, as legislators debate the institutions of the state established by the constitution and move closer to popular opinions that espouse a more active security role (including PKOs) for Japan in the region. A Yomiuri poll conducted in April 2000 revealed that 60% of the Japanese public supports constitutional revision.

Why has there been a political focus on stressing national identity and strengthening the institutions of the Japanese state? During the 1970s and 80s, Japan, with its industrial strength and increasing living standards, was seen as a major competitor to the United States. Following the collapse of the asset-inflated bubble economy, the Japanese economy has stagnated for nearly a decade and the nation’s global stature has diminished. The Japanese are increasingly aware that if its economic power is declining, its influence will decrease relative to the rest of the world. Japanese are losing confidence in their social and economic systems. There is an increasing realization among politicians that Japan cannot

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Importance of Constitutional Research Committee

Thorough examination of the constitution will proceed over the next three to five years, with the first interim report to be prepared in 2001. Once the constitution has been reviewed, the entire Diet will begin to deal with proposed amendments by the committees. These recommendations will have particular implications for Article IX and Japan’s future foreign policy. The commissions may investigate how much the constitution can be reworded without sacrificing the underlying principles, but the government must decide what Japan’s international role should be, and what changes to the constitution, if any, this role would require. Once an acceptable constitutional amendment is put to the Lower House, it still must win a two-thirds majority in each house of parliament and a simple majority in a public referendum to become law.

Views concerning constitutional revision are varied across and among parties, but some observations can be drawn. Most LDP and LP members are prepared to make changes to any articles in the constitution they find flawed and have stated a desire for increased Japanese involvement in UN PKO and a greater commitment to regional security. Komeito is interested in discussing the merits of the constitution in an open manner, but is committed to retaining the clause that renounces the right to war. The DPJ has supported the creation of the committee but is worried that constitutional debate could split its party, which contains many ex-Socialist members. The Social Democrats and the Communists oppose any revision of the constitution that would amend Article IX, stressing that the current document is sufficient and sets a pacifist example for the rest of the world. rely solely on economic power and needs other tools to enhance its position abroad. While Prime Minister Obuchi succeeded in pushing through bills in advancing this agenda with the Liberal Party, he would find legislation much more difficult to coordinate within the next tripartite coalition.

September 1999 marked a turning point in Japanese politics. Following the election of Keizo Obuchi as LDP President, a three-party coalition among the Liberal Democratic Party, Liberal Party, and Komeito was formally established.

Obuchi won the LDP presidential election with 350 votes against 113 for Koichi Kato and 51 for Taku Yamasaki. Obuchi’s strong showing was seen to be an implicit approval by local party officials and Diet members of his plan to add the Komeito to the existing LDP/LP coalition. Obuchi then reshuffled the cabinet and formally brought Komeito into the coalition. As a result, in

115 The United States and Japan in 2000: Seeking Focus addition to holding 357 seats (71.4%) in the 500-seat House of Representatives (Lower House), the ruling coalition now commanded 141 seats (56.0%) in the 252-seat House of Councilors (Upper House), the majority in both houses that Obuchi had coveted.

The policy agenda decided upon by the three parties consisted of the following main points: 1) a tentative cut of 20 seats from the 200-member proportional representation electoral system in the House of Representatives; 2) a compromise to come up with the necessary legislative measures to defend Japan against both direct and indirect military attacks and a lifting of the freeze on Japan’s participation in U.N. PKO; and 3) the establishment of a comprehensive framework by 2005 to cover policies on medical services for the elderly, pensions, and nursing care, half of which will be publicly funded. Although this agreement seemed workable at the time, there were in fact many different opinions between the LP and Kometio concerning the social security system and U.N. PKO. The triumvirate also agreed to election cooperation for the upcoming Lower House elections, although the process of coordination was left unclear.

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Obuchi’s reelection had interesting effects on factional dynamics within the LDP. In addition to the Obuchi and Mori factions, the Eto-Kamei faction and the Kono group joined the “mainstream” because of their support of Obuchi in the election. As a result of their leaders’ challenges to Obuchi, the Kato and Yamasaki factions became “anti-mainstream.”

Obuchi rewarded those who supported him in the election with cabinet and party administration positions—unlike his actions in forming his first cabinet in July 1998. Obuchi reappointed Yoshiro Mori (leader of the Mori faction) as LDP Secretary-General and Shizuka Kamei (de-facto leader of the Eto-Kamei faction) as the Chairman of the powerful Policy Research Council (PRC). Factional in-fighting still drives LDP internal politics and Obuchi, although described as a consensus-builder, rewarded those who watched his back and supported his bid for reelection.

The second Obuchi cabinet inaugurated on October 5, 1999 had two major goals: economic recovery and a successful G-8 Summit in Okinawa in July 2000. Thanks to the Diet Activation Law passed in July, Obuchi appointed a considerably larger number of policy experts to higher positions in government in order to defend government policy without bureaucratic input (though some observers question whether Q&A sessions are still rehearsed in advance to avoid public embarrassment of politicians). Obuchi retained Finance Minister Kiichi Miyazawa, Economic Planning Agency Chief Taichi Sakaiya, and Foreign Minister Yohei Kono was reappointed as Foreign Affairs Minister for the second time in his political career. Michio Ochi, touted as an economics expert, was appointed Minister for Financial Reconstruction. Hiromu Nonaka resigned his post as Chief Cabinet Secretary and was appointed as the Deputy Secretary-

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General of the LDP to run the next Lower House general election campaign that must be held by October 2000—notable as a switch from government to party affairs. Foreign leaders viewed the initial composition of the Cabinet positively. The United States looked favorably upon the retaining of Miyazawa and Sakaiya as a prioritization of economic recovery, while countries such as China, Korea, and Russia welcomed Kono’s appointment, as the three have important diplomatic issues with Japan and have dealt with Kono in the past.

Obuchi’s smile after winning the LDP presidential election was quickly wiped off his face. Japan’s worst nuclear accident in history occurred at a uranium processing plant in Tokaimura, Ibaraki prefecture, 125 km northeast of Tokyo at 10:35am on September 30, 1999. Mishandling of radioactive material triggered a “critical mass” situation and pushed radiation levels to 20,000 times normal exposure at the plant. (Critical mass is the point at which neutrons produced in the fission process are sufficient to sustain a chain reaction without outside stimulus.) The accident left 69 people exposed to radiation and three workers hospitalized in serious condition. One worker died 83 days after being exposed; another died in late April 2000.

The accident was due to gross human error. The private nuclear fuel company, JCO Corporation Ltd. (a subsidiary of Sumitomo Metal and Mining Company) had revised its procedure manual without government authority in order to save time in the processing of nuclear fuel. Workers had skipped safety procedures present in the revised manual and used stainless steel buckets instead of a government-regulated apparatus while pouring a uranium solution into a mixing tank. The workers involved used

118 Politics eight times the normal amount of enriched uranium at the time of the accident—apparently unaware and not instructed by management of the potential dangers involved in the process. Fortunately, 20 hours after the crisis began, workers succeeded in halting a nuclear fission chain reaction.

Critics slammed the Obuchi administration for its handling of the incident. Authorities were unaware of the seriousness of the accident, had not routinely checked the safety of the facility, and only had emergency response manuals for nuclear power plants, not a small, private reprocessing facility like in Tokaimura. The government did not have a system of information collection in place nor did it give local residents appropriate evacuation information until radiation had already spread to the surrounding area. The accident also increased general distrust in the government’s crisis management systems—still perceived as poor even after drastic changes following the 1995 Kobe Earthquake.

Tokaimura was not the only “nuclear” incident under the new Obuchi Cabinet. Two weeks after the October reshuffle, State Secretary for the Defense Agency and Liberal Party member Shingo Nishimura (who was strongly recommended by Ichiro Ozawa despite being known for hawkish remarks on security issues) made several controversial comments in an interview published in the Japanese edition of Weekly Playboy magazine. He stated that the Diet “should consider the fact that Japan may be better off if it armed itself with nuclear weapons.” As a result of the subsequent public uproar, Nishimura resigned his position, forcing Prime Minister Obuchi to apologize to the Diet for appointing Nishimura. Despite the Prime Minister’s attempt at damage control, accusations within the LDP spread (especially from Kato and Yamasaki—ever looking for a reason to criticize

119 The United States and Japan in 2000: Seeking Focus Obuchi’s handling of the government) that Obuchi misjudged the appointment of parliamentary vice-ministers. Public approval of the administration declined.

A series of police scandals came to light this past winter that shocked many Japanese and added to the distrust of the administration. On December 10, 1999, the former Kanagawa prefectural police chief and four senior officials were accused of concealing the illegal drug use of a policeman and destroying the evidence—believing that police would lose credibility if details of the case were made public. However, the police lost even more credibility as the conspiracy came to light. In another incident, Niigata Prefectural Police issued a false press release concerning a 19-year old woman who had been abducted for 9 years and was rescued on January 28, 2000. Initially, the area’s public health center officers had given sanctuary to the woman after rescuing her. The police claimed that they had solved the case and rescued her. When the woman was discovered, Niigata Prefectural Police Chief Koji Kobayashi was playing mah-jong (a Chinese tile game similar to dominos) at a hot spring resort with the Chief of the Kanto Regional Police Bureau, Yoshiaki Nakada, who, ironically, was in Niigata for special inspections as part of an anti-scandal campaign. They decided to continue playing mah-jong and left responsibility of the important case to subordinates even after they were told that the woman had been found after being held in captivity for nine years. Their repentance at apology sessions was viewed by the public as superficial.

Public outrage was further fuelled by the unwillingness of the Police Agency and the National Public Safety Commission (NPSC—under Obuchi’s authority as prime minister), which oversees the police, to punish the involved law enforcement officials severely. Outraged citizens sent over one thousand complaints to the Police Agency after it was announced that the

120 Politics two Niigata officers would be allowed to resign rather than be dismissed, a move which would entitle them to more than ¥30 million (approx. $280,000) each in retirement allowances. In addition, it was revealed that four of the commission’s six members are paid an annual salary of ¥26 million (approx. $245,000) for work that generally involves only a regular weekly meeting, raising questions about its effectiveness and integrity.

Prime Minister Obuchi’s reputation was also questioned regarding possible involvement in a NTT DoKoMo (the cellular telecommunications wing of NTT) stock transaction scandal. Stocks of Jomo Communications Corporation, a small local beeper service company that Obuchi’s brother, Kohei Obuchi, and the premier’s chief secretary, Toshikaka Furukawa, had purchased for ¥2.25 million (approx. $24,000), suddenly increased in value to ¥2.5 billion (approx. $24 million) through a two-step merger and acquisition by NTT (an increase of more than 1000 times the original purchase price). The policy was decided when Prime Minister Obuchi was Chairman of the Telecommunications Policy Council of the ruling LDP, which has an enormous amount of power over Japan’s telecommunications industry. The LDP communication policy stated that the Ministry of Posts and Telecommunications (MPT) would let NTT DoKoMo separate from the main NTT Corporation in order to go public on the Tokyo Stock Exchange. This resulted in the huge gain by Mr. Obuchi’s relative and secretary. At the time of the policy decision, a group of bureaucrats within the MPT raised questions about the policy, but were silenced by strong pressure from the LDP. Questions still remain as to the timing of the merger, possible insider trading of information, and whether the Prime Minister was directly involved in the process.

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Although the Obuchi administration has publicly stressed that it is committed to economic reform, its actions have been confusing. Continued economic stagnation has enticed many officials to look for ways to avoid the pain of drastic economic and political reform. The government was caught in an embarrassing attempted retreat over the scheduled implementation in January of a law banning corporate political donations to individual politicians and their support groups. The LDP’s Policy Research Council (PRC), in anticipation of the need for political slush funds for the next election, wanted to weaken the law. The Japanese media delivered harsh rebukes of the council’s report and the opposition leaped at the chance to denounce the LDP for seeking to perpetuate financial corruption in politics. In response, Obuchi pledged to push the law through parliament against the opposition of many LDP members. However, this was not the only incident of governmental attempts to minimize the effects of political and economic reform.

The coalition was able to push through its latest fiscal stimulus package at the end of November 1999—a whopping ¥18,000 billion ($170 million)—over one-third of which (¥6800 billion) is pigeonholed for traditional public works and social infrastructure spending, such as wiring the country for the Internet. In addition to the public works spending, the remainder of the package seemed to be aimed at the next election—over ¥7400 billion was earmarked to small and medium-sized business relief (one of the LDP’s core constituencies and a group being courted heavily by the Communist Party in wake of painful downsizing during the recession) as another concession. Obuchi himself began to publicly question the wisdom of “American-style” restructuring. In an article in the Far Eastern Economic Review in January 2000, Obuchi supported

122 Politics restructuring, but encouraged a “Third Way,”—combining Japanese-style management and business practices from abroad. Many observers see this as the influence of the PRC Chairman Shizuka Kamei, who leads the 100 member-strong “anti- deregulation” committee formed within the LDP. Kamei has been a vocal spokesman against restructuring, arguing that it fuels uncertainty about jobs and hinders consumption.

The administration’s stance toward quick reform of the troubled financial system was also questioned. Financial Reconstruction Minister Michio Ochi resigned because of inappropriate remarks to a meeting of local bankers in Tochigi Prefecture on February 25, 2000. Regarding audits of the banking sector, Ochi was quoted as promising to protect weak banks—not a very appropriate statement from the man in charge of rehabilitating the banking system. internal differences among the LDP concerning economic reform and shows that not all the factions are on the same page with regard to restructuring. The prospects of facing an electorate angry over job and salary cuts may force the LDP to take a slower approach to restructuring as Lower House elections loom ahead.

As a result of problems in crisis management, scandals, and aversion to painful reform mentioned above, Obuchi’s new coalition government saw its approval ratings plummet. By late November 1999, a survey taken by Asahi Shimbun showed a 41% support rating compared to a 36% non-support figure regarding the Obuchi cabinet. This was a drastic fall compared to the 51% support rating (26% non-support) the administration had received in September. This trend continued into January, when Asahi estimated the support rating of the cabinet to be 39%, with a non- support rate of 38%. The Democratic Party Japan was able to somewhat capitalize on the administration’s stumbling. DPJ candidates were victorious over coalition-sponsored candidates in

123 The United States and Japan in 2000: Seeking Focus by-elections for an Upper House seat in Nagano Prefecture in November (around the time of the Nishimura fiasco) and a Lower House seat in Miyagi Prefecture in late February (after Ochi’s resignation). These were bright points for the opposition, which has been relatively unable to generate public support for its policies against the ruling coalition.

The mammoth LDP/LP/Komeito coalition has enabled the ruling parties to pass into law any bills they sponsor. With the declining power of the Socialists and the ideological polarization of the Communists, the only real opposition party with any clout remaining is the Democratic Party of Japan (DPJ).

The DPJ held its own presidential election in September 1999, bringing about a change in leadership. Conservative winds blowing since the beginning of the year also influenced the DPJ election. Incumbent Naoto Kan faced two challengers: Yu k i o Hatoyama and Takahiro Yokomichi. Hatoyama, a neo- conservative and a former LDP m e m b e r, defeated Kan, who had the support of many DPJ members who were formerly in the Social Democratic Party. Hatoyama is said to have won the election due to sentiment in the party’s local constituencies that a more conservative leader would improve the DPJ’s chances in the next Lower House election. DPJ Diet members agreed.

With the ruling coalition’s lock on legislative procedure and some signs of slow economic recovery underway, the DPJ will need to appeal to the public by presenting its own vision of government, and distinguishing its policies from those of the current leadership in anticipation of the next election. While the DPJ has benefited from political scandals and public distrust in the ruling coalition (resulting in the two aforementioned by-

124 Politics election victories in November and February), it has been unable to channel public discontent into major support for its party. While collaboration with the Japanese Communist Party (JCP) and the Social Democratic Party (SDP) is possible on specific issues, the DPJ is too far removed ideologically from the other two opposition parties to coordinate campaigning for the next election, let alone a future coalition partnership against the LDP.

The opposition’s impotency was clearly revealed during its Diet boycott strategy in early February 2000. The decision by Obuchi to push a political reform bill through the Upper House under threat of an opposition boycott did, for a time, stimulate debate for an early election because of the political turmoil it created. The opposition boycott, led by the DPJ, protested the plan to cut by 20 the number of Diet seats chosen by proportional representation, a change that they charged would favor larger parties, namely the LDP. The main thrust of the boycott revolved around criticism that the LDP was undermining the free play of party politics and debate of policy in Diet subcommittees through its ability to ram bills through parliament with the overwhelming majority of its coalition. The DPJ also c h a rged that the LDP was pressuring opposition parties to join the ruling coalition or have no say in legislation, citing the addition of Komeito, which was never closely aligned with the L D P before last year. The boycott lasted eleven days, during which the opposition parties vowed they would not return to the Diet unless the reform bill change was reversed and the government promised an early Lower House election (Lower House elections must be held before October, 2000). However, victories by LDP-backed candidates in high-profile gubernatorial races in Osaka and Kyoto during the Diet boycott showed a lack of public support of the boycott strategy and severely limited the o p p o s i t i o n ’s momentum. Although the three leading parties of the opposition, the DPJ,

125 The United States and Japan in 2000: Seeking Focus S D P, and JCP have somewhat closed ranks against the ruling coalition, disagreements over constitutional amendment and security issues have prevented them from coming up with clear policy alternatives to the ruling coalition. Although scandals and other examples of policymaking ineffectiveness surrounding the LDP have hurt the ruling government’s support ratings, the opposition has not yet been able to translate voter dissatisfaction into concrete support for their parties. The public seems to be looking for a different type of political leadership, perhaps that of the populist governor of Tokyo, Shintaro Ishihara.

While the opposition parties appear unable to offer an alternative to LDP leadership, a former LDP Diet member, Shintaro Ishihara, has captivated Japanese public opinion from the governor’s mansion in Tokyo. His forthright manner appeals to many voters and feeds the public demand for a stronger leadership style that is thought to be missing from national politics.

As Tokyo governor, Ishihara’s powers are relatively limited. His derogatory remarks toward foreigners, his anti-Chinese opinions, and demands for a return of U.S. military bases are radical, but do not directly affect national policymaking. Ishihara’s strategy to influence national debate revolves around the creation of new initiatives that he can control from Tokyo. His controversial plan to impose a new tax on large Tokyo-based banks was harshly ridiculed by the government and bank administrators, but lauded by citizens angry over the use of public funds to bail out the financial system. His decision to curb diesel emissions in Tokyo was seen as an important step to address environmental problems often ignored by the central government.

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Although Ishihara has appealed to the public through a straight- talking style unmatched by other politicians, his ability to articulate clear policy vision can be questioned. His nationalist approach has drawn criticism from many sections of the government, as well as from minority groups within Japan. The possibility of Ishihara moving beyond his Tokyo governorship into the mainstream of national politics is limited. Japan’s current political culture, one that places an emphasis on promotion through consensus, is not likely to willingly accept Ishihara, a controversial consensus-breaker. For the time being, Ishihara’s role in Japanese politics will most likely revolve around drawing attention to issues that the central government has yet to address adequately. Given Ishihara’s popularity and ability to voice public discontent, government leadership would be advised to at least listen to and consider what the Tokyo governor is saying. Discontent with national coalition politics could continue to be translated into support for populist figures such as Ishihara. Although the Prime Minister was aware of the type of public discontent that Ishihara articulated, Obuchi’s energies were consumed with keeping the coalition together.

Even with its huge majority in both houses of the Diet, the ruling LDP/LP/Komeito coalition struggled to maintain its internal unity from fall 1999 to spring 2000. The three parties, in a hasty effort to put together a governing alliance, failed to adequately clarify what kind of politics and what policy goals they would try to achieve. A main source for this disharmony originated within the Liberal Party leadership. Even while policy negotiations for the three-way alliance were underway in the summer and fall of 1999, Liberal Party leader Ichiro Ozawa threatened to bolt if earlier policy agreements made during the formation of the LDP/LP coalition were not enforced. Ozawa

127 The United States and Japan in 2000: Seeking Focus backed down and eventually agreed to a watering down of earlier policy goals. In November 1999, Ozawa breached the idea of an LDP-Liberal merger with senior members of the LDP’s Obuchi faction, to which Ozawa had belonged (before his 1993 split with the party). Ozawa also floated the idea of forming a new conservative party after the next election by incorporating conservative elements of the LP and LDP. In the face of opposition by many LDP members, these ideas were shelved for the time being.

Given the coalition’s declining popularity ratings throughout January and February, Obuchi faced the urgent task of solidifying internal unity in order to highlight the coalition’s stability and showcase his administration’s achievements leading up to the next Lower House election. However, the chances of Ozawa continuing to threaten defection from the coalition continued to increase.

Chief Cabinet Secretary Aoki thrust into the spotlight after Obuchi’s collapse. (April 2000. Photo Courtesy of Mainichi Shimbun.)

128 Politics Ozawa again pushed for clarification of coalition policies during March 2000. As he became increasingly aware that the LDP was not going to compromise on the issue of election cooperation with the Liberal Party (one of the precepts of the LDP/LP and tripartite coalition), Ozawa hinted that he would leave the ruling coalition, also citing Prime Minister Obuchi’s rejection of his advocacy of a new conservative party as a primary reason. After confirming the LDP refusal to help LP candidates retain their seats in the next election, Ozawa then demanded the implementation of earlier policy agreements on social security and Japan’s role in UN Peacekeeping activities, stressing the need to adhere to policy goals. In response, on April 1, 2000, Obuchi and Komeito Leader Takenori Kanzaki joined together to expel Ozawa and the Liberals from the coalition, citing Ozawa’s disruptive influence within the administration. The two leaders rejected Ozawa’s demand that the prime minister take up legislative measures to implement an earlier tripartite accord on key policies before the end of the current Diet session. Although Ozawa backtracked some, again emphasizing that his discontent was directed at a lack of policy progress, not the effects of LDP non-cooperation on elections, the damage was already done. The Liberals left the coalition the following week.

After presiding over the three-way meeting between the LDP, LP, and Komeito, Prime Minister Obuchi returned to his residence. Several hours later, Obuchi was secretly transported to Juntendo Hospital in Tokyo, where he was hospitalized due to “fatigue from overwork,” according to Chief Cabinet Secretary Mikio Aoki in a press conference the next day, April 2. In fact, the premier had already lapsed into a coma and was being kept alive on an artificial respirator and was fighting for his life. Throughout Sunday, April 2, the government deliberately kept this vital information from the public, stressing that Obuchi’s condition was not serious. Government officials had gambled that Obuchi, 62,

129 The United States and Japan in 2000: Seeking Focus would be able to return to work after resting. Yet it became clear that Obuchi would not be returning to work soon, if ever, and the LDP moved rapidly to find a replacement.

Chief Cabinet Secretary Aoki was appointed acting prime minister without specific instructions from Obuchi before the premier slipped into the coma. To prevent a political vacuum, LDP leaders quickly closed ranks and a consensus quickly settled around the number-two man in the LDP, Secretary General Yoshiro Mori. Although Mori heads his own separate faction within the LDP, he had been a strong Obuchi supporter since their university days and is supported by many influential members throughout the party. Mori’s only real rivals for the premiership were Foreign Minister Yohei Kono (LDP President when the party was thrust from power in 1993) and Koichi Kato (who heads the second largest faction in the Diet). As Kato is an outspoken critic of the current alliance with Komeito, his candidacy proved unpalatable to Komeito’s leader, Takenori Kanzaki. With the G-8 Summit around the corner, Kono’s responsibilities for the summit were considered paramount, and consensus finally settled around Mori. Late Tuesday, April 4, the Obuchi cabinet resigned en masse, in accordance with constitutional provisions regarding an incapacitated prime minister. The following day, Mori was elected prime minister by the Diet, securing 335 of 488 Lower House votes.

Prime Minister Obuchi’s stroke and subsequent departure from the government has come as a significant shock to the Japanese political system. Obuchi’s main focus the past few months had been to reverse Japan’s current economic downturn, stabilize the ruling coalition, and conduct a successful G-8 Summit in Okinawa in July. Successful completion of these objectives was expected to prove crucial to the LDP’s chances in the Lower House election, which was supposed to take place in August or

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September. Now, the coalition is in disarray and its new leader, Yoshiro Mori, will have to chart a course through the next several months.

Prime Minister Mori has come to the helm of the Japanese government with several question marks surrounding him. Having never served in a high-profile cabinet post (except a short stint at the Ministry of International Trade and Industry [MITI]), Mori is not well known to the general public and not seen as a powerful figure to lead the LDP through the next election. He lacks a wide range of American and other foreign contacts compared to earlier prime ministers (such as Obuchi, Hashimoto, and Miyazawa), many of whom had served as foreign or finance ministers prior to becoming prime minister. Mori will also have to stabilize a coalition that has experienced a severe jolt—the secession of the Liberal Party, as well as a split within the LP itself.

As LDP leaders scrambled to deal with Obuchi’s hospitalization and the creation of the new Mori administration, a separate showdown was taking place over LP Leader Ichiro Ozawa’s political philosophy and tactics within the coalition. The departure of the Liberal Party from the ruling coalition triggered its split into two separate groups. One group of LP members (26 members total), led by former Home Affairs Minister Takeshi Noda and Upper House member Chikage Ogi, bolted from Ozawa’s group to form the new Conservative Party (Hoshuto). The new party quickly contacted the leaders of the LDP and Komeito and entered into an agreement to remain in the ruling coalition. Led by President Ogi, the “Conservatives” stressed their desire to uphold the policies of the former Obuchi administration and to concentrate efforts on rebuilding Japan’s economy. Those LP members (numbering 24) who stayed with Ozawa clarified their position toward the ruling coalition when they voted against Mori

131 The United States and Japan in 2000: Seeking Focus in the April 5th prime minister election. The LP immediately began to criticize the new coalition, stressing that it was politically expedient and did not possess the will to resolve many of the important problems the country now faces.

Many political analysts interpret the upcoming elections as a main contributing factor in the split of the Liberal Party. Both parties, the LP and Hoshuto, will face a difficult task in explaining their respective political agendas to the public. Hoshuto will come under fire, as it has chosen to remain in the coalition and is suspected of plans to merge with the LDP following the general election. The decimated Liberal Party, now in the position of criticizing the coalition it was once an integral part of, faces the task of reestablishing a rapport with voters as a member of the opposition.

Prime Minister Yoshiro Mori launched a new tripartite coalition government, consisting of the LDP, Komeito, and Hoshuto, after being elected as the nation’s 55th prime minister by both chambers of the Diet on April 5th. His cabinet was hardly “new,”

The “New” Mori Administration. (April 2000. Photo Courtersy of Mainichi Shimbun.)

132 Politics consisting of the same members as the Obuchi administration. At a press conference following the cabinet inauguration, the 62-year old Prime Minister stressed that he would continue the unfinished policies of Obuchi. Mori added that he would do his utmost to put the economy back on track toward a full-fledged recovery, but stressed that badly needed fiscal reconstruction would have to wait until the economy has clearly improved.

In regard to the upcoming elections, Mori has been consulting various members of the coalition concerning a plan to dissolve the Lower House in early May, with the aim of a mid-June election. The Prime Minister has acknowledged the importance of solidifying his administration’s political base through a vote of confidence by the public before attending the G-8 Summit in July. A successful showing in the election would also enable Mori to inaugurate a second cabinet based on his own selections. The Mori Cabinet is seen by many as a provisional, “caretaker” government. However, important political agendas and policies remain to be settled.

Although it will be difficult to meet the 0.6% economic growth target for fiscal 1999, the country is expected to show signs of gradual recovery. The government must ensure the passage of bills related to the fiscal 2000 budget through the Diet and implement the economic policies the budget contains. These measures are necessary to put the economy on a path of self- sustaining growth. Other economic structural reforms are necessary to deal with the effects of restructuring due to globalization of the world economy and the challenges of the information technology (IT) revolution.

Mori faces problems with implementing many of Obuchi’s other agenda items. The previous government established a strong political base over the past year to enable more efficient policy

133 The United States and Japan in 2000: Seeking Focus implementation in the Diet—securing the passage of many important bills, including the US-Japan defense guidelines, the flag-anthem law, and laws aimed at streamlining central government offices and decentralizing central government functions. However, since the creation of the LDP/LP/Komeito coalition in September 1999, the Obuchi government had postponed the implementation of national security and social security policies that were agreed upon when the coalition was formed. The passage of bills dealing with emergencies (Yujihosei) and lifting the ban on the Japanese Self-Defense Forces’ participation in front-line U.N. Peacekeeping Operations was postponed due to serious opposition by Komeito. Questions concerning the establishment of a stable social security program (balancing the burden-sharing and benefits of the social security system and securing fiscal resources for the program) were also shelved, with little progress in intra-coalition discussions. Differences in social and security policies among the former LDP/LP/Komeito grouping will most likely continue in the new coalition.

Japanese politics are gradually changing. Recent administrative reform packages such as the Diet Activation Bill will engender greater expertise in appointed officials. Debate over constitutional amendment will trigger additional political realignment, as parties will be responsible for taking ideological stands that will better differentiate their goals and agendas. However, these changes will not take place immediately. Since the breakdown of the “1955 system,” repeated coalitions have been established that have been unable to formulate long-term solutions to the economic, social, and security problems Japan faces. The purpose of a coalition government is to establish a stable political framework over which to implement policy. Recently, these coalitions have

134 Politics struggled with repeated deliberations among themselves to settle differences on each policy issue, limiting the government’s ability to enact efficient and timely solutions. Using coalitions to increase the ruling administration’s numerical strength in the Diet has not been an effective means of policy implementation. Former administrations, before the LDP/LP coalition, built a legislative majority on a case-by-case basis by seeking out partners among the opposition. Support for each reform package or piece of controversial legislation was lobbied for separately on the basis of informal alliances according to the situation.

Ultimately, the key to success or failure of coalition or informal alliance governments rests with leadership. Prime Minister Obuchi failed to garner enough support through informal alliances and turned to coalitions in the end to increase numerical strength in both houses of parliament to push through legislation. However, the task of balancing the disparate objectives of the Liberal Party and Komeito proved too difficult, generating additional disharmony even within the LDP.

With elections now expected in mid- to late June, the Mori administration will be faced with the difficult task of implementing Obuchi’s reform plans within the current LDP/Hoshuto/Komeito coalition. According to a poll taken by the Nihon Keizai Shimbun survey in early April, the rate of public support for the new cabinet was 36%, while the non-support rate was 32%. Criticism was much more harsh for the new coalition—54.6% disapproved, while 20.5% approved. The prime minister will bear a grave responsibility for getting the coalition to cooperate and carry out necessary policies promptly and boldly, while restraining from postponing the implementation of measures dealing with the 2000 budget, security, and social- welfare insurance. The government will be tempted to present policies aimed at pleasing the electorate in order to protect vested

135 The United States and Japan in 2000: Seeking Focus interests and expand their support base. However, the current coalition will continue to be seen as a liability into the next election. The LDP alliance with Komeito has never been popular with the voters, who see the tie-up as a political expedient. Moreover, much of the electorate is uneasy about Komeito’s ties to a controversial religious organization, the Lay-Buddhist Soka Gakkai. If the coalition does poorly in the election, Mori’s tenure as prime minister will be brief. “Anti-mainstream” critics of the coalition within the LDP, led by Koichi Kato, will blame the loss on popular dissatisfaction with the coalition and compete with “mainstream” forces for political control.

Political debate concerning shared and mutual interests between the United States and Japan has been stagnant or non-existent over the past year.

In America, continued economic expansion has led to a domestic politics that is more narcissistic and introverted, with little focus on the bilateral relationship outside of defense issues. While trade issues are receiving little attention in Washington now, a downturn in the American economy could quickly change political focus, especially in an election year. The United States is perceived by Japan as becoming less interested in international affairs, a fact lost on most Americans. How the next presidential administration will stress Japan-related policy is unclear, as foreign affairs are not yet a main topic of election debate.

Japan, on the other hand, is in an unpredictable period of transformation. Administrative reforms are gradually opening up the policymaking process, but a lack of political leadership still exists. Successive coalition governments have prevented politicians from building consensus on policy solutions that are

136 Politics vital to restructuring Japan’s economic and political systems, as well as on issues that are important to both the United States and Japan, such as defense and trade negotiations. This legislative paralysis is expected to continue under the Mori Administration, which faces Lower House elections in June.

As the G-8 Summit in Okinawa approaches, it behooves American and Japanese officials to take another look at how their respective political systems affect the bilateral relationship. The United States cannot afford to under-appreciate the positive changes that have taken place toward business-as-usual practices in Japanese politics. Although the process is messy and slow, U.S. governmental and elected officials need to support Japan in its transition to a more deregulated, open economy and a stronger political system. At the same time, Japan must find a way to move ahead with reform, making its own economic, trade, and security policies clear to the United States and the rest of the world. Japanese politicians need to demonstrate, through actions and results, that they are pushing ahead with deregulation and reform (both political and economic) without outside pressure.

Disputes over domestic choices are a legitimate source of debate between the world’s two largest economic superpowers. However, the role that the United States and Japan play together in supporting economic growth, preventing environmental degradation, and ensuring regional security in Asia cannot be overemphasized. There is an acute need for legislative and executive officials to start exchanging information in different ways in order to manage the key relationships that support bilateral ties. Both countries have vested interests in avoiding a political crisis of confidence in each other that will undermine mutual interests of peace and security in the region.

137 138 139 he past year has been marked by trends in Japan and the United States that have both converging and diverging Tcharacteristics. For example, the economies have gone in completely different directions, but many social problems cited by the two peoples are similar. In Japan, a perception has been created that despite high standards of living relative to most of the world, Japanese society and culture is in a transition that most people disapprove of. The prolonged economic stagnation and a political system that seems to be mired in glacial reforms have created frustration and discontent among the populace. The United States is viewed as a strong ally, though one whose social maledictions seem to be rubbing off on Japan in the form of increasing crime rates.

In the United States, the nation’s economic expansion and its status as the world’s only current superpower seem to have put most Americans at ease. Popular views of East Asia in general and Japan specifically seem to reinforce the perception of most scholars that East Asia will be a very important part of U.S. foreign policy in the near future. Americans consider Japan a good ally and an important economic competitor. However, there is also an undercurrent of caution when looking at social issues within the United States.

A major theme that comes to light is that of identity. It is apparent, when looking at the data, that Japan is in a major transition. People are dissatisfied with government, the economy, and values, and this volume of discontent is likely to culminate in

139 The United States and Japan in 2000: Seeking Focus change. How will these changes affect Japan and the U.S.-Japan relationship? In contrast, Americans tend to have a very strong sense of identity. Though some problematic social issues crop up, the general consensus is one of satisfaction, pride, and optimism for the future.

So, why should we care how people perceive the world? Particularly, why should we care how the Japanese people view the United States or vice versa? In previous chapters of the book, you have read about wildly differing economic conditions in the United States and Japan; about the stable, orderly process of U.S. politics versus the recent rapidfire changes in the Japanese political establishment; and about Japanese uncertainty about its place in the international system versus the United States’ position as the lone superpower. These are all important debates for intellectual circles, but what does the average Joe think? After all, it is the people who elect our leaders to make the important decisions, the people who are impacted by official policies, and, ultimately, the people who decide if the policies implemented are the correct ones.

As far as the U.S.-Japan relationship is concerned, it is important to measure average citizens’ views because perceptions say a great deal about where the relationship really stands. On official levels, the relationship could be fine, but if there happen to be high levels of distrust or animosity in the general populations, that would not bode well for the relationship. Japan is the United States’ second largest trading partner (after Canada), a key ally in the Pacific region that hosts 47,000 American troops, and the only non-Western nation that claims membership in the G-7 group. Therefore, it is very important to gauge popular views of the relationship in addition to keeping an eye on official statements.

140 Perceptions According to an article by Shigehiko Togo, a correspondent for The Washington Post in Tokyo, “it is perceptions, not realities, that determine the way Japanese and Americans think about each other, as well as major trends in bilateral relations.” In both cases, the view of the domestic situation has impacted how the population of each country views the other.

The first important area to investigate is how each country’s citizens view domestic social and political trends. The general view in the United States (72.7%), according to the Yomiuri Gallup poll conducted in October 1999, is that Japan will continue to be a good partner in the coming century. Seventy-four percent of the Japanese also hold the same view of the United States. However, since domestic events often influence the way people view the rest of the world, we must first investigate events within each country and how the people believe these events relate to their own lives. Finally, how does it impact how the people identify themselves as Japanese or Americans?

One view of elite Japanese thinking was expressed in a Japanese government report released in January by the Prime Minister’s office entitled, “The Report of the Prime Minister’s Commission on Japan’s Goals in the 21st Century: The Frontier Within: Individual Empowerment and Better Governance in the New Millennium.” The report criticized many societal norms and argued that reluctance to “veer from the norm” was hurting Japan’s ability to adjust to changing global and domestic conditions. The report amounted to a scathing attack on some of

141 The United States and Japan in 2000: Seeking Focus the basic tenets of Japanese society, including its famed group dynamics and the difficulty of distinguishing between informal social rules and established rules or laws. In fact, the report advocated the need to clarify legal issues, bolster a shrinking labor force with new immigration policies, and adopt English as a second official language.

Through these measures, the commission crossed policy borders that had never been broached before. The Japanese have always taken pride in their unique heritage, and the recommended measures would amount to changing the traditional view that the Japanese must maintain aspects of their society they feel are unique. These include things like language, group versus individual values, and social stability. Not only did the report criticize Japanese customs, it hinted that if Japan did not take these measures, the country would not be able to maintain its position in the international system.

It is important to note, however, that the commission’s findings were attacked by the conservative Sankei newspaper, among others, which argued that the report focuses too much on individualism and therefore further undermines what it sees as an already shallow sense of national unity. A prime minister’s office survey from December 1999 indicates that Japanese citizens agree with this. About half of respondents said that the Japanese should “focus on society and the nation” rather than the individual.

The discrepancy between the views of the official commission and the public may be due to a generally negative outlook on the current and future situation. A striking feature of the aforementioned survey is a profound sense of pessimism.

142 Perceptions

When asked which aspects of Japanese society are positive, only two responses, “Medical Care/Welfare”, and “Science and Technology” received more than a 20% response rate, with none achieving more than 24.9%. On the other hand, when asked about negative trends, seven areas received more than 20% of responses, the highest being the economic situation (64%). The other areas viewed negatively are reflective of the concern over the economy for the most part, but “Social Trends” and “The Natural Environment” also cause concern for many Japanese.

This general disenchantment is also apparent when one looks at some of the pop culture phenomenon over the past year. A movie released last year called “Jubaku,” whose English title is roughly translated as “Curse: The Archipelago of Rotten Money,” seemed to have struck a chord with many of Japan’s white-collar salarymen. The movie depicts in stark shades the growing discontent with current employment practices in the Japanese corporate world by loosely recounting the story behind a major corruption scandal in 1997. The employees are shown losing their loyalty to their company because their bosses are accused of financial misdealings and corruption that rock the bank to its core.

143 The United States and Japan in 2000: Seeking Focus The scandal involved corruption at the top levels of their company.

The discontented employees talk about resigning and doing things they had always wanted to do including being a gardener or a Buddhist monk. The fundamental message of the film is that the more traditional group-centered dynamics of Japanese society, such as blind loyalty to a company, are obsolescent and that change is necessary. This frustration with the employment system is reflected by the 48.8% of respondents in the Prime Minister’s poll who proclaimed that the employment/labor situation is worsening.

In another swipe at current conditions in Japan, novelist Ryu Murakami published a book entitled, “Bubble Fantasy: What Could That Money Have Bought?” In this satirical analysis of economic policy, Murakami suggests 123 possible uses for the $600 billion that the Japanese government set aside to bail out troubled Japanese banks in 1997. His suggestions include things like digging wells for a billion people without access to clean water, treating every man and woman over 65 to a sushi dinner on Senior Citizens’ Day, and purchasing foreign assets (his suggestions include The Washington Post and the Chicago Bulls basketball team). The book seems flippant, but like “Jubaku,” it taps into a well of social anxiety and discontent and reveals that the Japanese are looking for a different identity that does not necessarily require obeisance to many traditional mores.

The book by Murakami also illustrates another common theme running through many polls over the past year: the Japanese do not believe that the government is serving the people as well as it should. In a Prime Minister’s poll from December 1999, a startling 79.8% of Japanese do not believe that national policy

144 Perceptions reflects the average citizen’s thoughts and feelings. This matches the trends mentioned above that indicate a generally pessimistic mood that is demanding change in the system. When asked what they would like to see the government emphasize in the future, the top five subjects mentioned were: Measures to strengthen the economy (71.9%); Measures to make consumer products more affordable (47.7%); Reform of the Social Security System (46.1%); Employment and Labor issues (45.9%); and Policy to address the aging society issue (45.8%). Government reform, which has possibly garnered more attention than any other issue in the newspapers, appeared in only 31.1% of responses to the survey, eighth on the list. Therefore, it appears that while the government obsesses over how to reform itself, it is missing the fundamental message the people are sending: they are more interested in issues that affect their every day lives.

Despite the fact that many popular concerns are high profile issues in the Diet, it appears that many people still believe that government policy does not reflect the views of the public and is therefore ineffective. Reinforcing this view is the fact that the Obuchi cabinet’s approval rating sank to 39% in January 2000 after peaking at 51% in September 1999. In addition, when the Asahi newspaper ran a poll in December 1999, the results showed that 75% of respondents were dissatisfied with current politics, with over 80% of those in the 35-50 age group giving dissatisfied responses.

When all is said and done, it is no wonder that people are generally pessimistic since each item in the top five has an impact on the future welfare of the population. This simply confirms the fact that the Japanese are extremely worried about their economic prospects.

145 The United States and Japan in 2000: Seeking Focus

Another trend beginning to gain more widespread attention is the rapid aging of Japanese society. According to various sources, Japan will become the advanced world’s second oldest country (after Sweden) by 2005, with the proportion of those over 65 approaching one third of the population by 2010. This is accompanied by a trend toward smaller families and fewer children (shoshika). The net result is that problems of both the elderly and the young are attracting more attention than ever before. This demographic shift is also causing the Japanese to reexamine their societal norms.

In the Social Views (shakai ishiki) Survey, issues regarding the elderly and social security are considered high priorities that people believe the government should face head on. As a result, some Japanese are questioning practices like the seniority system in business (Nenko joretsu seido). The seniority system rewards long service above all else, so it is seen as stifling creativity and innovation since employees cannot expect to be rewarded for exemplary performance. People also wonder whether the social security system will be sustainable with the increasing number of elderly relative to younger generations.

The government has developed some novel ideas to confront the issue. One of the most interesting proposals would allow descendants of Japanese emigrants to return to Japan. Ironically, eligibility would be limited to those who were encouraged to emigrate after World War II in order to reduce the strain on resources caused by a burgeoning population. The government estimates that there are approximately 2.5 million Japanese descendants of the 262,000 citizens who emigrated after the war.

This is a dramatic illustration of how seriously the demographic problem is viewed in Japan because the government has

146 Perceptions traditionally forbidden immigration and citizenship to anyone born outside of the country or who is not of Japanese lineage. However, there is some question as to whether the returnees could be successfully reintegrated into Japanese society due to longstanding negative views of foreigners in general. In a recent court ruling in Hamamatsu, Japan, discrimination against people based on non-Japanese heritage (Brazilians in this case) was declared to be a violation of the law. This sounds obvious to most Americans, but it is the first discrimination case in Japan won by a foreigner. As a result, the Japanese legal system is also forcing the people to reconsider long-held attitudes that were thought to be a part of their identity.

However, this has not necessarily led to a wholesale reconsideration of immigration or welfare policies in Japan. As noted, it is only those who are of Japanese descent that will be allowed to immigrate under pending proposals. This will undoubtedly create some strain domestically as descendants of Japanese emigrants will bring unfamiliar cultural traits into Japan (such as those from Brazil and Peru), gradually creating a situation in which the Japanese could possibly reconsider their collective values over time.

Crime in Japan has traditionally been relatively low compared to many other industrialized nations, particularly the United States. This was often attributed to the severe social stigma attached to criminals and the monopolization of many criminal enterprises by the ya k u z a , the Japanese equivalent of the mafia. There is little doubt that the ya k u z a wields considerable influence in Japan. According to Raisuke Miyawaki, the former national police an t i o r ganized crime chief, “unofficial estimates put Japan’s total bad loans at ¥100 trillion (close to a trillion dollars at the October 1, 1999 exchange rate), and at least half of that debt is yakuza-

147 The United States and Japan in 2000: Seeking Focus related.” In addition, Miyawaki suggests that there are strong links between the ya k u z a , government ministries, politicians, and companies, forming what he called “the dirty quadrangle.” Despite the strong influence of the yakuza on criminal enterprise in the past, recent statistics show that there has been a substantial increase in major crimes. In 1999, the number of violent crimes rose 15.4% over 1998, while property crime climbed 11.1%. Public safety is a rising concern among Japanese. While 38% of Japanese take pride in the safety of the country, those citing worsening crime exceeded those who saw criminal behavior on the decline. In addition, the trend brings into question the effectiveness of the y a k u z a in today’s society. In the past, the organization successfully limited the scope of crime in the country through tactics analogous to mafia activities in the United States. However, recent crime figures show that the traditional role of the y a k u z a may be eroding as other factors begin contributing to increasing crime in Japan. This is yet another example of a traditional Japanese institution (albeit a negative one) losing some of its influence under the pressures for change in the country.

Several high profile criminal cases over the past year support these new statistics. In one case, a young mother murdered her two-year old daughter’s classmate because she resented the other c h i l d ’s mother. In another case, a 17-year old youth hijacked a bus in Kyushu and stabbed three people—one fatally—before being captured by police.

In addition, a major incident in Niigata Prefecture has the public questioning the trust normally given to police. A s described in the Politics section, the Prefectural Police Chief and the Chief of the Kanto Regional Police Bureau decided to continue playing mahjong at a resort after a woman who had been missing for nine years was discovered. The two Chiefs

148 Perceptions decided to stay at the resort and let their subordinates handle the situation. This incident stunned many Japanese and severely damaged the credibility of law enforcement among the public because a case that had been open for nine years was finally cracked, and two high-ranking members of the law enforcement hierarchy chose to value their leisure over the resolution of the young woman’s disappearance. The mistrust is characterized by the 60% of respondents who said that they do not trust the police in a recent Asahi newspaper poll.

In addition to crime and police neglect, over 60% of the population said that drugs are a problem in another poll conducted by the Prime Minister’s office. While drugs have been exceptionally difficult to obtain in the recent past, statistics indicate that availability may be increasing. According to a Sankei newspaper poll, 18.7% of those between 15 and 20 years old know someone who abuses drugs, though only 2.4% admit to using them. The overall statistics on crime are far below those of the United States, but the definite upward trend concerns many Japanese.

The overall result of the crime statistics is that the Japanese are struggling to come to terms with how the increasing rates of crime will impact their society. In addition, will increased public distrust impact law enforcement, and will it bring further change to the Japanese identity by forcing citizens to come to terms with a society that can no longer keep a lid on crime?

Another issue that received substantial press coverage in Japan but gathered little attention in the United States was the debate on restoring the Japanese flag (Hinomaru) and anthem (Kimigayo) to national symbol status. The flag and anthem are

149 The United States and Japan in 2000: Seeking Focus commonly identified as symbols of the militarism that led to World War II and were therefore made unofficial symbols of Japan during postwar reconstruction. The current debate’s initial spark came from a teacher who committed suicide because the local teacher’s union would not let him fly the flag at a graduation ceremony. The emotional exchange that followed revealed latent tension between those with lingering memories of Japanese militarism and aggression and those who desire to establish a more complete national identity that many citizens feel the country lacks at this time.

In the end, the Diet passed a law reinstating the two symbols, but not before a wrenching public debate that some hoped would trigger another discussion over the way Japan’s educational system deals with the militarism of the past. However, not only did historians fail to advance their cause, but the Ministry of Education, which must approve all textbooks used in Japan, required some minor changes in textbooks that seemed to further soften the impact of Japanese actions during World War II. T h e history debate promises to be one that will continue for some time, particularly since many other Asian nations continue to press the Japanese government to account more fully for military excesses in World War II.

According to an article in the Japan Ti m e s, the revisionist faction in Japan has also recently gained some publicity by trying to shift the image of General Tojo, who was executed at the end of World War II, from a war criminal to a hero of Japan who died trying to defend his nation. The stated aim of those supporting the cause is “to improve the image of wartime Japan.” A d d i t i o n a l l y, there was a small diplomatic crisis created by a conference in Osaka in late 1999 that was centered around denying that the Nanjing massacre ever occurred. The Nanjing

150 Perceptions Massacre concerns atrocities that took place when Japan secured the city of Nanjing in 1937 and killed anywhere from 20,000 to 300,000 people, depending on the source of information. T h e s e examples show that the reconsideration of World War II, which has been going on for some time in Japan, has created ripples of tension in the region as well as within Japan.

Taken individually, these events do not signal a dramatically different outlook, but all together, there is a certain element of soul-searching taking place in trying to come to terms with the past. It seems that society as a whole is trying to place the war and its aftermath into a context that the Japanese can be comfortable with, even if it may reopen some old wounds with neighboring countries. By doing so, the Japanese can reflect on the war and use its lessons to refine how the people identify with the country.

The past year has seen a continuation of trends that show a society in transition. The question is whether they will affect the bilateral relationship with the United States. Though the issues noted are considerable and weigh heavily on Japan right now, it is important to note that fundamentally, stability is the rule. This may not extend to all issues or events, but as the recent reaction to Prime Minister Obuchi’s stroke shows, Japan can and will preserve the stability of the system when necessary.

However, this does not mean that we should not worry about Japan, an important international partner. Questions of the past, increasing crime, lack of faith in the government, and general concern over social trends paint a picture of a nation struggling to come to grips with itself and establish a new identity while trying to keep itself together through some difficult transitions. Though

151 The United States and Japan in 2000: Seeking Focus these changes seem to be distant, we should care about them because the internal strain that may accompany the redefinition of the Japanese identity will have an impact on our relations with Japan, whether directly through public pressure on the government or indirectly through electoral politics.

While Japan seems to be in the process of social redefinition and reorientation, the United States seems to be reinforcing and expanding its cultural identity. The driving force behind increasing confidence in the views of Americans is the economic expansion that has continued over the last eight years, despite warnings that the glory days may be over. A concern over various social and moral issues has also emerged as the economy brings unprecedented living standards to the people. The American identity seems to be more intertwined with its economic well- being than ever before, forming a clear divide with Japan. Where the Japanese display pessimism and doubt over the future, Americans are largely optimistic; where the Japanese view violent crimes as a signal that the society is beginning to change for the worse, Americans see falling crime rates as vindication that the United States is on the right track; and where the Japanese seem to have strong reservations about their role in the world, the United States is marching forward in world politics, even if the current vision is a little bit hazy.

The symbol of American economic prosperity has been the seemingly eternal rise of the Dow Jones Industrial Average and the NASDAQ composite index. As the population’s investments have appreciated, domestic spending has also increased at a rapid pace. Underlying this trend are feelings that there is little that can derail this increase in personal prosperity. Despite recent

152 Perceptions “corrections” in the markets, optimism remains high as Americans look to the future. A Princeton Survey Research poll last year found that just over half of Americans do not think that the current expansion will end any time soon. In addition, an amazing 81% are not at all worried about losing their jobs, according to a recent Princeton Survey. This contrasts sharply with the 48% of Japanese who cited the employment situation as a chief concern.

Another stark contrast between the two nations is how people view the domestic economy. In Japan, as shown earlier, 64% of respondents believed that the economy was the chief problem in Japan, while in the United States, according to a recent Gallup poll, 72% rated the current U.S. economy as either “Excellent” or “Good.”

In addition, Americans also seem to feel that the good times will continue as two-thirds said definitively that children would be better off than their parents. Interestingly, in another Princeton Survey, two-thirds also said that young people had unrealistic salary expectations for their first jobs. This is not surprising since young multimillionaires who were able to capitalize on the “dot- com” phenomenon are regularly featured in newspapers and on television.

One could say that the American economy is like a three-ring circus in which new acts appear to amuse and amaze the populace on a daily basis with complete media coverage. This is in sharp contrast to the Japanese economy where bad news dominated the last year. As a result, more and more Americans identify success as the accumulation of wealth, with a young retirement age as the ultimate status symbol. Therefore, wealth and economic status have become more important in how Americans identify themselves, and this is undoubtedly linked to the current optimism in the United States.

153 The United States and Japan in 2000: Seeking Focus

Another issue that seems to divide Japan and the United States is the trend in crime. Crime in many parts of the United States is down markedly over the last few years, particularly in large cities like New York and Chicago. This trend is a welcome change for a country that is often criticized for its rates of violent crime. However, the recent increase in suburban crime has some people wary. Sixty-two percent of parents believe that teenagers face serious social problems such as drugs, violence, or gangs. There is no doubt that this issue has received more attention of late due to tragedies such as the Columbine High School shootings in April 1999 and the shooting of a first grader by a classmate in Michigan this March.

Despite these tragedies, crime does not seem to be in the forefront of most Americans’ minds. Crime did top the list of issues people think Americans will face in the next century, but it still only garnered an 8% share, according to a CBS News poll in December 1999. This is an additional indication that Americans are confident and upbeat about the future. However, in the ongoing presidential campaigns, gun control and other crime fighting measures appear to be major issues. Since 68.2% of Americans approve of laws that require strict rules regarding the sale of handguns, this promises to be an interesting debate when framed against a background of strong and vocal National Rifle Association (NRA) support among conservatives.

There is also great concern about the disintegration of the American family. Eighty-three percent of Americans believe that the most serious threat to the American family is the lack of

154 Perceptions attention that parents give their children. That issue is followed by peer pressure to use drugs (68%) and the influence of objectionable material from the media (67%), according to a Hart and Teeter/NBC/Wall Street Journal poll from June 1999. This appears to be a concern shared by both Americans and Japanese.

The shared views on societal trends in the United States and Japan are remarkable, considering the startling differences in economic performance. Given that economically the two countries are in completely different territories, there must be some common factor that contributes to the unease generated by social issues. One possible explanation for this apparent paradox is that both countries are advanced nations with highly sophisticated information infrastructures. This allows information to flow much more easily throughout society, so local issues can gather national attention, creating a situation where people are inundated with new and unfamiliar ideas all the time. As a result, people are more apt to be uncomfortable with some aspect of the information they are absorbing. Therefore, we must wonder if the common agenda on social trends is more closely related to a society’s level of maturity rather than strictly to the economic situation.

Despite concerns over crime and the family as shown in recent polls, optimism due to economic prowess seems to dominate the American psyche. People are very aware of social issues that will challenge American society in the near future, but most believe that these issues will be resolved in a manner consistent with their own beliefs. Therefore, domestically, the United States has seen a shift toward a stronger identity as an economic power after a period of self-doubt in the late 1980s and early 1990s.

On the other hand, Japan, which saw incredible rises in its

155 The United States and Japan in 2000: Seeking Focus welfare in the 70s and 80s, is being hit hard by the current extended domestic stagnation and finds itself in the opposite camp. The economic conditions have people believing that Japan is on the decline, and as a result, there are far more negative attitudes present in Japanese surveys than are apparent in U.S. opinion polls. Though both countries have concerns regarding the younger generation, Americans are far more optimistic that their children will overcome perceived challenges and lead better lives.

While the domestic views impact the vision that Americans and Japanese have for the international system, the perceptions of both countries seem to align for the most part on priorities in international politics.

While the domestic conditions in Japan and the United State differ significantly, and while these differences highlight two societies moving in opposite directions economically and socially in many respects, both countries seem to hold the same priorities in the international arena. People in both countries agree that the United States will likely be the dominant player in international relations in the next century, with no other country or organization coming within 40% of the United States in the Yomiuri-Gallup poll, which polls both Japanese and Americans annually on their views on international issues.

The general view in both countries is that Japan and the United States are partners when it comes to international affairs, but this does not mean that the two countries see eye-to-eye on all issues.

156 Perceptions

For example, when people in Japan and the United States were asked to define the relationship with the other country, there were some interesting differences. The top three choices in the United States were cooperation (38.1%), friends (30%), and peace (27%). However, the top three for Japan were pressure (21.6%), cooperation (20.2%), and peace (19.8%).

The appearance of pressure as the top choice in Japan indicates that there is a widespread perception among the Japanese that the U.S.-Japan relationship is not on equal terms. This could be a result of the contentious trade negotiations of the 1990s, or the fact that other G-7 nations have recently put strong pressure on Japan to continue financial and governmental reforms. For example, in recent months The Washington Post ran several articles suggesting that American and European countries have been “lecturing” the Japanese on how they should conduct their domestic reform projects. Thus, it is no mystery why the Japanese consider the U.S.-Japan relationship to be one that consists in large part of pressure. This is also highlighted by the fact that 17% of Japanese view the U.S.-Japanese relationship as the extreme example of a master-slave relationship.

When one looks at whom the countries trust, however, there are more similarities than differences. Both Japan and the United States tend to see European nations as trustworthy. One larg e contrast is that while the United States is at the top of the Japanese list, Japan occupies the number twelve spot on the U.S. list. In addition, while Japan tends to look at the East A s i a n region as an opportunity to spread its influence, the United States public sees threats, particularly in regard to China. While 75% of the Japanese see the Korean peninsula as the largest security threat to Japan, a majority sees South Korea as a friendly nation, according to the Prime Minister’s Survey on Foreign A ffairs. T h e discrepancy in the numbers is easily explained by the presence of

157 The United States and Japan in 2000: Seeking Focus the unpredictable North Korean regime.

For the United States, the Middle East tops the list of threats at 52%, but China is close behind at 50%. Though the appearance of the Middle East at the top of the list is likely due to the perception that the United States depends heavily on Middle Eastern oil, Japan actually is far more dependent on the Middle Eastern countries for energy needs. As a result, the United States public places greater importance on the Middle East, which arguably is not as strategically important. However, China’s position is ominous as the recent public profile has risen dramatically in the United States with President Clinton’s permanent normal trade relations proposal on the table.

In the United States, there is a distinct ambivalence about participation in international organizations. In separate polls conducted by Princeton Survey Research, while 72% of Am e r i c a n s believe that the United States should play a leading role in world leadership, 77% said that America should concentrate on domestic problems rather than problems overseas. This personality split is one that often seems to plague U.S. policy makers trying to please both allies and individual constituencies, creating policies that some believe are inconsistent and destabilizing. In addition, it shows that while Americans believe that the United States should be involved in world affairs, the distinct preference is for policy to revolve around issues closer to home.

In addition, the threat perceptions have shifted as well. Wh i l e Americans focused largely on Eastern Europe and the Soviet Union during the Cold War , China is now seen as the greatest potential military threat to the United States. However, when the focus is shifted to economic threats, Japan still tops the list at 27%

158 Perceptions of the population, though China is in a statistical dead heat at 26% despite the fact that it maintains the largest trade surplus with the United States. In Japan, there is also evidence pointing to a greater willingness among the people to take a more active role in world politics. Just over 69% of Japanese believe that Japan should have a permanent seat on the U.N. Security Council. In addition, 48.2% advocate maintaining the current level of participation in U.N. peace keeping operations, but a sizable 29.9% minority would like to see increased Japanese participation. Since there is also a movement among politicians to change Article IX of the Japanese Constitution (which renounces the right to wage war in perpetuity), it appears that many Japanese desire a greater role in world politics.

In addition, there is a strong movement in political circles to increase or at least maintain the current level of Official Development Assistance (ODA). Just over 70% believe that this is the case, and of those, almost half cited the duty of developed nations to aid developing nations and that contributing to development aids the quest for world peace. In short, the Japanese tend to be very optimistic regarding the impact they may have on global peace, and the prolonged economic stagnation has not dampened the people’s enthusiasm for this goal. In fact, globalization (gurobaruka) and integration (togoka) are common words in Japanese media.

Japan is not only ambivalent over its participation in U.N. operations, but there is also a clear divide over the role of U.S. bases in Japan. The linchpin of the U.S.-Japan relationship is the

159 The United States and Japan in 2000: Seeking Focus security treaty that allows the United States to position 47,000 troops on bases around Japan. This relationship has engendered some heated debate over the last several years, with many people supportive of the arrangement, while many others have serious issues with the treaty. The opposition is particularly vocal on the southern island of Okinawa, where 75% of U.S. facilities in Japan are located. Recently, the security guidelines have been revised and laws passed to mandate local government cooperation with U.S. forces during conflicts in the area.

Japanese residents seem to be split in their opinions of this arrangement. Forty-eight percent of respondents to a Yomiuri poll in July 1999 voiced the opinion that they support the guidelines law, with only 18% voicing opposition. However, when asked what the prefectural governments should do if asked by the central government to provide aid to the U.S. military, only 17% gave an unqualified response that the governments should cooperate. Sixty-four percent qualified their answer by saying the prefectures should cooperate on a case-by-case basis.

These two questions show the ambivalence that Japanese citizens have toward the possibility of being involved in a military operation close to home. There is also an even split among Japanese citizens as to whether the security treaty creates a safer environment. One-third of respondents said the relationship helped secure safety for Japan while 28% said it was a threat to safety, and 35% responded “it is difficult to say.” This splintered view of the relationship parallels popular splits on related issues like Constitutional revision as well.

From the views expressed on international participation and military action, it is not difficult to see that in both America and

160 Perceptions

Japan, the people feel quite uncertain about their countries’ roles in the international arena. The continuing debate in Japan regarding U.N. operations and the uncertainty in the United States about postcold war policy is exposing major faults in international policy. In addition, it does not appear likely that the conflicts will be resolved in the near future due to the unsettled state of Japanese politics and the current split in the U.S. Congress between “internationalists” and those who favor looking inward.

This chapter has examined how the people of Japan and the people of the United States view domestic, international, and bilateral issues. From the information gleaned from newspapers, surveys, and a variety of other sources, it is clear that Japanese identity is in a state of flux, with no particular destination in sight, which is highlighted by the fact that just 34.6% of people surveyed in Japan believe that their country will be better off in ten years, according to a survey published this April by Dentsu. In the same survey, 59.5% of Americans believe the United States will be better off in ten years, which lends strong evidence to the fact that the American identity is still largely intact, and in many ways becoming stronger due to the continuing economic surge. It is apparent that the relative shift of these identities leaves open the possibility of conflict in the future. If Japan remains “down” while the United States remains “up,” issues such as trade negotiations, the security relationship, and general bilateral relations could suffer in the future. Therefore, it is important to gauge the public mood in each country not just in relation to the domestic situation, but also in how the populace views global issues.

So what does all this mean? Both Japan and the United States share similar views of the world. It is very important, however,

161 The United States and Japan in 2000: Seeking Focus that the two countries communicate clearly since their policies will have an impact far beyond their borders in this day and age. The impact of the combined economies of Japan and the United States on the well-being of the rest of the world is immense. A crisis in bilateral relations could have reverberations far beyond the borders of our two nations. Because of this, U.S.-Japan relations are very important not only bilaterally, but also mu l t i l a t e r a l l y .

If the people in Japan and the United States should begin to alter their views of each other, it could have serious consequences on the overall relationship. After all, it is the citizens who elect the officials who ultimately make the decisions on how the countries interact on an official level. Therefore, the bilateral relationship matters because Japan and the United States have unparalleled economic power that can influence the direction of the entire global economy.

However, the influence generated by the two countries is not limited to the economic realm. The United States’ presence in East Asia has been instrumental in maintaining stability in the region over the last 50 years, and the U.S.-Japan security relationship is a linchpin in the United States’ global security apparatus. It allows the military to project power and protect allies in the region in close proximity to Japan. Therefore anything that threatens the stability of the bilateral relationship, whether domestic or foreign in nature, directly impacts the United States’ national security. The relationship matters because we need to protect our own interests and provide support to our allies in the long term.

We must also consider the effects that our cultures have on each other. The influence of United States mass media around the world is pervasive, and that of Japan is growing, particularly in

162 Perceptions the East Asian region. However, as anyone with children in the United States knows, Pokemon attests to the fact that Japanese pop culture is finding its way into the United States as well. Add to that Japanese consumer electronics, an i m e (cartoons), and automobiles, and it becomes obvious that even though most observers see the direct influences of American pop culture in Japan, Japanese culture does influence us here at home. Th i s matters as well because as cultures gain global exposure, it is important to understand where people are coming from, and how they view the world through their own media.

Recent Yomiuri-Gallup polls indicate that both countries agree the United States will play a leading role and that China is something of an economic and military wild card in the region. Ho w e v e r , while the Japanese seem to be questioning their identity and what role their country should play in the international system, Americans are relatively confident that the United States should and will continue to play a dominant role in world politics. In addition, each country views the other as important although Japan is decidedly lower on the average Am e r i c a n ’ s radar screen than the United States is in Japan. This is not necessarily indicative of a troubled relationship since the United States tends to play a greater role in Japanese affairs than vice versa. The bottom line, however, is that the United States and Japan must work together in order to ensure stability in the overall relationship. Through geostrategic st a b i l i t y , political and business reform in Japan, and continued prosperity in the United States, joint goals can be achieved, and perhaps the views of the average citizen will converge so that there is no longer a major perception gap.

163 164 s this book went to print in May 2000, Prime Minister Yoshiro Mori was wrapping up his tour of G-8 countries. AOrganized ostensibly to introduce Japan’s new leader and reconfirm the agenda for the upcoming summit in Okinawa, the tour signified a desire to reassure the world that Japan is willing to accept a greater leadership role in global affairs. Eagerly anticipating the attention bestowed upon every host of a G-8 summit, Japan selected themes—the IT revolution, development, health, and culture—that truly speak to a global audience. The Summit presented Japan with an opportunity to develop an agenda for multilateral dialogue; such initiative would also be welcomed at the bilateral level. As the world’s two largest economies, Japan and the United States should continue to harness their resources to address global issues, but they must first reassure each other that the bilateral relationship is on solid ground.

The events of the past year indicate that while dialogue continues, both countries would benefit from increased attention to issues that could affect the future of the bilateral relationship. As the American economy soars, the Japanese government struggles with prescriptions for renewed growth and a challenge from impatient entrepreneurs. Irritants in the bilateral security relationship prevent smooth implementation of the recently approved guidelines for cooperation. Politically, Japan is in a state of transition and awaits the outcome of a U.S. presidential campaign that features two different brands of American internationalism. Japanese frustration with government and doubts about national identity dominate the world of public opinion, and citizens in both countries share concerns about social issues that

165 The United States and Japan in 2000: Seeking Focus plague their societies. These developments could present our leaders with great challenges, and joint leadership is required to meet them.

Last year’s version of this book asked a number of interesting questions: How can Japan restore economic growth? What role will Japan play in maintaining East Asian security? How can the allies agree on arrangements for mutually beneficial economic relations? We are still searching for the answers, perhaps because the bilateral relationship has lost some of its focus. The United States and Japan will continue to have their differences, but we cannot allow minor irritants to hamper a commitment to peace and stability that has characterized the Alliance for decades. As new leaders emerge in both countries, it is important to address the issues that could test the relationship in the near future. This requires focus, something we can look forward to in the coming year.

166 May 1999

11 Japan gives up effort to pay Korean comfort women from “private fund.”

19 Publisher backs out of plan to release “Rape of Nanking” in Japanese.

24 Defense Guidelines-related legislation passes Japanese Diet.

27 Musashimaru becomes second foreign yokozuna, joining Akebono.

June 1999

3 United States extends normal trade relations status to China.

4 Prime Minister Obuchi promises Asian aid package.

8 Ichiro Ozawa calls for referendum on constitutional revision at Liberal Party Convention.

9 Diet agrees to establish committees to review constitution in 2000, with focus on Article IX.

15 Goodyear buys Sumitomo Rubber to create largest tire company.

16 Former Defense Secretary Perry releases report on North Korea and trilateral policy coordination among United States, Japan, and South Korea.

167 Year in Review

17 Japan goes to WTO with agricultural issues.

21 G-8 meets in Cologne.

24 Steel quota bill defeated in the U.S. Senate.

25 Japanese Education Ministry demands flag and anthem be included in textbooks.

26 President Clinton says Futenma issue should be resolved in time for Okinawa summit.

July 1999

1 Japan refuses to send police to Kosovo.

Diet approves $1 billion funding for Korean Peninsula Energy Development Organization (KEDO).

7 Obuchi asks Clean Government Party (Komeito) to join ruling coalition.

8 Prime Minister Obuchi visits China.

12 Tokyo Stock Exchange announces plan for MOTHERS small company stock exchange to compete with Japanese NASDAQ.

14 Japanese Diet Revitalization Bill passes; bureaucrats can no longer speak on behalf of Diet members.

Taiwan President Lee Teng-Hui says China and Taiwan have “special state-to-state” relations.

21 United States retaliates for EU ban on beef with 100% tariff on gourmet food imports from Europe.

168 The United States and Japan in 2000: Seeking Focus 29 United States and Russia agree to discuss START III; Russia says U.S.-Japan Theater Missile Defense (TMD) undermines Asian balance of power.

30 Russia receives IMF bailout of $4.5 billion.

August 1999

2 China seizes Taiwanese vessel off Matsu, claims it was smuggling.

Japan announces plan for labeling some genetically modified foods.

4 Japan’s Justice Ministry says media exempt from wiretapping law.

6 GM, in venture with Suzuki, will be first U.S. carmaker to build in Japan since World War II.

Japan and South Korea conduct joint naval search and rescue exercise.

16 Japan and United States sign agreement on joint development of TMD.

21 Dai-ichi Kangyo, Fuji, and Industrial Bank of Japan to merge as world’s largest bank group in terms of assets.

23 Japanese Lower House passes Wiretap, Flag & Anthem, and ID Code bills.

September 1999

2 Birth control pills available for the first time in Japan.

169 Year in Review

9 United States says it will work with Japan on genetically- modified food rules in APEC.

Farm Ministry allows sales of cloned beef, provided it is labeled.

13 North Korea announces it will “freeze” Taepodong missile testing program.

19 Japan provides economic assistance, but no personnel to East Timor following weeks of violence.

21 Taiwan hit by major earthquake, Japan responds promptly with a rescue team.

Obuchi wins LDP presidential race, holding off Kato and Yamasaki challenges.

23 Court admits Japanese atrocities in China during World War II, rejects need for compensation.

27 Yukio Hatoyama wins Democratic Party election, takes over from Naoto Kan.

29 Ripplewood acquires Long Term Credit Bank of Japan.

30 Tokaimura processing plant, six months after receiving clean bill, has another nuclear accident.

October 1999

4 Akio Morita, founder of Sony, dies at age 78.

5 Prime Minister Obuchi reshuffles cabinet.

170 The United States and Japan in 2000: Seeking Focus 12 Japan claims it is Y2K ready, but encourages citizens to stockpile goods in advance.

Pakistan’s Prime Minister Nawaz Sharif ousted in military coup, General Parfaiz Musharaff takes over.

13 Japan’s per capita GDP falls below U.S. rate.

15 Sumitomo and Sakura banks announce merger.

18 Nissan “Revival Plan” will cut output and 10,000 jobs over four years; Prime Minister Obuchi derides plan as un-Japanese.

22 Parliamentary vice minister of defense Shingo Nishimura resigns after controversial remarks in Weekly Playboy interview regarding nuclear weapons.

23 Prime Minister Obuchi and ROK President Kim Dae Jung meet, reaffirm bilateral cooperation.

26 One week after Nissan, Mitsubishi announces cut of 10,000 employees over four years.

Showa Shell and Japan Energy complete oil industry merger in response to Nippon Mitsubishi-Cosmo union of October 13.

November 1999

2 Fuji Kosan drops out of gasoline market, plans to cut payroll 50%.

Japan says Chechnya is an “internal affair” of Russia.

171 Year in Review

3 Japanese government agrees to pay pensions to ethnic Korean World War II veterans.

12 Diplomat Koichiro Matsuura becomes UNESCO Secretary General.

15 Tokyo Governor Ishihara pays personal visit to Taiwanese president Lee, calls Taiwan a “state.”

Pokemon Movie has record-breaking opening weekend in United States.

United States and China reach bilateral WTO agreement.

19 Lower House approves more government power against cults, particularly Aum Shinrikyo.

Japan files WTO complaint against United States steel- dumping policies.

23 Nago chosen as site for Marine Airport on Okinawa.

27 ASEAN + 3 meeting, Obuchi, Kim, and Zhu meet for the first time.

29 ASEAN suggests making Miyazawa fund permanent.

Obuchi announces support of Eisuke Sakakibara to replace Michel Camdessus as IMF managing director.

30 Softbank enters the top five market capitalized firms in Japan. December 1999

1 Murayama Mission travels to DPRK, seeks to jumpstart Japan-DPRK normalization talks.

172 The United States and Japan in 2000: Seeking Focus 4 WTO Ministerial in Seattle breaks down.

9 United States POWs from WWII sue Japanese firms.

10 GM takes 20% of Fuji Heavy, maker of Subaru cars, for $1.4 billion, completes stock deal with Italy’s Fiat for cross-ownership in March 2000.

Sony begins search for partners in online banking venture aimed at consumers.

22 United States vote in U.N. General Assembly saved when it agrees to pay $151 billion in dues, including $100 million in arrears.

31 Yeltsin resigns, hands presidency to Premier Vladimir Putin. January 2000

1 New Year begins without major Y2K glitches.

12 United States conducts final test of defense missiles.

19 “The Report of the Prime Minister’s Commission on Japan’s Goals in the 21st Century” calls for more immigration, English as a second language, and direct election of premier.

24 Delegates from 140 countries gather in Montreal to negotiate a Biosafety Protocol, including genetically modified foods.

26 Chinese government officials criticize Osaka conference that called the “Rape of Nanking” the “the biggest myth of the 20th century.” 28 In midst of opposition boycott, Lower House votes to limit number of proportional representation seats in Diet.

173 Year in Review February 2000

1 Standard & Poor’s considers downgrading Japanese sovereign debt.

Hackers attacked Japanese government sites for eight days in response to Osaka conference on Rape of Nanking.

6 Fusae Ota wins election as Osaka governor, replacing Knock Yokoyama who resigned in December 1999 due to a sexual harassment lawsuit.

Economic Planning Agency director Taichi Sakaiya admits that Japan’s economy slipped back into recession in the third quarter of Fiscal 1999.

7 Tokyo Governor Shintaro Ishihara proposes 3 percent tax on all funds held by large banks operating there.

Opposition ends eleven-day boycott of Diet after ruling coalition passes ¥85 trillion budget.

10 Second rocket failure in four months threatens development of Japanese space program.

13 Softbank joins with World Bank’s International Finance Corp. to develop Internet infrastructure in developing countries.

March 2000

13 Economic Planning Agency announces Japanese economy contracted 1.4% in Oct-Dec 1999 (5.5% annual rate).

16 Wakanohana retires from sumo after 15 years of wrestling.

174 The United States and Japan in 2000: Seeking Focus European Bank for Reconstruction and Development President Horst Köhler wins support of United States to become Managing Director of IMF.

18 Chen Shui-bian of the Democratic Progressive Party (DPP) wins Taiwanese presidential election.

26 Vladimir Putin elected President of Russia.

27 DaimlerChrysler takes 34% of Mitsubishi, leaving Toyota and Honda as the last wholly independent Japanese auto companies.

31 Mount Usu erupts for first time in 22 years, with warnings of possible larger eruption.

April 2000

3 Chief Cabinet Secretary Michio Aoki becomes acting Prime Minister after Obuchi falls into coma, late announcement of events sparks criticism of government.

5 LDP Secretary General Yoshiro Mori becomes Prime Minister and announces new cabinet, new ruling coalition with new Conservative Party composed of 24 former Liberal Party members.

DDI, KDD, and IDO phone companies announce October 1 merger to challenge NTT. 10 North and South Korea agree to hold talks in June.

16 Protesters from Seattle WTO meeting try to disrupt annual IMF and World Bank meetings.

24 Secretary General Kofi Annan criticizes National Missile Defense at U.N. meeting on Non-Proliferation Treaty.

175 Year in Review

28 Prime Minister Mori visits Russian President Vladimir Putin to begin tour of G-8 nations.

May 2000

5 Prime Minister Mori meets President Clinton.

176 ABM Anti-Ballistic Missile Treaty BOJ Bank of Japan CTBT Comprehensive Test Ban Treaty CGP Clean Government Party DPJ Democratic Party of Japan DPRK Democratic People's Republic of Korea EPA Economic Planning Agency FRC Financial Reconstruction Committee GDP Gross Domestic Product G-7/G-8 Group of Seven/Eight Industrialized Countries HNS Host Nation Support IMF International Monetary Fund IPO Initial Public Offering JCP Japan Communist Party JGB Japanese Government Bonds KEDO Korean Peninsula Energy Development Organization LDP Liberal Democratic Party LP Liberal Party M&A Mergers and Acquisitions MITI Ministry of International Trade and Industry MOF Ministry of Finance NATO North Atlantic Treaty Organization NGO Non-Governmental Organization NMD National Missile Defense NPT Non-Proliferation Treaty ODA Official Development Assistance PKO Peace Keeping Operations PNTR Permanent Normal Trade Relations SACO Special Action Committee on Okinawa

177 SDF Self Defense Forces SDP Social Democratic Party START Strategic Arms Reductions Talks TCOG Trilateral Coordination Oversight Group TMD Theater Missile Defense UN United Nations USTR United States Trade Representative WTO Word Trade Organization YOY Year-on-Year

178