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Apr 29, 2015 | 21:29 GMT

7 mins read

Conversation: Japan's Economic Revival

Ben Sheen: Hello and thank you for joining us. I'm Ben Sheen, managing editor here at Stratfor, and I'm joined today by John Minnich East Asia analyst. We'll be talking a little about Japan. So John, there's a lot of talk in the press at the moment based on the fact that Japan's Prime Minister Shinzo Abe is here in America talking with President Obama about the relationship between the U.S. and Japan, but actually it goes a little bit deeper than that doesn't it? In terms of what Japan's been doing, in terms of the modern world and in context.

John Minnich: Well we've been watching recently in Japan in some sense is that Japan is on the verge, or in the process of attempting, a national revival. That's both an economic revival — we see that with Abe's economic revival program called Abenomics designed to essentially take Japan out of the stagnancy that it's been kind of mired in for the last two decades and begin to add some kind of vibrancy into the Japanese economy. But it's not just an economic program. Abe is attempting a broader revival in the sense of also reformulating Japan's diplomatic position with East Asia, and very significantly boosting Japan's military capabilities but also in some ways more importantly it's autonomy; it's freedom of movement. This ultimately is approaching what we call the normalization of the Japanese military. Japan can yield or wield its military forces as other nations do in a certain sense. So that's kind of the background to Abe's visit to the United States. They're working on both economic cooperation and the Trans Pacific Partnership is kind of the centerpiece of that U.S./Japan economic cooperation. It's part of a region-wide, multilateral free trade agreement, but also defense cooperation. That's a very significant element in this. And this goes back to something that Stratfor's actually working on right now. It's kind of a broader reassessment of where Japan is today and where we see Japan going. Stratfor has this long-time working assessment forecast for Japan that we do see Japan — in a certain sense that the status quo of the last twenty years, which is relative foreign policy introversion and economic stagnancy— that this status quo is unsustainable for a variety of reasons and we see internal compulsions that are driving Japan toward changing. You know we talk about economic stagnancy a big component of that is the hollowing out of a lot of the industries that used to be the driving force of the Japanese economy and a result of that is rising underemployment, weak consumption, things like that. But another component of the internal compulsions driving Japan forward is demographic change. Demographic decline. Which is a long-term process that will play out over the course of decades, but is nonetheless a kind of slow-burning, background noise pressure on the Japanese leadership and Japanese policy makers. Then there's the other element that is the external pressures on Japan. There are sort of two key external pressures driving Japan forward. One is in a broad sense the rise of China. Stratfor is actually skeptical of the reality or the real trajectory of Chinese power, economic, military and diplomatic power and influence in East Asia, because of internal fissures we identified in the Chinese economy. For Japanese policy makers they're responding to what is a very real threat in some sense. China is growing, is becoming more powerful, and policy makers are responding to that. The other component of this idea of the internal and external forces driving Japan to reformulate its behavior is a shift in American strategy. So we see the U.S. moving toward what could be described as a more mature balance of power, grand strategy, which instead of intervening directly to maintain the balance in different regions of the world, the U.S. relies more heavily on regional partners. In the case of East Asia with the rise of China, Japan then becomes far more significant for the U.S. as a regional partner in defense cooperation.

Ben: Well I'm glad you brought up the fact that we're actually taking this deeper look into Japan as an entity, because we had a lot of reader responses on the Geopolitical Weekly that you wrote. People were asking, "What about the U.S. balance of power? What about the threat from China? What about the aging population in Japan?" Really this study gets to the core of all these things. There was one question I wanted to ask you though. A lot of people are talking about TPP. What is it? Why is it important?

John: So the Trans-Pacific Partnership is a 12-country, essentially region wide, Asia Pacific free trade agreement. It serves a number of purposes. The core idea here is to expand region wide trade and investment flows. That has both economic benefits for the countries involved, but also serves a geopolitical purpose. I mean there is some sense in which the Trans Pacific Partnership is intended to constrain China, or contain China. China is a rising economic power in the region. China is also in the process of establishing its own sets of rules and regulations, trying to build its own bilateral partnerships in the region, trying to expand its influence in a broad sense. TPP is designed to in some sense hedge against that process. When we talk about this idea of Japan and the US moving around to either contain or constrain China TPP would represent the diplomatic and economic aspect of that. For Japan though domestically it also plays back. We see Japan right now as it seeks to break from the economic stagnancy of the last two decades. Well one important component of that is implementing reforms that increase economic competition at home and therefore in theory at least or the hope is that by increasing foreign competition but also just competition in general within the Japanese economy it will improve productivity, improve efficiency, improve innovation. These are things that the Abe administration sees as critical, not only for in the general sense of bringing Japan back to economic growth, but bringing it back to economic growth for the end of enabling Japan to achieve its longer term regional diplomatic and military imperatives, vis a vis China, vis a vis other military threats that are coming up.

Ben: It seems to me that's been the tricky part of the core of the study. We're not just looking ten years out we're looking potentially the rest of the century and seeing how Japan is going to continue on its arch really. I'm really looking forward, as I'm sure our readers are, to see the fruit of that project actually reach fruition. 

Minnich: Exactly. The weekly is part of a longer term project which we're working on, which is not just to understand Japan operates today or how it's going to operate in the next five years, but really thinking about — you know Japan has in some sense fallen from the international relations limelight in the last two or three years as the rise of China and various other things have sort of absorbed Americans' attention in particular. But we have to remember that Japan despite two decades of not growing, essentially not growing, Japan remains the world's third largest economy. This is a very significant player, not only within East Asia but globally. And if we see Japan attempting a national revival in response to these internal and external pressures that we've discussed, then that's something that we really need to take into account, we need to integrate into our longterm forecast, we need to understand how that's going to cooperate or rub against, for instance the way we see China evolving, Russia evolving, Korea evolving. All of these internal processes are going to come together to create both a far more competitive, but in many ways also far more exciting region in East Asia over the coming several decades.

Ben: Very much so. John thank you so much for giving us insight into what really has been consuming you for a lot of these most recent months as well.

John: My pleasure.

Ben: Thank you so much. For more on this interesting topic please continue to read stratfor.com 

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