Japan

By Jun Okumura and Ross Schaap

The conventional wisdom in U.S.-Japanese relations is that things were largely fine until the Democratic Party of Japan (DPJ) upset the apple cart by winning control of Japan's government. Security policy observers appear to accept the idea that the DPJ has strained the close relationship that Japan's former ruling party, the Liberal Democratic Party (LDP) had developed with the United States over the past several decades. A show of bilateral solidarity during President Obama's one-night stand in Tokyo last week has done little to change these opinions. The conventional wisdom has it wrong.

The source of this mistaken belief centers on the DPJ's electoral promise to review the 2006 U.S.-Japanese agreement that would move the bulk of a US Marine base out of the center of Ginowan, a city of nearly 100,000 in Okinawa, to Guam. The remainder -- a large contingency of helicopters-would relocate to a more remote location near Nago, also within Okinawa. The DPJ's indecision on whether to move ahead with construction of a new airfield above a coral reef near Nago seems to have thrown a wrench in the works, but the real difference between the DPJ and the LDP is simply in the visibility of its reluctance to give Washington what it wants.

The disconnect here is in overestimation of cooperation from the LDP. The long history of this redeployment headache gets left out of most accounts of the current controversy. The initial U.S. force redeployment deal was agreed in 1996, and the new airfield and redeployment were supposed to be completed by 2004. Instead, after seven years without progress, both sides went back to the bargaining table, a process that eventually yielded the 2006 agreement. Yet, more than three years of LDP rule later, authorization of construction at the airfield still falls to the new DPJ government. In other words, the LDP agreed to give the United States what it wanted ... and then did virtually nothing to make it happen.

So what has changed? The DPJ, not to mention its coalition partner the Social Democratic Party of Japan, is much more openly antagonistic to the 2006 agreement. The visibility of that reluctance has moved the US to respond publicly on an issue that slid by without action on a much lower profile during the Bush years. Unusually blunt public statements from US Defense Secretary Robert Gates, insisting on quick implementation of the 2006 agreement, generated headlines -- and much chatter on bilateral strains. Though the Obama administration appears to have taken a step back, agreeing to set up a joint working group on the Ginowan issue, it continues to reject the one alternative that the Japanese Foreign Minister has been pursuing on his own -- moving the Marine helicopters to Kadena Air Base, an idea which the locals also reject.

That the United States started from a position of intransigence on renegotiation isn't remarkable. But this doesn't mean that's where the issue will end. The U.S. side has waited 13 years; it has no practical reasons to reject a technically and politically viable alternative even if it means a few more years of delay. In fact, further delay is the next likely course of action/inaction. The two sides have been stuck on the status quo conundrum for 13 years for reasons we can only guess at, but likely include operational requirements that leave little or no room for a non-Okinawa solution, while no other viable Okinawa alternative is in sight.

That said, the DPJ's political links to the anti-U.S. military presence in Okinawa, the SDP presence in the coalition, and the unfortunate political calendar, including a mayoral election in January in Nago and an Upper House election in the summer of 2010, are making it exceedingly difficult for the DPJ leadership to make up its mind to accept the lesser evil and give the go-ahead to construction work at Nago.

All this dictates the continuation of the status quo. But then, such a turn of events -- or the lack of one -- should not come as a surprise. In reality, history shows that for U.S.-Japanese relations, there's much less difference between the DPJ and LDP than meets the eye -- in principle or in practice.

Jun Okumura is a senior adviser to Eurasia Group and Ross Schaap is Director of Comparative Analytics.

ISSEI KATO/AFP/Getty Images

By Eurasia Group senior adviser Jun Okumura and analyst Ross Schaap

The Democratic Party of Japan's (DPJ) huge victory last Sunday will bring considerable domestic policy change. That's where the DPJ's focus will remain for the foreseeable future. Ironically, though, the first policy crunch on a specific issue may come on national security, an area where the Liberal Democratic Party's (LDP) efforts to brand itself as the party most capable of protecting Japan from North Korea, terrorists and pirates fell mostly on deaf ears.

Yukio Hatoyama, the DPJ prime minister to be, has vacillated on the continuation of the refueling operations in the Indian Ocean in support of the NATO effort in Afghanistan. His current position is that Japan will terminate the operation when the current authorizing law expires in January but that he will offer President Obama something better on Afghanistan.

Logic tells us that there are three options: put a substantial number of non-combat personnel on the ground; pay a lot of money; or opt for some combination of the first two. Some DPJ members -- most prominently Ichiro Ozawa -- have long wanted to take the first road and assist the Afghan effort with people on the ground. But that's a risky proposition given the risk-averse Japanese public and the poor conditions there that, moreover, show few signs of improvement any time soon.

Besides, Japan put up a lot of money ($13 billion) for the Gulf War and was widely disparaged for its "checkbook diplomacy"; nobody wants to repeat that painful experience. The refueling operations are a highly effective way for Japan to maintain its seat at the table with minimal financial cost and physical risk. In fact, there have been indications in the recent past that Hatoyama wouldn't mind seeking an extension on his own. The LDP will, of course, be happy to oblige him; which is precisely why this will be such a politically painful course of action for the new administration. Whichever course Hatoyama decides to take, he must make up his mind and take action during the autumn Diet session. Current refueling operations are authorized through January but renewed authorization needs to come in well before that deadline for the Maritime Self-Defense Force to manage deployments.

And besides the refueling operations, it appears the issue of US troop redeployment within Japan will also hit the new government early on. As much as it might prefer to focus on domestic political change, foreign policy matters that have to be addressed will remain a draw on the new cabinet's time.

TORU YAMANAKA/AFP/Getty Images

By Eurasia Group analyst Courtney Rickert

Amid headlines that the global economic crisis has stabilized, an important question arises: Which countries' economies will recover most quickly, and which recoveries will be the most sustainable? The key to finding an answer lies in understanding how countries were exposed to the global downturn and assessing their policy responses. Countries that choose to adjust to the changed global economic environment will come out on top in the long term.

While all internationally integrated economies have suffered growth declines, some economies entered the recession in a better position than others. Part of this divergence is a result of the quality of government policies, such as balanced fiscal positions and low inflation. Other key factors in determining a country's exposure to the crisis are trade imbalances and overinvestment in select sectors, such as real estate, in the period leading up to the global financial crisis.

Countries that had persistent trade deficits -- such as the US-financed them by borrowing heavily from abroad. Frequently, international borrowing fed domestic consumption far more than investment. This excess consumption contributed to bubbles during the boom years -- notably in financial assets and real estate-that have since popped. These economies have been slower to stabilize, but the housing and retail markets are naturally adjusting as home prices fall, banks become more prudent, and consumers buy less. In these cases, there is little need for long-term adjustments to macroeconomic policies.

On the other hand, government policy choices will play an important role in countries that sustained trade surpluses, such as China, Germany, and Japan, because these surpluses were a result of government policies that promoted exports. Their economies have been hard hit by declining global demand-particularly in the US. Although government stimulus spending has propped up their economies in the short term, China, Germany, and Japan will face a fundamentally different global market in the long term -- one that is unlikely to revert to the pre-crisis status quo levels of global demand. Governments in these countries will have to choose whether to reorient their economies away from export dependence or try to muddle through and hope for a return of foreign demand.

Effective policy responses in all countries have required crisis stabilization, the cleanup of sectors that experienced overinvestment, and adjustment to the rapidly shifting global flow of funds and goods. Even the best-run governments will face difficulty managing these activities smoothly, but many are demonstrating the ability and willingness to do so. Below are snapshots of policy responses in the four largest economies: the United States., Japan, China, and Germany.

United States
The United States had a large trade deficit during the expansionary period, allowing it to adjust relatively easily to declining global demand. However, as a result of international capital inflows, it also had significant overinvestment in financial assets and real estate. The Obama administration responded relatively aggressively to the crisis by taking action to clean up the financial sector and implementing a $787 billion fiscal stimulus plan, but spending has been slow to materialize. The US economy is forecast to contract by 2.6% in 2009 and show only minimal growth in 2010, as individuals and firms paying down their debts remain a drag on economic growth. But compared to the major trade surplus countries, the United States' relatively fluid economy will likely to adjust to the new global environment more smoothly and rapidly.

Japan
Japan's exposure to the current crisis has been exacerbated by its efforts to sustain trade surpluses, but its economy had already been adjusting before the crisis began, with production increasingly moving overseas. Moreover, when the global decline in demand hit, Japanese firms decreased production and rapidly leveled off at much lower output. In addition, the 30 August elections are expected to displace the long-ruling Liberal Democratic Party (LDP), bringing to power a government that is more interested in protecting the interests of consumers rather than producers. This situation is reducing Japan's dependence on exports, providing a more stable base for growth.

China
The global slowdown has hurt demand for Chinese goods and threatened the vitality of China's export-oriented economic growth. While exports are unlikely to return to their previous levels in the near to medium term, Beijing's massive stimulus spending, relaxed monetary policy, and export promotion will partially counter the collapse in demand. If China is to secure long-term growth, however, efforts to rebalance the economy toward greater domestic consumption -- by putting more income in workers' pockets-must be considered.

Germany
The export orientation of the German economy and tight integration with the wider European economy limits the government's ability to stimulate domestic demand. Moreover, liabilities in the banking sector are worrying. While the government has fiscal room to maneuver, focus on the upcoming election and fears about the cost of potential interventions in both the real and financial sector have constrained Berlin. Most importantly, the government is averse to policies that would lead to a structural change in the country's export orientation. While this could begin to erode after the 27 September elections, any shift in German policy will be limited by concerns about government debt levels.

YOSHIKAZU TSUNO/AFP/Getty Images

By Ian Bremmer

The international conflict over North Korea's nuclear program has been locked in stalemate for years. The United States and Japan fear that Pyongyang will sell nuclear weapons and material to rogue regimes and/or terrorist groups or stumble its way into a shooting war. China and South Korea worry that North Korea will collapse, flooding Chinese border regions with sick and starving refugees and leaving South Korea with a reunification project that will cost a fortune and last a generation. This problem has allowed Kim Jong Il to periodically saber-rattle his way into fresh supplies of cash, food, and fuel. It's all been entirely predictable.

But the Dear Leader's illness has changed the game. His government has been unusually belligerent lately, even by North Korean standards. Following the latest missile tests, they haven't made new demands for talks or aid and insist they will not return to six-party talks until others at the table accept North Korea as a nuclear state. Its government has since sentenced two US journalists to 12 years of hard labor for "hostilities against the Korean nation and illegal entry." Especially provocative have been a series of cyber-attacks on US and South Korean government websites, which officials in both countries believe originated from North Korea. This more reckless North Korean behavior suggests that senior civilian and military officials, increasingly unsure how the coming power transition will go, are trying to secure some extra room for maneuver.

For the moment, North Korean actions are aimed at an internal, not an international, audience. That makes their actions less predictable -- and increases the risk of accidental confrontation.

The Obama administration, aware that bad things happen when all sides are in escalation mode at the same time, has stepped back from the tougher rhetoric of weeks past. There's been little mention of sanctions. For the imprisoned journalists, Secretary of State Clinton is now asking for mercy rather than demanding justice.

But if North Korea really is moving into political succession mode as Kim Jong Il's health heads downhill, those who will be left behind are making a much-faster-than-planned move to shore up support for his recently designated successor, third son Kim Jong Un. It will be easier for them to maintain national unity at a time when the country stands on the brink of war.

Until the North Korean leadership feels confident enough to return to the established patterns of negotiation and extortion, its actions will remain much more difficult to predict. That problem, in turns, elevates the risk of miscalculation -- and a confrontation that no one wants.

AUM JUNG-SEOK/AFP/Getty Images

By Ian Bremmer

Moisés Naím wisely warns us in his latest FP column that transnational problems are pressing just at a moment when multinational consensus on solutions has become nearly impossible to achieve. If 20 countries produce 85 percent of global GDP, 20 countries generate three-quarters of global greenhouse gasses, just 21 are directly concerned with nuclear non-proliferation, and 19 account for almost two-thirds of AIDS deaths, limiting negotiations over collective action to the smaller number of states needed for workable solutions makes good sense. But in today's geopolitical environment, 20 is still a very big number.

The ongoing economic meltdown has accelerated the inevitable transition from a G7 to a G20 world. Gone are the days when the United States, UK, France, Germany, Italy, Japan, and Canada could credibly claim global political and economic leadership. Today, no institution that excludes China, India, Russia, Brazil, and a few other emerging heavyweights can fully address the biggest international challenges.

But it's not simply that it's tougher to forge compromises with 20 negotiators at the table than with seven. It's that some of the new players have fundamental disagreements with the established powers on some very big questions -- like what role government should play in an economy. Agreements on managing transnational health crises, nuclear proliferation, regional security, or greenhouse gasses and global warming will involve complex policy solutions with direct impact on domestic economies.

Second, the new governments at the table are preoccupied with problems much closer to home-issues that can be addressed on a (relatively) more modest and manageable scale. China's political leadership, an increasingly indispensable player on several transnational problems, is far more concerned with domestic than with international challenges. Much of its foreign policy is intended to fuel the continuation of explosive domestic economic growth-and the millions of jobs it creates. Its rhetoric may be global, but its focus is more often regional. The governments of India, Russia, and Brazil are likewise intent on managing the impact of the global recession on their domestic economies and advancing their political interests within their immediate neighborhoods. That's why much of the forward movement on transnational issues will come from regional groupings like the European Union, the Gulf Cooperation Council (GCC), and the Association of Southeast Asian Nations (ASEAN).

Some respected observers of international politics have called for a G2, a meeting of US and Chinese minds for the ultimate in minilateralist institutions. There are many reasons why this won't happen anytime soon-if ever. The Chinese leadership may enjoy such talk, but its most seasoned policymakers know well that China cannot yet afford to shoulder such burdens. Nor are Washington and Beijing likely to agree on how to solve many of these problems. And to reduce international consensus to two countries is to ignore the growing importance of many others.

In other words, Moisés is correct that 20 is a much more manageable magic number than 200. But these 20 are unlikely to accomplish big things for the foreseeable future.

By Ian Bremmer

This week's headlines have painted a dire picture of the state of Japan's economy. GDP contracted by 4 percent over the first three months of 2009, the worst quarterly performance on record. Year on year, Japan's economy shrunk by more than 15 percent, the steepest such decline in more than half a century. But my latest visit to the country has convinced me that there's already light at the end of Japan's dark economic tunnel. Instead, it's the political situation we ought to be worrying about.

Despite the alarming headlines, I was pleasantly surprised to see the beginnings of a turnaround in economic sentiment. The prevailing gloom I felt in talks with Japanese business leaders earlier in the year has given way to cautious optimism that a recovery in China is about to lift the rest of Asia out of its malaise. Executives had lots of questions for me on threats to stability in Pakistan (mostly because President Asif Ali Zardari visited Tokyo last month asking for money), on Venezuela (because Japan has signed a deal with Hugo Chavez to build an energy partnership), and even a surprising curiosity about opportunities in Iraq. In other words, Japanese investors have resumed their shopping.

Japan's political situation, on the other hand, has only gotten murkier. Prime Minister Taro Aso and the ruling Liberal Democratic Party (LDP) have managed to climb their way out of single-digit approval ratings, but numbers in the low 30s still leave the party facing likely defeat in an election that must be called by early September. And the LDP's recent recovery took place at a time when the unpopular, scandal-ridden, and ailing Ichiro Ozawa still ran the opposition Democratic Party of Japan (DPJ). Now that he's announced his resignation, public focus will return to the country's dire economic performance -- and the LDP's inability to turn it around. Recovery is coming, but not fast enough to bail out the ruling party, and Aso has neither the track record nor the temperament to reverse his fortunes as the far more talented Junichiro Koizumi managed to do four years ago.

So what will the next Japanese government look like? When my turn arrived to ask questions of knowledgeable friends in political and business circles, I got some very interesting answers. More than one well-informed source warned me that Japan is about to have a centrist third party, one comprised of disgruntled factions from within the LDP and DPJ. How successful the new party will be is open to question, but the plans are well underway -- one of the LDP's leading politicians and a younger DPJ maverick (referred to as a "rising star" by one official) have been busy raising cash for the new party (to be announced right after elections) from senior Japanese executives.

The risk is of political paralysis. In other words, it's starting to look like Japanese politicians will be fully occupied with sorting out their new alliances and rivalries over the next couple of years just as China resumes its rise, the Obama administration works to build ties with Japan on new ground, and gradual economic recovery offers opportunities for much-needed structural economic reforms. That's bad news -- for Japan and for its friends in Washington.