Japan’s triple disaster has illuminated the country’s vulnerabilities. Tokyo Electric Power Co. (Tepco), the beleaguered operator of the Fukushima nuclear reactors, previously announced that it will take six to nine months to stabilise the still unstable reactors.

In the meantime, energy supply will continue to be disrupted. The bond market is starting to shake following the savage downgrading of Tepco corporate bonds, sparking fears for the collapse of the Japanese government bond.

Japan is facing numerous challenges, but the country may yet emerge stronger for its challenges. As world history amply demonstrates, crisis can breed opportunity. At a recent dinner in Tokyo, senior Japanese business leaders, saw the crisis as an opportunity to move closer to China.

Supply chain disruption, caused by sudden declines in parts supply and production centre productivity is a pressing challenge. One executive noted that disruptions to his supply chain caused by the triple disaster had left him with little choice but to expand his business and export base in China. He would also urge his parts suppliers to move to China, he added, as some of their factories had been devastated. Another chimed in: ‘That’s right. The uncertainty of the energy supply is really the drawback here. You have to keep your production steady to stay in business, and expanding your business in China is a way to do so — whether you like it or not.’ Honda and Mitsubishi Motors have been forced to cut down their China operations because of the abruptly reduced supply of semi-conductor parts from the Tohoku area.

Both countries stand to gain from this new approach to international business. Chinese markets and factories are increasingly important in the global operations of Japanese businesses, particularly as they seek to diversify parts supply-chains and, in some cases, transfer these operations to China. China, meanwhile, is anxious to acquire Japanese manufacturing technology. China’s recovery demands could well be a catalyst for serious change in Sino-Japanese economic relations. At the very least, as Guo Dinping, Deputy Director of the Institute of International Studies at Fudan University, puts it, Japan’s recovery demands will be a ‘booster to China’.

This is the moment of truth as to whether or not Japan will remain a global power. While the US-Japan alliance will continue to be central to peace and security in the Asia-Pacific, negating a more stable and trustworthy Sino-Japanese relationship will be essential to rebuilding. Japan must also be willing and able to build strategic economic ties with emerging markets. Future decisions on budgeting for official development assistance will represent a significant test of this resolve.

Strong leadership will be needed to translate crisis into opportunity, and Japan’s current leadership may not be able to deliver. Without this kind of leadership, the disaster may be a catalyst for a parochial take on Japan’s future, that would waste current opportunities and marginalise Japan on the global scene.

The road to deepening mutual trust between Japan and China will not be smooth. China responded quickly following the triple disaster in Japan. Although its motives are mixed — commercial ‘booster’ effects, a sense of vulnerability to ‘Jasmine revolution’ and inflation, and the impressive demonstration of US-Japan joint operations, China is clearly signalling for a deepening of the Sino-Japanese relationship. Despite this, new mergers and acquisitions incentives between the two countries could engender a popular anti-China backlash in Japan. The Chinese September ban on rare earth exports to Japan has also caused some resentment. Top business executives are careful not to mention the ‘C’ word (China) in describing plans to transfer production and research and development to China. One executive at the dinner cautioned they should not broadcast their thinking. ‘People will be upset to hear you are abandoning them when they are in deep trouble.’

Reorienting the relationship and building closer ties will stabilise the region, and Japanese initiatives into civilian nuclear safety and green energy may help China respond to urgent domestic challenges.

Surveying the course of history, Japan’s new tilt to China will seem not dissimilar to the trajectory of its recovery and revitalisation following the Pacific war. Then, Japan’s new economic ties with the US constituted the spark to jump-start Japan’s recovery and revitalisation. But the success of the manoeuvre hinged critically on the ability to develop political stability and mutual trust between the US and Japan. This time around, the spark must come from the China engine.

Yoichi Funabashi is the former editor-in-chief of the Asahi Shimbun.

1. Keeping Japan’s disaster-damaged auto supply chains competitive
2. The Trilateral Summit: a new era in China-Japan relations?
3. Improving Japan-China relations and the global trading system

This month the Asia-Pacific region takes center stage in global diplomacy.

A Group of 20 summit meeting is being held in Seoul, followed by the Asia-Pacific Economic Cooperation forum summit meeting in Yokohama.

U.S. President Barack Obama is also scheduled to visit India, Indonesia, South Korea and Japan in November.

A number of pressing issues will need to be tackled at those forums. Delegates must figure out whether a new international order can be created that would move from the framework established after World War II in which the Group of Seven advanced economies managed the world economy, to one that includes newly emerging economies such as China, India, Brazil, Turkey and South Africa.

Another issue will be securing peace and stability of the Asia-Pacific region, which continues to be the economic growth center of the world.

In the newly emerging economies around the world, about 70 million people join the ranks of the middle class each year.

Along with the advance of globalisation, however, there has been a corresponding widening of economic disparities and a lack of opportunity among nations.

Although an emerging middle class can provide stability to a society, it can also serve as a force seeking to overturn the status quo through its demands for justice and distribution of wealth.

Members of the middle class participate in a cyberspace that is boiling over with guerrilla-like democracy and boorish nationalism.

Asia must stimulate regional demand to place it on a course of autonomous growth. One reason is that the limits of growth have been reached through the accumulation of current account surpluses by exporting to the United States.

The region must also overcome the hurdles associated with problems involved in energy, water and the environment.

Asia’s dependence on petroleum imports stood at 36 percent in 2005, but the figure is estimated to expand to 65 percent by 2030.

Against this background, Japan has lost sight of its position in Asia.

It cannot continue to cling to the G7 forever. At the same time, it remains to be seen if the G20 can serve as the new control tower for macroeconomic policy. APEC also continues to function at a decelerating pace.

The time has come for Japan to return to its starting point as a trading nation and establish a trade and investment strategy that will further connect it both to the Asia-Pacific region and the world.

Asians by and large seem to feel that their region will grow, no matter what. One reason for this is the animal spirit that drives many Asians’ success.

More than half a century ago, French President Charles de Gaulle referred to Prime Minister Hayato Ikeda as ‘a transistor salesman.’

Now, the nations of Asia are salesmen to the world of a whole line of products and services, including home electronics, personal computers, automobiles, nuclear power plants and call centers. Yet, many Asians take for granted the liberal international order that sustained their miraculous growth.

However, three major challenges lie ahead for the economic integration of this region.

The first is the course of China’s state capitalism.

Friction with neighboring nations will be inevitable if China further seeks vertical economic integration of Asia using its gigantic domestic market as a lever and by implementing industrial policy that threatens to violate free trade rules, as in the recent unclear export controls on rare earth metals.

What will be important is for all nations, including China, to abide by and to foster a free and liberal international order based on the rule of law. That will be vital for sustained peace and stability of the region and the world.

The second challenge will be the growing economic gap.

There will be a need to promote economic and social development along with market liberalisation.

At its inauguration, APEC placed liberalisation and development cooperation as its two main pillars.

Subsequently, it bent to pressure from the United States and focused almost exclusively on liberalisation.

Fortunately, the Obama administration has stressed development along with diplomacy and defense to prevent threats from failed states as well as terrorism.

In particular, economic and technological cooperation for the development of human resources will be vital for closing the economic gap.

Japan should cooperate with the United States to place development cooperation as a core theme of APEC.

The final challenge concerns the inability of key nations of the Asia-Pacific region to come up with a shared vision of international order so they can cooperate on policy.

In particular, no progress is being made on developing a mature relationship between Japan and China.

The history of European integration that began with a coal and steel community and led eventually to the formation of the European Union has been described by the late historian Tony Judt in his work, ‘Postwar: A History of Europe Since 1945,’ as ‘a political vehicle in economic disguise, a device for overcoming Franco-German hostility.’

There should be further efforts for a regional ‘vehicle’ in Asia that could lead to a more harmonious coexistence between Japan and China.

Japan will host the APEC summit meeting this year for the first time in 15 years. Although Japan was responsible, along with Australia, for bringing about the establishment of APEC, it has fled from the market liberalization that was the major purpose of the endeavor.

The ‘lost 20 years’ of Japan in the post-Cold War era is also a 20-year period when it turned its back on liberalization. Through its protection of vested interests, Japan’s politics and economics have stagnated, its investment and employment have shriveled and its agriculture has been exhausted.

Learning from those lessons, Japan must resolve to open up its markets.

The time has come for Japan to clearly state to the world its intention to participate in negotiations towards a Trans-Pacific Partnership agreement.

The negotiations were begun by Singapore, New Zealand, Chile and Brunei, four small nations eager to spread liberalization within the region. The trans-Pacific, multilateral negotiations seek to establish a tariff-free and pure free trade agreement.

In the background to the move is the fear felt by smaller nations about being swallowed up in a vertical economic integration system that China favors.

The TPP seeks a horizontal integration among the economies of the region. It would re-establish free trade rules and the principle of the rule of law.

All nations, big and small, would be equal under such an arrangement, an absolutely vital principle of rule of law, as well as the foundation for a free and open international order.

The TPP would be nothing more than an economic alliance for such an order. Both the United States and Australia have entered into negotiations to join the TPP.

Japan should also join the negotiations and take part in the writing of the rules from the outset. However, the government still appears to be hesitant about taking that jump.

On Oct. 24, all members of the Cabinet of Prime Minister Naoto Kan gathered along with executives of the ruling Democratic Party of Japan for a study session on the TPP.

One participant was Tadahiro Matsushita, a senior vice minister of economy, trade and industry.

Although Matsushita now belongs to the People’s New Party, he once belonged to the Liberal Democratic Party, where he was a dyed-in-the-wool member of the farm lobby. In the winter of 1993, he took part in a day-long sit-in in front of the Diet in opposition to liberalizing the rice market under the Uruguay Round of trade talks.

Matsushita subsequently flew to Geneva, where the GATT (General Agreement on Tariffs and Trade) headquarters were located, and joined with South Korean legislators to shout their opposition to liberalization of their rice markets.

At the October study session, however, Matsushita took a different tone.

‘I now feel deep regret. What was the result of our absolute opposition to agricultural liberalization? Did that strengthen Japanese agriculture? About 6 trillion yen in funds has been funneled to farming villages to deal with the effects from the Uruguay Round, but about 70 percent of it went to public works projects. It did not help agricultural reform at all. During the period of dealing with the Uruguay Round, the agricultural income per farm household declined by 32 percent.

‘On the other hand, South Korea, whose lawmakers joined us in the sit-in, has pushed for reform of its agricultural sector over the past 15 years. It has signed free trade agreements with the European Union and the United States. We must not repeat that mistake again.’

Matsushita’s statement underlined the strategic connection between Japan’s trade and agriculture policy.

There is strong resistance within the DPJ to the TPP. However, if the DPJ should barricade itself behind a protectionist banner like the LDP had done while it held the reins of power over the past 20 years, what would be the significance of last year’s historic change in government.

Wasn’t one campaign pledge of the DPJ to move spending away from concrete, and the public works projects it symbolizes, and toward people, in this case, independent farmers?

At the very least, the LDP created the Japan-U.S. security alliance that has served as the foundation for prosperity in Japan and Asia in the second half of the 20th century.

The DPJ should create an economic alliance that will be the base for a free and open Asia-Pacific region in the 21st century.

Yoichi Funabashi is editor in chief, Asahi Shimbun.

This article first appeared here in Asahi Shimbun.

1. BRICS and the international economic order — an idea whose time has come
2. Rudd: What sort of international order do we need in the 21st century
3. India in a liberal Asia

I have serious reservations about the way the Chinese government acted toward Japan over the incident involving a violation of territorial waters near the Senkaku Islands by a Chinese trawler, and especially, after the boat’s captain was arrested.

In Japan, public opinion has been highly critical of the government led by the Democratic Party of Japan, with its decisions described as ‘a national disgrace brought about through diplomatic defeat.’ Admittedly, many measures taken by the government were half-hearted, from the lack of any decision by prosecutors to indict the captain, to the handling of a Japan Coast Guard video of the collision between the trawler and two patrol vessels.

One cannot help but conclude that Japan is either still clumsy in its diplomatic efforts or simply a poor fighter. In comparison, the various measures taken by the Chinese government to apply pressure on Japan can only be described as a diplomatic ‘shock and awe’ campaign.

My take on the incident is as follows:

The captain was arrested by Japanese authorities for allegedly interfering with the duties of public officials. The incident demonstrated that Japan had effective control over the Senkaku Islands by carrying out legal procedures.

In addition, US Secretary of State Hillary Clinton clearly stated that any area under the administrative control of Japan would be covered by Article 5 of the Japan-US Security Treaty, which obligates the United States to come to the defence of Japan.

That was a public acknowledgement to the world that the Senkaku Islands were under the effective control of Japan.

On the other hand, China was able to publicly show to the world that ‘a territorial issue’ does exist over the Senkaku Islands, in contrast to Japan repeatedly emphasising that no territorial issue existed.

Viewed in this way, I believe this contest can be said to have ended in a draw.

Of course, I mean a draw in the sense that Japan and China were even in the manner in which they both unexpectedly demonstrated how underdeveloped both of their diplomatic efforts were.

This summer when I visited the Shanghai World Expo 2010, I was struck by a visit to the China pavilion.

The panels on display presented a view that China’s modern history began in 1979 with the economic reform and open door policy. In other words, the past 30 years of economic development and the path to becoming an economic superpower were the genesis of modern China.

However, ‘China’s miracle’ was made possible by the fact that the international environment surrounding China was one of peace and stability. There was no mention of that fact in the panels.

That international environment was fostered by the low-profile stance called for by the late Chinese leader Deng Xiaoping (as well as the peaceful rise doctrine that was an extension of that stance) and the stabilising power of the Japan-US security alliance.

In addition to the Senkaku Islands issue, China has recently created tension with a number of neighbouring maritime nations. This maritime issue is the first critical test to the peaceful rise doctrine at its very roots.

A Chinese friend of mine, a successful entrepreneur, laughed about my concern and said, ‘The peaceful rise concept was one that was taken when China’s standing was weak.’ If that is the case, what will be the principles China employs when it is in a stronger position? Would it be the position discussed at the Central Economic Working Conference held last winter of being ‘a superpower that does not have responsibility forced upon it?’

Of the questions I had which I mentioned earlier, the very first pertains to this point.

The second question I have is about China’s maritime views. If China tries to draw a maritime Maginot line of sorts, by turning the waters of East Asia into its own ‘near sea,’ treating it as surrounding waters and capturing it as a ‘core interest,’ it could lead to gaps within the Asia-Pacific region, which is a maritime civilisation.

At the ASEAN Regional Forum meeting in Hanoi in July, China found itself isolated as the foreign ministers of 12 nations expressed concerns about Beijing’s actions in the South China Sea.

The final question I have concerns the fact that China used economic cards in its retaliatory diplomacy against Japan.

One example is the virtual ban on exports of rare earth metals to Japan. Although Beijing denied any such ban had been imposed, there is no doubt that China used economics as a diplomatic tool, be it the rights to gas fields on the seabed of the East China Sea or the safety of Japanese company employees.

It would be ironic and tragic if the export ban against Japan was the salute to mark China passing Japan as the world’s second biggest economy.

Are the Chinese people aware of the extent to which distrust toward China was triggered in not only Asia, but in the West as well, over China’s indiscriminate economic retaliatory measures?

What is difficult to fathom is why China does not do more to jointly protect and further foster the ‘liberal internationalist order’ that has brought so many benefits to China in terms of currency, trade and maritime interests..

There are still some uncertainties because the emotions of the people are still boiling over. However, if China continues to act as it has, we Japanese will be prepared to engage in a long, long struggle with China.

More specifically, it would involve the following:

Relations with China would have as the main objective the pursuit of practical benefits. That would remain unchanged.

However, we would have to take stock of the dreams, ideals and pursuit of a frontier that Japan held about China after World War II, and especially after diplomatic relations were normalised.

Japan would discard its naïveté, lower its expectations, acquire needed insurance and, in some cases, cut its losses.

China would be treated with respect and moderation. A plain and ordinary level of exchange would be considered acceptable.

Japan would not hold on to the fantasy of creating a ‘mutually beneficial relationship based on common strategic interests.’

Japan would be prepared to deal with China with bitter resolve tinged with a form of resignation.

This would also apply to how Japan relates with Taiwan.

In protest against the captain’s arrest, a fishing boat carrying Taiwanese activists entered the waters near the Senkaku Islands. The Taiwanese government dispatched 12 coast guard ships as an escort.

While the ship had to turn around after being stopped by the Japan Coast Guard, the Taiwanese Foreign Ministry issued a statement in protest that said, ‘Japanese ships interfered with the fishing boat and confronted Taiwan coast guard ships.’

The expression of protest against Japan was nothing more than playing with a political fire. Taiwan is emerging as a new risk factor in the Japan-China relationship.

Last week, I was interviewed by the Japan correspondent for a US public broadcasting radio network.

The first question she asked was, ‘For Japan, is the Senkaku shock bigger than the Nixon shocks?’ She was referring to the shocks in the summer of 1971 when US President Richard Nixon unilaterally declared a normalisation of relations with China (without Japan’s knowledge) and stopped gold convertibility of the dollar (which led to a huge appreciation of the yen).

My reply was, ‘It will be much bigger.’ Problems that arise between Japan and the United States can, in the end, be resolved within the framework of the alliance. The alliance is the ballast. However, that cannot be said of the Japan-China relationship. There is always the danger it will roll completely out of control due to even the slightest accident.

It was obvious that a mutually beneficial relationship based on common strategic interests simply did not function. It was nothing more than rhetoric. The hot-line between leaders of the two nations also did not operate at the most crucial moment.

Five years ago when violent anti-Japan protests occurred throughout China, I offered a pessimistic view of the future of Japan-China relations. However, compared to those protests, I feel the hubris of an emerging superpower out of China now.

A meeting in Brussels between Prime Minister Naoto Kan and Chinese Premier Wen Jiabao, even if only for 25 minutes, is a first step to escape the ‘anomaly’ that the Japan-China relationship has entered.

However, Japan and China now stand at ground zero, and the landscape is a bleak, vast nothingness.

Yoichi Funabashi is editor in chief, Asahi Shimbun.

This article is an edited version of Yoichi Funabashi’s commentary, which was published on October 9th in the English language Asahi Shimbun.

1. Senkaku/Diaoyutai islands: Has China lost Japan?
2. Japan must acknowledge ‘territorial issue’ over islands
3. The Senkaku Islands incident and Japan-China relations

We are witnessing a ‘brave, grave new world’ – with the rise and fall of nations underway on a grand scale.

China’s rise and India’s advance are two of the most spectacular dynamics. The power shift to the Asia Pacific, however, will be a long transition, and Asia faces three major challenges over the next decade: First, the instability of the North Korean regime in the process of leadership succession and the eventual unification of the Korean peninsula; secondly, maritime security in the South China Sea, the Yellow Sea and the East China Sea; and third, energy and the environment.

The US will remain a superpower, but it will also become less stable as a ‘new world’ emerges. This new world will be characterised by multipolarism without multilateralism – power will be dispersed and centred in local clusters all over the world, but with a less unified front and less effective global governance. Asia is not alone, and a fundamental question for the world is how to manage restructuring for this emerging multipolar world.

Instability of the Korean peninsula is likely to bring the most problems in the next three to five years. Against the backdrop of a delicate leadership succession, economic crisis and further hardship unfold for North Korean citizens. The situation is unsustainable, and likely the regime will collapse. If North Korea does implode, there could be far-reaching ramifications for the stability of the region. So the vision of a unified Korea is a priority.

At the same time, Asia must devise a maritime security strategy. Seafaring regions stand as the Asia’s global face. Yet maritime issues are also a source of much tension. The US has so far provided maritime stability for the Asia Pacific, but is increasingly challenged by China. India is also increasingly ambitious. Maritime issues could reach a peak within five to seven years.

The South China Sea could prove to be extremely divisive, as China increasingly perceives the area as its own and denies rival claims to several chains of islands, including the Spratlys. Some Chinese reportedly call the sea their ‘core interest,’ provoking controversy in other Asian nations.

Of course, China is not solely responsible for the dispute in the South China Sea. However, it is notable that at a recent ASEAN regional forum in Hanoi, 12 nations expressed unease about China’s activities in the South China Sea.

Mishandling of East Asia’s maritime security issue – by any player – could be a game changer for East Asian geopolitics. This will be the first critical test for China’s much-heralded ‘peaceful rise’ doctrine, and the country could quickly lose the respect gained over the past 30 years, particularly through its handling of the Asian financial crisis in the late 1990s.

Some Chinese vehemently criticise use of the Yellow Sea for US aircraft exercises, accusing the US of bullying tactics. China interprets US naval activity in the region as a form of ‘hegemonic bullying,’ according to General Luo Yuan in the People’s Daily newspaper on August 14. Luo warned that China would not be fearful if other countries ignored China’s ‘core interests,’ which suggest the waters surrounding China. More worryingly, the general implied that China considers the Yellow Sea part of its ‘offshore area’ – an absurdity as it would mean that even Incheon is part of China’s ‘offshore territories.’

Finally, energy and the environment are joint issues coming to a head in about seven to 10 years. Energy usage is rapidly rising. Every country in Asia depends on oil imports. Desperately trying to catch up with developed economies, developing and emerging countries care little about environmental degradation and lack the requisite safeguards to prevent it. The recent flooding in Pakistan is a sharp reminder of how Asia remains at mercy to nature.

Almost all of Asia’s major rivers – the Yangtze, the Yellow, the Indus, the Ganges and the Mekong included – begin in the Tibetan plateau. The melting of the Himalayan glaciers, recognised as partly responsible for the current floods, will wreak catastrophic consequences across the entire continent if it continues at the present rate.

China, India and Pakistan have the first, second and sixth largest populations in the world, respectively. And all are heavily dependent on the Himalayan glaciers for their water supply and livelihoods. Water security could become Asia’s Achilles heel.

Amid these new dynamics and challenges, Japan has a role as stabiliser. Japan acts both as a stabiliser in its own right, as well as partner in the framework of the US-Japan alliance.

During the debacle that was the 10 short months that Prime Minister Yukio Hatoyama was in power, many Asian nations expressed concern over the deterioration of the US-Japanese security ties. This revealed how Asian countries increasingly regard the alliance as an essential part of the ‘common goods.’

Maintaining the solid deterrence factor of the US-Japan alliance vis-à-vis North Korea is even more critical as the latter displays increasing instability. That contribution should be appreciated throughout the region, not least by the Japanese themselves.

Japan must explore the modus vivendi of strengthening its relationship with Asia in tandem with deepening its security tie with the United States. Pursuing trilateral dialogue of the US-Japanese alliance with a third partner – such as China, India, Korea, Australia or Indonesia – would be useful. This would answer both the critical need to strengthen the alliance on one hand and enhance regional Asian frameworks on the other.

If the two Koreas were to unify in the future, this would give Japan an opportunity to forge a new strategic relationship and improve stability in North East Asia. Trilateral cooperation between the US, ROK and Japan and between China, ROK and Japan is crucial for stability. Six-party talks or five-party talks in the future will also be useful. A new framework to form a stable and democratic world within Korea could deliver a new era of peace and security in the region.

Japan also has a significant role in the non-military field, and the alliance with the US should be managed according to the principle of complementarities – bringing together the strengths of each nation, both military and non-military, to achieve maximum effectiveness.

This principle has become relevant as the nature of threats have changed. In the Cold War era, the US and Japan focused on the single threat of the Soviet Union. In contrast, the US, Japan and others throughout Asia face multiple, diverse threats, from large-scale natural disasters and climate change to failed states and nuclear proliferation.

Military power alone is simply not enough to deal with these threats. The root cause of threats such as terrorism must be ascertained and targeted, which requires the mobilisation of economic and social forces.

For example, Japan’s strength is civilian power, while the might of the United States lies in its military prowess. Japan can take a lead in many areas, including humanitarian and disaster-relief assistance; peace-building and peacekeeping; economic development for nation-building; nuclear nonproliferation and nuclear disarmament; a departure from petroleum dependence; and global environment protection with an eye toward creating a low-carbon society.

Given the sensitive historical issues, Japan’s role as a global civilian power would be more acceptable to other Asian countries and would also be conducive for strengthening the US-Japanese alliance.

Yoichi Funabashi is editor-in-chief of Asahi Shimbun.

This article first appeared here and is based on a September 4 speech delivered by him at the China Institutes of Contemporary International Relations Conference, ‘The Changing World and China,’ in Beijing.

1. Territorial disputes in East Asia: Proxies for China-US strategic competition?
2. Sino-US geopolitical rivalry does not help Korean stability
3. Southeast Asia: Patterns of security cooperation

The flooding in Pakistan has devastated much of the nation, from the Khyber-Pakhtunkhwa province in the northwest to regions downriver of the Indus, which cuts a north-south path through Punjab province in central Pakistan and Sindh province in the south.

More than 1,600 people have died and some 20 million people have been displaced. The flood damage has affected about one-fifth of Pakistan’s territory. The United Nations described the damage as ‘exceeding the combined effects of the 2004 Sumatra tsunami, the 2005 Pakistan earthquake and the 2010 Haiti earthquake.’

Punjab province is Pakistan’s breadbasket, but farmers in the region have lost their harvest, livestock and homes. Irrigation canals, bridges, power lines and roads have been severed, rendering them useless.

Although the Swat region in north-western Pakistan is a tourist destination noted for its scenic beauty, it is also the scene of fierce fighting for control between Islamic radicals and the Pakistani military. Local residents tried to avoid the fighting in the past, but because of the flooding they have now had to abandon their homes.

The US military has dispatched helicopters to the region to rescue isolated residents. However, it is permitting local residents to board the helicopters only after it subjects them to two body inspections in a search for weapons and explosives.

Pakistan’s foreign minister, Shah Mahmood Qureshi, said: ‘If we are unable to respond adequately, there is the possibility of food riots. That would only play into their hands.’ By ‘they’, Qureshi was referring to Islamic radicals who would not hesitate to resort to terrorism.

I recently received an e-mail from Samina Ahmed, South Asia project director for the International Crisis Group, which specialises in conflict prevention. Ahmed said in the e-mail that emergency assistance from the international community should be distributed directly to those affected by the flooding in the form of cash through Islamabad and provincial governments to ‘negate militant propaganda.’

Before the flooding, there was a long dry spell. Mohenjo-daro, known for its ancient ruins, saw the mercury rise to nearly 54 degrees. Farmers in villages across Sindh province held demonstrations to demand more water. Those very same villages have borne the brunt of the heaviest damage from the recent flooding.

It is close to impossible to prove that any single natural phenomenon is directly related to global warming. In the case of floods, various factors such as overdevelopment and deforestation come into play in a complicated manner.

Qureshi described the latest flooding as a ‘perfect storm,’ created through the concurrence of unusually high rainfall in the north, monsoons and the melting of the Himalayan glaciers.

Further global warming will lead to climate irregularities and unusual weather. In South and East Asia, those trends could lead to a faster melting of the Himalayan glaciers that now cover the Tibetan plateau.

Pakistan will be unable to maintain its level of civilisation without the water from the Indus river and its tributaries. But the water from the Indus is used for agriculture, industry and daily living to an extent that leaves it all but dry near Karachi before the river can flow into the Arabian Sea.

In a report, the World Bank warned that ‘over the next 100 years, (Pakistan) could face the dangerous prospect of seeing the water levels of its rivers decrease by 30 to 40 percent.’ Major rivers such as the Indus, Ganges, Mekong, Chang, Yangtze and Amu Darya, all have their origins in the Himalayan glaciers.

Moreover, disputes over water are escalating among nations that lie along those rivers. In particular, India and Pakistan have constantly been in conflict over water.

Anti-Indian sentiment in Pakistan naturally heightened after the recent flooding because India released water from its dams up river because of fears the dams would collapse.

India is also locking horns with China over water rights. Although both nations are seeking to become the superpowers of the 21st century, their weak point is water.

Water is the ‘Achilles’ heel’ of the two nations, according to Steven Solomon, author of Water: The Epic Struggle for Wealth, Power, and Civilization.

China is strengthening its offensive in controlling Tibet not only because of sovereignty issues, but apparently also for control of water resources in Asia. Pakistan’s key geopolitical position will determine the future of Afghanistan. It also possesses nuclear weapons. Because of Pakistan’s long regional rivalry with India, there is the constant fear of conflict erupting.

One of the largest risks of climate change may be a possible conflict over the water from the melting of the Himalayan glaciers that feed the world’s two most populous nations, China and India, as well as Pakistan, which will be the fourth in the world in the future.

The Earth is often referred to as the water planet because 70 percent of its surface is covered by water. However, only 3 percent of that water is potable, and two-thirds of that fresh water is trapped within glaciers. Twenty percent of the world’s population do not have sustained access to safe drinking water and 40 percent do not ordinarily utilise appropriate sanitation facilities.

Palestinians and Israelis live next to each other and obtain their drinking water from the Jordan river. However, Palestinians only receive about one-fourth of the water that every Israeli receives.

Humans cannot live without water.

In that sense, everyone is equal. But, there is extreme inequality in the location of water, access to water and the quality and quantity of water that is available on a daily basis. There is also a growing gap between the haves and have-nots in terms of water.

Water is also closely tied to food, energy and climate change. In that sense, water is a key component of national security. If the 20th century witnessed the rise and fall of nations over oil, the 21st century could be one in which the rise and fall of nations is determined by water.

While oil ultimately can be replaced by other resources, the same is not true for water.

In 2004, the United Nations established the Advisory Board on Water and Sanitation. The current chairman is Prince Willem-Alexander of the Netherlands. Its main tasks are to promote reaching Millennium Development Goals for water and sanitation as well as to heighten public interest in water issues.

Because Japan also lies in the monsoon climate region, it is also a high-risk nation in terms of water, vulnerable to drought and flooding. For that very reason, Japan has polished its management skills in the comprehensive use of water resources, through unified control of water levels and water quality, efficient water usage, reuse of sewage-treated water and protection of the ecosystem.

Those skills have been so widely accepted that sabo, a Japanese term originally meant as measures to prevent landslides due to rain, has become widely accepted in English by international experts.

The dispatch of Ground Self-Defence Force helicopters to provide humanitarian assistance to the flooded regions of Pakistan has been welcomed by local communities. Japan should expand diplomatic relief support for major natural disasters abroad.

Once the situation in Pakistan becomes more settled, Japan should move toward cooperation in national security over water through such measures as comprehensive water resources management, early warning systems for natural disasters and construction of water infrastructure.

An effort should be made to seek out a water resources diplomacy that covers not only Pakistan, but neighbouring Afghanistan as well.

On August 31, the government of Prime Minister Naoto Kan held a meeting that brought together such experts as Tetsu Nakamura, who heads the nongovernmental organisation Peshawar-kai, to consider what assistance could be provided to Afghanistan.

At the meeting, Nakamura touched upon the importance of providing support for water usage and said, ‘To provide food assistance requires water. The key points are flood control, irrigation and water for agricultural use. Water is the lifeline of Afghanistan.’

Japan should share with the world its past efforts and the lessons learned in the course of its comprehensive management of water resources.

Yoichi Funabashi is editor in chief, Asahi Shimbun.

This article first appeared here in Asahi Shimbun.

1. How to play a ‘responsible great power’ role: China’s post-tsunami assistance to Aceh
2. US, China role play for ASEAN
3. Why water matters

A recent entry in the popular blog of Harvard University economics professor Greg Mankiw was titled, ‘Are bonds sexy?’.

After Mankiw’s comment, ‘The Japanese government wants its citizens to think so,’ the blog links to a wire service report about an ad placed by the Finance Ministry in June to attract individual investors to buy fixed-rate, three-year bonds. The ad features five young women, with the message, ‘I want my future husband to be diligent about money.’

The ad goes on to say, ‘As people looking for a marriage partner these days have to make more of a conscious effort to find the right partner, one cannot hope to engage in fruitful activities without knowing what ideals women hold. We have conducted an urgent survey to determine the ideal marriage partner whom women are looking for. We present our findings here.’

The ad concludes, ‘Men who hold JGBs (Japanese government bonds) are popular with women! Right!?’

The wire report quotes a market insider as saying the ad campaign ‘strikes of desperation.’

I’m not sure if it’s good news, but if this is accurate, there are plenty of popular men around, so to speak.

The most popular would be the Japan Post Bank Co., which holds more than 150 trillion yen (US$1.74 trillion) in government bonds.

Other major bond holders are the public pension program with 80 trillion yen; Japan Post Insurance Co. with 70 trillion yen; life and nonlife insurance companies with 60 trillion yen; the Bank of Japan, also with 60 trillion yen; and corporate pension funds with 30 trillion yen.

We can add a newcomer to that list, China, which this year has focused on buying up short-term bonds of less than one year maturity.

Over the course of a year, the Japanese government issues 160 trillion yen in government bonds, which works out to 500 billion yen worth of bonds on a daily basis.

This is all happening even though Japan has not recently lost a war, nor has it been hit by a natural disaster on the scale of the Great Kanto Earthquake.

Japan has become a debt superpower because of years of throwing money at various problems, coupled with the effects of deflation.

This fiscal year’s budget called for the issuance of 44 trillion yen in government bonds despite projected tax revenues of only 37 trillion yen.

The last time the budget had more debt than tax revenues was in fiscal 1946, the year after Japan’s defeat in World War II.

Japan’s bond market remains stuck at a high level. Meanwhile, long-term interest rates are stable and very low because the surplus in funds is flowing toward investment in government bonds.

The level of overall savings in Japan remains on the plus side. Moreover, Japan still has a current account surplus.

At the same time, Japan continues to suffer from deflation, and corporate plant and equipment investment remains weak.

Rather than lend to companies, Japanese banks continue to buy up bonds that have the backing of the government.

Moreover, about 95 per cent of Japanese government bonds are owned by Japanese investors. Of that figure, 60 per cent is held by Japan Post Bank and other financial institutions.

While this situation could be described as a government bond bubble, there is none of the fervor that is commonly associated with an inflated economic bubble. This bubble is being puffed up at low temperatures.

Funds are flowing to government bonds through a process of elimination that leaves investors with no other advantageous alternative to place their money.

However, the risks are intensifying.

Because of Japan’s rapidly aging population, the rate at which savings are being eaten into will only accelerate. If the savings rate should decline, the flow of funds from financial institutions to the bond market will weaken.

The biggest risk factor will probably be Japan Post Bank. This is because 80 per cent of the funds it has accumulated have been placed in government bonds.

Depositors can withdraw their Japan Post Bank savings at any time. If the bond market should collapse, a huge amount of Japan Post Bank savings would likely be withdrawn.

If government bonds were sold off to obtain funds to pay out those withdrawals, bond prices would only further plummet.

If Japan Post Bank should face a financial crisis, it would shake the bond market at its very foundations.

Ratings agencies around the world are casting a harsher eye on Japanese bonds.

Early this year, Standard & Poor’s changed its rating of Japanese government bonds from AA (stable) to AA (negative).

At June’s Group of 20 summit meeting, a declaration was approved to halve the debts of advanced economies by 2013. Japan, however, was not included in that pledge.

One reason may have been that, unlike other nations’ acute fiscal deterioration, Japan’s condition was judged as being chronic even before the collapse of the US investment bank Lehman Brothers that led to a global financial downturn.

Consideration may also have been given to the unique market environment of Japan, where sufficient funds exist to buy up all government bonds domestically.

If that is the case, Japan was given exceptional treatment on the basis of its uniqueness.

However, the uniqueness that appears to contribute to the stability of the ownership structure of Japanese bonds has the potential to quickly degenerate into fragility.

One factor is the homogeneity and synchronicity of that structure.

The funds now held by Japan Post Bank and Japan Post Insurance have for many years been included in the structural framework for public finance. Life insurance companies and commercial banks are unable to shake off the ‘convoy mentality’ ingrained through financial regulations.

All those institutions are heavily dependent on government bonds. If bond prices should fall, there is the strong possibility, from a risk management standpoint, that all those institutions would simultaneously try to sell off their bonds.

Such a situation occurred in 2003 when government bonds suffered a sharp fall.

The other factor is the closed-door nature of the government bond market.

That nature has helped repel attempts by hedge funds to short sell government bonds. At the same time, that has prevented the formation of a network with foreign stakeholders who could share the risks.

If bond prices should collapse, a flood of funds would flow out of Japan, leading to a collapse of the yen. That would inevitably have a huge effect on the world’s finance and economy.

In such a situation, Japan could find itself isolated in the international arena with few stakeholders on its side.

In September 2009, at a Cabinet meeting shortly after the Democratic Party of Japan came to power, then Finance Minister Hirohisa Fujii said: ‘Ratings agency are targeting Japanese bonds. If they should take action, things could become very difficult.’

Yoshito Sengoku, who was then serving as state minister in charge of government revitalisation, responded: ‘You are right. The most important point for this administration will be stabilising the bond market.’

Fujii now says: ‘There are limits to depending only on selling bonds domestically. We have to increase the amount of bonds sold abroad. If that happens, stronger pressure will arise from abroad about the fiscal condition, but that cannot be helped.’

Last month, the International Monetary Fund, in its annual report about Japan, ‘underscored the urgency of credible fiscal adjustment. The key challenge is to bring down public debt to more sustainable levels.’

The IMF recommended that Japan gradually raise its consumption tax rate from the current 5 per cent to 15 per cent over a 10-year period from the next fiscal year.

Until now, the low consumption tax–as compared with rates in other advanced economies–was viewed as a strength that allowed Japanese to shoulder more of a tax burden.

However, if as a result of the July 11 Upper House election, the ruling Democratic Party of Japan gets cold feet about the consumption tax, the situation will change.

The markets will be mercilessly checking for discipline in the fiscal 2011 budget and the effectiveness of the government’s growth strategy.

The ability of Japan’s political leaders and their policymaking skills for restoring the nation’s fiscal health will be severely tested.

Japan will only have at best three or four years to pull off that task, in the view of both the market and the IMF.

In discussing the consumption tax issue, there is a need to not only take into consideration fair treatment for all generations and the maintenance of the social security structure, but also the need to manage the government bond market.

Only through a serious dialogue with the government bond market will the discipline and course required for Japan to rebuild its fiscal condition be made clear. That would also make possible a prevention of the collapse of bond prices and a soft landing for the economy.

Stability that relies on things being done behind closed doors lacks the restraint and balance that only come from an open-door policy.

Japan must switch from the risks attached to being a closed nation to those that may arise from opening up its doors.

An urgent task is to distribute risks over a wider range of stakeholders.

Young Japanese men who should be popular if they owned government bonds are said to be in love with savings. They may be resigned to not depending for their own futures on a nation that has no growth, has no increase in tax revenues and has a fiscal deficit that continues to balloon.

However, the money that those young men are depositing in financial institutions is being used to continue to buy government bonds.

The bond market is blowing bubbles from a uniquely Japanese glass castle.

If that should collapse, everyone in Japan, young and old, men and women, will suffer.

There will be no generational war because everyone will lose.

This article first appeared here in Asahi Shimbun.

Yoichi Funabashi is editor in chief, Asahi Shimbun.

1. Robust credit cultures key to developing deep and liquid corporate bond markets in Asia Pacific
2. Panda Bonds could help China avoid the risks of US Treasury Bonds
3. China, Japanese security and the bomb!

Ever since North Korean leader Kim Jong Il suffered a stroke in August 2008, efforts have accelerated to ensure a smooth transition in power to Kim Jong Un, his third son.

However, many difficulties await Kim Jong Un, who is only 27.

The biggest hurdle will be dealing with the military. When Kim Jong Il, 68, was consolidating his leadership following the death of his father Kim Il Sung in 1994, he courted the military, rather than the ruling Workers’ Party of Korea, to create his power base.

Kim Jong Il’s regime is one of co-existence between his family and the military.

The promotion of Jang Song Thaek, director of the party’s Central Committee administration department, to vice chairman of the National Defence Commission offers an insight. Jang, Kim Jong Il’s brother-in-law, is considered a guardian of sorts to Kim Jong Un. The promotion signaled Kim’s intention of maintaining and strengthening that synergistic relationship.

However, intelligence officials are already pointing to signs of a major power struggle among the core of the leadership elite in Pyongyang.

There has been speculation about increased tensions and confrontation arising from a battle for loyalty between those aligned with Kim Yong Chol, who heads the bureau dealing with special operations vis-a-vis South Korea, and those allied with Jang’s associates.

There have even been rumours that Kim Jong Il is displaying memory impediments.

If the transition process goes ahead too swiftly, Kim Jong Il could become a lame duck leader. That could trigger a power struggle between father and son.

A U.S. administration official handling North Korean affairs said, ‘An extremely dangerous situation is emerging, which is peculiar to the period of power succession. The situation is not unlike what was seen during the 1980s when a bomb exploded and destroyed a Korean Air jet.’

Under this line of thinking, a possible sign of that development was the torpedo attack in March that sank the South Korean corvette Cheonan.

One disturbing aspect of the attack is the likelihood, as pointed out by CIA Director Leon Panetta, that ‘the skirmishes going on are in part related to trying to establish credibility for’ Kim Jong Un with the military.

There is near-unanimous agreement among those working in the intelligence field in Japan, the United States and South Korea that Kim Jong Un himself gave instructions for the torpedo attack and that Kim Jong Un may be even more dangerous than his father.

As for the motive and background of the attack, theories abound.

One is the revenge theory. This states that the attack was in retaliation for an encounter in the Yellow Sea in November 2009 between small navy ships of the two countries.

Intelligence officials in Japan and South Korea believe Kim Yong Chol directly gave the order for the torpedo attack on the Cheonan that killed 46 sailors. Pyongyang wanted to punish ‘the arrogant attitude’ of the administration of South Korean President Lee Myung-bak.

Under a second theory, the attack was part of moves to create a myth around Kim Jong Un and his ‘brilliance’ as a military tactician.

A third theory is closely related to what is described as the prospect theory in psychology, in which unusual action is taken to break through uncertain and negative conditions. This theory states that an attack on the enemy provides a psychological cleansing effect for those living under a dark cloud for too long.

Another theory can be dubbed ‘the Mafia theory.’ A U.S. official handling North Korean intelligence said, ‘While the example may not be a good one, one test of whether an individual is a bona fide Mafia member is whether he can kill people. Similarly, an individual may have tried something dramatic in order to be recognised as a loyal associate of Kim Jong Un.’

Yet another theory points to the need to shore up domestic unity for a successful transfer in leadership and draw public attention away from North Korea’s disastrous attempt at currency denomination last year. The torpedo attack created external tension that could be used to strengthen domestic control.

There is also a theory that while North Korea was set on mounting a sneak attack, it blundered by never giving consideration to the possibility that fragments of the torpedo would be found and traced back to Pyongyang.

The mission may have been shrouded in secrecy, but intelligence officials apparently picked up the movements of North Korean submarines before and after the torpedo attack.

There are also reports of North Koreans living close to the border with China as openly stating the attack was the work of North Korea.

North Korea vehemently denied involvement in the incident in response to condemnation from overseas. But there have been suggestions that the rumour mill in North Korea is claiming a major military victory for Pyongyang.

The biggest diplomatic loser from the incident is China, North Korea’s long-time ally.

It is a case of ‘the tail (North Korea) wagging the dog (China),’ according to John Park, a senior research associate at the United States Institute of Peace.

In early May, when Kim Jong Il visited China, Chinese President Hu Jintao asked him about the incident.

Kim Jong Il replied that Pyongyang was not involved.

China did not respond to overtures from South Korea to assist in a joint investigation of the incident. Beijing apparently felt it had no alternative but to persist with its stance that North Korea was blameless.

For that reason, China has persistently called for caution amid talk of the U.N. Security Council imposing sanctions against North Korea.

There are some in China who perceive North Korea as a strategic liability and are calling for more pressure to be applied on Pyongyang. However, Beijing’s Communist Party leadership cadre is standing adamantly behind North Korea.

Beijing’s approach toward North Korea can be viewed as a Chinese-style sunshine policy that places priority on stability. Conversely, it could reflect China’s fears about the increasing instability of the North Korean regime.

North Korea’s fragility lies in its unique elite structure.

Ken Gause, a research analyst at the U.S. Center for Naval Analyses, said, ‘If the regime loses its ability to placate the elite through goods and services, there is a real chance for the creation of factions.’

Even ‘military warlords’ could emerge, he said.

China has rejected calls to enter into discussions with other countries about North Korea’s ‘instability scenario’ on grounds it would only provoke North Korea and make Northeast Asia more unstable.

However, a high-ranking Chinese government official told me privately that ‘China, Japan and South Korea should consider establishing a forum for an exchange of opinions toward a soft landing by North Korea.’

Perhaps, China is losing confidence in being able to rein in Pyongyang. It is no longer a viable policy to count on China to exert pressure on Pyongyang.

Meanwhile, the United States is moving to reinstitute financial sanctions that were imposed during the administration of President George W. Bush.

However, financial sanctions will directly hurt Kim Jong Il and his family as well as North Korea’s ruling elite.

One high-ranking Pentagon official said, ‘Because of that, unless we are careful, it could trigger a military retaliation from North Korea.’

While some action must be taken in response to the Cheonan incident, it is enormously difficult to calibrate the level of pressure to apply on North Korea.

Perhaps the stage has been set whereby the nations concerned need to initiate a quiet exchange of opinions about a future unification vision for the Korean Peninsula.

This process would require those countries to first draw up a vision of a unified Korean Peninsula and then work together to create the environment and conditions to allow that to emerge.

Kim Jong Un will not only gain power. He will also inherit a failed state, one which has nuclear weapons. It is inconceivable that the son would get rid of any nuclear weapons inherited from his father.

The world must brace itself for even greater difficulties in handling the nuclear issue once Kim Jong Il is no longer calling the shots.

The only way to simultaneously resolve the leadership succession crisis and the issues of a failed state and nuclear weapons will be to devise a multi-faceted and comprehensive exit strategy based on a unification vision for the Korean Peninsula.

This article first appeared here in the Asahi  Shimbun.

Yoichi Funabashi is Editor in Chief, Asahi Shimbun.

1. North Korea’s transition: do not let contingencies distract from realities
2. North Korea provokes again
3. Power, lies and secrecy in North Korea

In hindsight, the April 12 conversation between outgoing Prime Minister Yukio Hatoyama and US President Barack Obama was a watershed.

Seated beside each other at a dinner held during the Nuclear Security Summit in Washington, the two leaders talked for about 10 minutes mainly about relocating the US Marine Corps Air Station Futenma. Obama told Hatoyama he had not made any public comments until then because Hatoyama had said, ‘Trust me,’ when the two met last November.

However, Obama also said he could not afford to delay a decision much longer because of concerns raised not only in Japan and the United States, but also among neighboring nations in the Asia-Pacific region. Obama said he hoped Hatoyama understood the situation.

Hatoyama told Obama: ‘I will resolve this issue by the end of May. I want to reach a conclusion by then. I ask for your continued cooperation.’ With that comment, Hatoyama had established the end of May as the deadline for resolving the Futenma relocation issue.

Last week, the Hatoyama Cabinet decided to move Futenma to an area near Henoko in Nago, also in Okinawa Prefecture. While that decision indicates that Hatoyama kept his promise to Obama, the area chosen is almost the same as the site included in the 2006 agreement between Japan and the United States on the Futenma relocation. Details must still be worked out, such as the runway construction method.

The political damage from the Social Democratic Party’s decision to leave the ruling coalition over the Futenma issue resulted in Hatoyama announcing his resignation Wednesday. And it still remains unclear if a relationship of trust between Japan and the United States can be restored.

The government led by the Democratic Party of Japan has lacked gravitas when dealing with the Japan-US alliance, which is a life-and-death matter for Japan’s foreign affairs and national security. Hatoyama’s own words underscored that shortcoming when he promised during the campaign for last year’s Lower House election to relocate Futenma out of Okinawa Prefecture, at the minimum.

After his ‘trust me’ pledge to Obama, Hatoyama explained he was leaning toward the Henoko move because he learned about the important deterrent role played by US Marines based in Japan. In addition, the Hatoyama administration was not thorough in its analysis of the situation and overly optimistic about how matters would play out. Those factors, along with a shallow understanding of the issues, led to a deep rift in the alliance with the United States.

The alliance cannot be maintained without trust, and the crisis arising from that lack of trust continues between Japan and the United States.

There were several crucial moments in the process of reaching a decision on Futenma.

The first stumbling block for Hatoyama was last November, when he uttered his ‘trust me’ comment. Hatoyama later exacerbated matters when he flip-flopped and said a Futenma decision would be delayed. At a meeting held in Tokyo on December 3-4 between Cabinet-level officials, Japanese officials suddenly told their US counterparts that a decision on Futenma by year-end was practically impossible. The officials explained they had to change course to maintain the ruling coalition with the SDP, which had long called for moving Futenma either out of Okinawa or out of Japan and was opposed to the 2006 agreement.

US officials could barely conceal their frustration, asking their Japanese counterparts, ‘Which are you going to choose, the Japan-US alliance, or the SDP, which opposes that alliance?’

US officials had taken Hatoyama’s ‘trust me’ pledge as a secret pact between the prime minister and president to resolve the Futenma issue by year-end along the lines of the 2006 agreement.

On the evening of December 4, Defense Minister Toshimi Kitazawa told Akihisa Nagashima, a defense parliamentary secretary: ‘Until yesterday we were discussing policy, but from today the focus is on the politics. Mr. Nagashima, our job is to protect the prime minister.’ Behind the Japanese decision to put off resolving the Futenma issue was the DPJ’s need to obtain the cooperation of its ruling coalition partners in compiling the fiscal 2010 government budget by the year-end.

Chief Cabinet Secretary Hirofumi Hirano reflected on what went on in December.

‘The judgment that a year-end resolution of the Futenma issue was impossible was made because priority was placed on compiling the government budget by December 25,’ he said. ‘If we had let the SDP go, discussions in the Budget Committee would have been impossible. We had to ask for cooperation on the budget even if it meant prostrating ourselves. We were thinking about what happened to the Hosokawa administration.’

Prime Minister Morihiro Hosokawa’s government, in which Hatoyama served as a deputy chief Cabinet secretary, lost momentum when it failed to compile the government budget by the end of 1993.

For its part, the United States began having grave doubts about the Hatoyama administration. Last December, a high-ranking official of the Obama administration told me about the ‘fundamental doubt’ held by the United States. ‘We are uncertain about how committed Prime Minister Hatoyama is to the Japan-US alliance,’ the official said. ‘Doubts began to grow that there were completely different strategic views of the alliance between Prime Minister Hatoyama and the United States.

‘Secondly, there was the casualness of his words and a lack of consideration for the effect that his own comments would have. There was also the matter of leaving Japan’s national security policy mortgaged to the SDP, which had taken a hostile stance on the alliance.’

Hatoyama’s next blunder was trying to have Tokunoshima island in Kagoshima Prefecture serve as an alternative relocation site. The Nago mayoral election in January was won by a candidate opposed to having Futenma functions moved to the city. That made the possibility of implementing the 2006 agreement much more difficult.

For those reasons, moving the Futenma functions outside of Okinawa and to Tokunoshima must have appeared even more appealing. However, the United States rejected moving the helicopter group to Tokunoshima because it was unworkable from a military operational standpoint. While the United States showed flexibility about moving some training exercises to Tokunoshima, that was likely designed to show Washington taking a conciliatory stance.

The Hatoyama administration described the 2006 agreement made while the Liberal Democratic Party was in control of government as being ‘immersed in vested interests and harmful to the environment.’ While administration officials ran around in search of a ‘magic wand’ that would produce an alternative relocation site, they failed to conduct an expert evaluation of whether candidate sites were feasible from a military standpoint.

In that sense, the Tokunoshima proposal was a symbolic example. Chief Cabinet Secretary Hirofumi Hirano led another effort to dig up an alternative relocation site, which resulted in a proposal to move Futenma functions off the coast of White Beach in Okinawa. However, the United States never took that proposal seriously, and it died quickly.

With Hatoyama pushing Tokunoshima and Hirano trumpeting White Beach, Foreign Minister Katsuya Okada, who was in favor of retaining the 2006 agreement, remained on the sidelines. In other words, the key players of the Hatoyama Cabinet were not working in sync.

The final turning point was the 10-minute conversation between Hatoyama and Obama.

In late March, Okada told Secretary of State Hillary Clinton and Secretary of Defense Robert Gates in Washington that it might be difficult to return to the 2006 agreement because of the various proposals being raised. US officials would make no further concessions, and the 10-minute talk was, in effect, Obama’s ultimatum that the issue had to be resolved by returning to the 2006 agreement.

What lessons can be gained from this Futenma process?

The first is that policy must be finalised before any consideration is made of politics. In that process, policy experts must be relied upon, and the policy decision-making process must be strengthened. Any government in which Cabinet ministers make separate proposals and comments cannot be called a government.

The second lesson is to learn from the wisdom contained in old ideas and to develop an immunity to the toxins that may lie within new ideas. That means correcting the habits developed as an opposition party of opposing each and every policy pushed by the previous government and jumping on the bandwagon for any new policy framework.

The third lesson is that any coalition government should conduct detailed discussions in advance and reach agreement on the core elements of national security policy.

The drift in the Japan-US alliance should not be solely blamed on the ‘loopy’ nature of Hatoyama’s personality. The lack of interest in national security policy as well as a lack of policy realism may be nothing more than a reflection of ourselves as a people who have failed to deal seriously with the national security of Japan and the world, while being placed under the protection of the United States–and on the sacrifices made by Okinawa–throughout the postwar era.

It is obvious that the DPJ government was ill-prepared and ill-equipped to deal adequately with foreign affairs and national security policy. Before taking on their roles, the Cabinet ministers placed in charge of foreign affairs and national security did not meet with prime ministers, foreign ministers or defense ministers of LDP governments for briefings.

If this latest crisis has the effect of educating not just the DPJ, but also the Japanese people, about the importance and dangers associated with national security policy, then it will not have been an entirely negative experience in the long run.

It is desirable to have a bipartisan consensus between the largest ruling and opposition parties on the core elements of national security policy, in particular the Japan-US alliance.

That will be a strategic issue for developing greater trust in a Japan that has entered an age in which a change of government is the norm.

his article was first published here at the Asahi Shimbun.

Yoichi Funabashi is Editor-in-Chief of the Asahi Shimbun in Tokyo.

1. Towards a new security consciousness in Japan?
2. Japan: the DPJ preparing to retreat?
3. Hatoyama accommodates the US on Futenma

Japanese Prime Minister Yukio Hatoyama has recently told Foreign Minister Katsuya Okada that there are three key policy issues in the area of diplomacy that he intends to tackle while he is in office.

They are: Pressing ahead with his proposal to create an East Asian Community, signing a free trade agreement with South Korea and resolving the thorny Northern Territories dispute with Russia.

By its very nature, diplomacy involves delicate negotiations. Much depends on what arguments are used to win over the other party. Thus, in this regard, no matter what efforts Japan might exert, there is no guarantee it will win.

In dealing with Russia, Hatoyama must figure out how far Prime Minister Vladimir Putin and President Dmitry Medvedev, who constitute a dual leadership structure, will operate in sync.

An even bigger question is whether Japan has anyone capable of serving as a behind-the-scenes negotiator and communicating clearly with those in power at the Kremlin.

Efforts are being made to flesh out details for the proposed East Asian Community. But rather than concentrating on creating a new framework, a more realistic approach would be to accumulate a series of separate policies, such as an FTA between Japan and South Korea, as a means of solidifying the foundation for the regional grouping.

That being the case, working on a Japan-South Korea FTA should probably be Hatoyama’s priority. But this doesn’t mean it should be taken up because the other two issues are difficult to address. The FTA issue is important in its own right.

The FTA issue has a deep strategic significance for both Japan and South Korea in this era of drastic change in the international environment. I’m referring to reform of global governance, the relative decline of the United States, the rise of China and the crisis facing the North Korean regime.

At a Cabinet meeting on March 19, Hatoyama said that promoting economic partnership arrangements took priority because they would help him his goal of creating an East Asia community. Meeting with his ministers on March 25, Hatoyama again stressed the importance of reaching an FTA between Japan and South Korea. Serious negotiations on an FTA first began in December 2003. However, the talks were suspended in November 2004 at the request of Seoul.

While no serious discussions have been held since, South Korean officials have recently begun expressing an interest in reviving the issue. Meeting with Okada in February, South Korean President Lee Myung-bak indicated his desire to reach an agreement.

According to 2009 trade figures, South Korea accounts for 6 per cent of Japan’s total trade. In contrast, for South Korea, trade with Japan accounts for 10 per cent of its total. However, imports from Japan account for 15 per cent of South Korea’s total imports.

Trade between Japan and South Korea has been marked by a constant trade deficit on the part of South Korea. The country currently has an annual deficit with Japan in the region of 3 trillion yen (US$32.172 billion). This is because South Korea depends on Japan for the bulk of its capital goods as well as the intermediate goods used in finished products that are then exported.

South Koreans fear that once an FTA is established, Japanese cars, home appliances and steel products will flood their market. For its part, South Korea is calling on Japan to further open its agricultural and fisheries markets, remove nontariff barriers and make the government procurement process more transparent.

What makes these requests difficult is that Japan already has an annual trade deficit of 100 billion yen with South Korea in agricultural and fisheries products. South Korea’s main exports to Japan are bonito and tuna, shochu and kimchi. Japanese, for their part, fear that cheap South Korean marine products, such as squid and nori, will wreak havoc on the domestic market.

On top of such concerns, territorial and historical issues cast a large shadow over bilateral relations. If controversy should erupt over these issues, trade negotiations would suffer.

During a visit to South Korea in March, farm minister Hirotaka Akamatsu was told by Yu Myung-hwan, the minister of foreign affairs and trade, that since this is the 100th anniversary of Japan’s annexation of Korea, many South Koreans consider it to be a ‘year of humiliation.’ Yu urged caution, noting that emotions were again running high over the territorial issue.

In working toward an FTA, Japan will need to pay the utmost attention to South Korean sensitivities over territorial and history issues.

It is important that both Japan and South Korea understand the strategic significance that makes an FTA between the two countries so vital. For one thing, both Japan and South Korea have a global presence that can contribute to the peace and stability of Asia and the world.

In November, South Korea will host the Group of 20 summit meeting, while Japan will be the venue for a meeting of the Asia-Pacific Economic Cooperation (APEC) forum.

A Japan-South Korea FTA would be instrumental in pushing for a further opening of the global trade system. It would also help Asian regional integration. Integrating the markets of the closest neighbors in Asia will become the cornerstone of the East Asia community.

Secondly, a Japan-South Korea FTA would provide momentum for the creation of a Free Trade Area of the Asia Pacific (FTAAP), something that should be considered as an FTA vision for the entire APEC region. Such a development would help to re-energise APEC.

Furthermore, both Japan and South Korea are democracies and allies of the United States. Working closely together and further opening up their markets will likely serve to strengthen democracy in Asia and the world as well as maintain and develop a liberal internationalist order. It is also expected that the two nations can complement the presence and influence of the United States in Asia.

With the rapid emergence of China as an economic power, some have suggested that China could move to vertically integrate the members of the Association of Southeast Asian Nations (ASEAN) and other Asian countries into its domestic market. For their part, Japan and South Korea should pursue, through cooperation with ASEAN, a principle of Asian regionalism that is horizontal, or in other words, equal among nations. A Japan-South Korea FTA would provide a solid footing for such a move.

Last fall, the ministers in charge of trade and economy from Japan, China and South Korea agreed to start studying the benefits of an FTA in a group of experts from both the public and private sectors. From the standpoint of Asian regionalism, it would be more advantageous for Japan and South Korea to first work on an FTA and then seek another that includes China.

Finally, South Korea needs a robust economic base that would allow it to adequately absorb huge shocks if unification occurs between the North and the South. An integrated Japan-South Korea market would serve as a solid buffer that could provide ‘strategic depth’ and allow all of Northeast Asia to absorb any unification shock. Japan has so far signed FTAs with Singapore, Chile, Thailand, Switzerland and six other nations as well as the ASEAN bloc.

At a March symposium on the East Asia community sponsored by the Japan Institute of International Affairs, Hatoyama gave a speech in which he said, ‘I do not believe that Japan until now has thought strategically about economic cooperation, or in other words, FTAs.’

He was spot on in that regard, but the question that should be asked is why no such strategic thinking emerged. The answer is weak political leadership; and in particular, the indecisiveness of the prime minister’s office.

In the case of Japan, and for that matter, many other nations as well, forces that want to protect agricultural interests have tended to oppose FTAs. It has been said that industry groups representing those in the trading of squid, nori and bonito have resisted moves toward a Japan-South Korea FTA.

The Hatoyama Cabinet seems to believe that the Democratic Party of Japan-led government, which is unfettered by such vested interests, will be able to achieve a breakthrough. During his meeting with Yu, Akamatsu expressed just such a positive attitude when he said, ‘Let us begin from areas where we agree. We can just begin in those areas that are a benefit to both sides.’

As for Japan’s automobile exports, an issue that is of utmost concern to South Korea, Japanese policymakers are apparently taking the stance of waiting until the time is ripe, suggesting that the current 8 per cent tariff need only be gradually reduced.

At a Cabinet meeting on March 25, Yoshito Sengoku, the state minister in charge of national policy, was placed in charge of spearheading the effort to achieve a Japan-South Korea FTA. The move is clearly aimed at strengthening the political leadership.

However, it appears the prime minister’s office has yet to decide if Sengoku will chair the Cabinet ministers committee meetings on this issue.

When the DPJ first proposed the creation of a ‘national strategy bureau,’ whose official English translation is now the National Policy Unit, some people expressed dissonance between the fear-inducing images conjured up by the term ‘national strategy’ and a DPJ-led government.

But is that really the case? What is being asked of Japan right now is a redefinition of the role of government as well as a strategy to revitalise its economy and society. That means applying strategic thinking to an incoherent campaign manifesto as well as the poetic principles that tend to get ahead of specific policy measures. Focus and selection is another way of framing the word strategy, and it does not simply mean coordination.

Now is the time to utilise the National Policy Unit to inject strategic thinking into policy decisions.

Yoichi Funabashi is Editor-in-Chief of the Asahi Shimbun in Tokyo.

This article was first published here at the Asahi Shimbun.

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I was in Washington, DC recently while congressional hearings were held into the massive recalls announced by Toyota Motor Corp. I sensed that public sentiment in the United States was rapidly becoming critical of the auto giant, which is now a synonym with lemons.

An article published in the New York Times on February 21 under the headline, ‘Doubts raised on book’s tale of atom bomb’, drove home the point to me. The newspaper noted that the author of ‘The Last Train From Hiroshima,’ Charles Pelegrino, used quotes from an individual who falsely claimed he was a last-minute substitute on an observation plane that accompanied the Enola Gay on its mission to destroy Hiroshima by atomic bombing. An expert is quoted in the article as saying, ‘This book is a Toyota. The publisher should recall it, issue an apology and fix the parts that endanger the historical record.’

Noted automobile analyst Maryann Keller was also critical of Toyota. ‘It is astonishing that the world’s largest automaker should be so incompetent in protecting its image and managing the recalls,’ she said in her commentary. ‘The company operates in the US and elsewhere not as a single organisation, but as a group of divisions reporting individually back in Toyota City where all important decisions are made.’ The root of Toyota’s problems according to Keller is its ‘lack of management clarity,’ or closed management structure.

Included in the series of massive recalls was one for the hybrid Prius, Toyota’s biggest money-maker.

A company that prided itself on almost perfect quality control and serving as a symbol for all of Japan, where it chalked up its largest profits, has stumbled on quality and safety issues. As Toyota President Akio Toyoda testified during the congressional hearings ‘in recent years we didn’t listen as carefully as we should – or respond as quickly as we must – to our customers’ concerns.’

What is wrong with Toyota? For that matter, what is wrong with Japan?

Major changes are occurring in the automobile industry’s global map. It’s in a totally different ball game now. A dependence on gasoline has been the automobile industry’s business model for the past 100 years. But the energy crisis and climate change put paid to that.

Moreover, in the wake of the global economic crisis, many governments are trying to foster next-generation industries; in particular, those that are green such as electric cars.

On the other hand, with the collapse of the Big Three in the United States, consumers now have a more advantageous relationship with automakers. The problems that plague Toyota emerged amid the churning of these two waves of greater state involvement in the automobile industry and heightened consumer standing.

A three-pronged battle will likely arise in the future that pits gasoline-powered cars against hybrid and electric models.

US automakers are having difficulty playing catch-up with Toyota in hybrid technology. There have been suggestions that US automakers sought to take advantage of Toyota in this latest scandal by slamming the brakes on the spread of hybrid cars to allow them to leapfrog over Japan in electric cars.

At the same time, China and India are also emerging as huge car markets with the birth of their respective middle classes measuring in the hundreds of millions. Those two nations are also seeking to leapfrog over Japan in electric cars.

BYD Co., China’s largest manufacturer of cell phone batteries, acquired a failed state-run automobile company and is making inroads in the field of electric cars. India’s Tata Motors garnered global headlines last year by placing the compact Nano car on the market for about 200,000 yen ($2,250). Tata is also moving to develop electric cars. On March 1, BYD announced it had signed an agreement with Daimler AG of Germany to develop electric cars for the Chinese market.

Experts are already predicting the day when ‘Made in China’ electric cars will be sold in Walmart outlets across the United States.

Electric cars are moving steadily toward mass commercialisation following advances in motor and battery technology. Because the energy needed to drive electric cars can be generated through solar cells, electric cars use only about one-fourth of the energy of gasoline-powered cars. The number of parts used in electric cars has also been reduced to about one-third that of gasoline cars. This will lead to a flattening of the structure of the automobile industry, which is now supported by a wide base of suppliers.

At the next stage, the spread of electric cars will lead to the distribution around the nation of vehicles with batteries installed. Combined, those batteries would produce the equivalent of a huge electric power storage plant. A smart grid could very easily be constructed with those car batteries serving as a buffer for shifts in the supply and demand of electricity.

In that manner, electric cars could change the very nature of the industrial structure.

Japan has taken the lead in both hybrid and electric cars. However, hybrid cars are just a transitional technology. The price of electric cars is still out of the reach of ordinary consumers. Further improvements will have to be made in battery performance to achieve a wider dissemination of those vehicles.

In Japan, seven or eight companies are competing in battery manufacturing. They produce batteries of all shapes, from cylinders to boxes to cubes. Those Japanese companies also face fierce competition from rivals in the United States, China, Europe and South Korea.

Last summer, Mitsubishi Motors Corp. released its i-MiEV electric car. Touching upon the slow pace of policy in Japan, Mitsubishi Motors President Osamu Masuko said, ‘In both China and South Korea, the governments are fully behind the efforts to develop the next-generation electric car. In the West, development of next-generation batteries is being done from the standpoint of national security. Compared with those efforts, in Japan it is still not clear what the government stance is.’

The government must develop an environmental growth strategy if it really is serious about creating a low-carbon society. A new industrial policy must be established to set the course for the next generation of products. The key will be to provide momentum to the spread of eco-cars, including electric models. That will require infrastructure, such as recharging facilities. There is no time to waste. Japan should take a leading role in setting standards and specifications for battery performance and safety evaluation methods.

In that realm, what will be indispensable is what I like to call ‘automobile diplomatic power.’ This concept would require the cooperation of the public and private sectors in seeking out astute tie-ups with governments and companies of other nations. The ultimate goal is the complete conversion to electric cars. But in the initial stages, the most realistic course would be a three-pronged strategy. This would mean increasing the market share of electric cars while providing low-priced cars for developing markets as well as selling money-making hybrid cars.

In clearing a path to the next generation of products, Toyota bears a special responsibility. It also possesses the opportunity to take the lead in developing the technology and vision for electric cars.

Naturally, priority must be placed on safety. But that should not force Toyota to shirk from the challenge it faces. The company should also shift gears in its management style. It must stop being confined within Toyota City and open up to the world. Only by doing that will Toyota be able to form close relationships with companies around the world as well as grab the initiative in the battle to establish global standards and specifications.

An American diplomat I met while in Washington had the following comment about the recent developments:

Listening to the congressional hearings, I was struck by what a huge strategic decision it was for Toyota to invest directly in the United States since the 1980s. Many Americans considered Toyota to be their company. Politicians, employees and dealers in states where Toyota invested all did everything they could to protect Toyota this time.

The diplomat worked under Mike Mansfield when he was ambassador to Japan during the 1980s. Mansfield was one of those who welcomed the news of Toyota’s direct investment in the United States. At that time, Mansfield said that while the initial investment for local production may be large, over time the rewards would also be great.

Toyota must now make another such huge strategic decision by saying sayonara to fossil fuels. In fact, the same thing can be said for Japan as a nation.

This article was first published here at the Asahi Shimbun.

Yoichi Funabashi is Editor-in-Chief of the Asahi Shimbun in Tokyo.

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