Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
Last December, Tokyo announced that it would purchase Lockheed-Martin's F-35 Lightning II as its next-generation jet fighter. In doing so, it disappointed BAE Systems, the European maker of the Eurofighter Typhoon, which had hoped to win the $4.7 billion contract itself. For a while, it seemed as though it might. The Lockheed deal had its downsides: Initially, Japanese firms would have played no role in producing the new jets; likewise, they would not have had access to the secret technologies used in the F-35's design. It was not until Lockheed agreed to allow domestic contractors to participate in building the new jets and share some top-secret technologies that Japan decided to make the deal. In retrospect, that move should never have been in much doubt. The contract closely follows Japanese defense policy precedent: acquiring the most advanced American military hardware available under licensing agreements, producing that hardware in Japan to boost the economy, and keeping the U.S.-Japan alliance tight, positing Japan as a buffer between the United States and the region's major powers.
Japan has filled this role for decades. In 1946, during the United States' postwar occupation of Japan, General Douglas MacArthur, the supreme commander for the Allied Powers, insisted that the country's new constitution include a clause barring Japan from maintaining war-making capabilities. In return, Washington would protect Japan from outside attack and maintain a sizeable military presence there to do so. When the Korean War broke out, the number of U.S. troops in Japan dwindled as soldiers were moved from Japan to fight on the Korean peninsula. Realizing that the force it could afford to retain in Japan was not sufficient for maintaining order or fending off a communist infiltration, the United States pressured Japan to relax the ban on maintaining military forces. Under the guidance of the U.S.-dominated Allied General Headquarters, the country created a paramilitary force, the National Police Reserve (which gradually morphed into the Self-Defense Forces, or SDF, Japan's main military organization today). Meanwhile, military production contracts from U.S. firms poured into the country. For example, during the three years of the Korean War, 235 Japanese companies produced $500 million worth of ammunition for the U.S. military.
As Japanese factories built military hardware on license from U.S. defense firms, the country's heavy industrial companies picked up the know-how to create cutting-edge domestic civilian technologies. In the 1950s and 1960s, for instance, the highly reinforced plastics originally designed to build the Lockheed F-104 Starfighter found their way into Mitsubishi's YS-11 and MU-2 turboprop aircraft. And Japanese experience with U.S. jet engine bearing technology -- which allows mechanical parts to work at high speeds -- played an important role in the development of the country's iconic Shinkansen bullet trains. Soon, producing military hardware under license from the United States and then reaping the civilian technological and economic benefits became a cornerstone of Japanese foreign arms procurement policy: When negotiating arms deals with the United States, Tokyo often requested that specific processes -- such as quality testing, metal bending, and the development of cameras, tires, engines, and synthetic materials -- take place in Japan so that Japanese firms could build experience in those lucrative fields. Producing the F-35's fuselage and studying its stealth technology, too, will also give Japanese defense contractors a leg up. Already, Mitsubishi is producing a prototype one-third-scale stealth aircraft, the Mitsubishi ATD-X Shinshin, and the project will surely benefit from familiarity with the inner workings of the F-35.
The United States has also benefited from transferring technology to Japan. First, the process was profitable for U.S. firms and helped create a prosperous industrial Japan to serve as an economic bulwark against communism in Northeast Asia. No less important, Japan eventually became a U.S.-outfitted military bulwark in the region as well. That took more time, but Washington actively encouraged the dependency by limiting Japan's experimentation with developing its own advanced military technologies that would cut into U.S. exports to Japan. In the mid-1980s, for example, Japan launched the FSX program, which set out to build a domestic fighter jet. But Washington quickly pressured Japan to turn the FSX program into a joint U.S.-Japanese venture; U.S. President Ronald Reagan and Defense Secretary Caspar Weinberger both appealed to the Japanese government, citing balance of trade concerns. Even today, much of Japan's most advanced military hardware is of U.S. design. In short, the United States simply needs Japan as an ally (to act as a base for its Seventh Fleet and safeguard U.S. interests in the region) and Japan needs the United States (for protection).
For the most part, this relationship has worked out well. Over the past half-century, the strategic goals of the United States and Japan in the region have overlapped. The SDF initially took a "westward"-facing posture -- SDF installations were more heavily armed and staffed in the northwest of the country, along the Sea of Japan, to repel the Soviet Union and its erstwhile ally, China. After U.S. President Richard Nixon's 1972 trip to China, the People's Republic fell off Japan's defense radar. Japan's wariness of China waned during this period and its sights trained squarely on the USSR.
Then, with the end of the Cold War and the beginning of China's astronomical rise, Tokyo shifted its attention again: Personnel and defense equipment were shipped to Japan's southern bases to ward off China around Japanese islands in the South China Sea. Since the 1970s, Beijing has claimed sovereignty over the Senkaku Islands there, which Japan considers integral territory, and which have significant mineral deposits and profitable fishing sites. Since China started flexing its economic and military muscles in the 1990s, the United States' sense of urgency in deflecting China has grown, too.
The 1990s and the first decade of the twenty-first century thus saw Japan's continued licensed production of advanced U.S.-designed military hardware. The most strategically significant of these projects were the Aegis destroyers -- a highly advanced naval guided missile system designed by Lockeed-Martin, and a key component of Japan’s ballistic missile defense system, which was jointly developed with the United States. First, in 1993, Japan built its Kongo class guided-missile destroyers, which were equipped with the Aegis fire-control system, and were based on the U.S. Flight I Arleigh Burke-class destroyers. In the late 2000s, Japan produced an updated guided missile destroyer, the Atago class, which was based on the Flight IIA Arleigh Burke and also produced in Japan under license.
The Japan-built Aegis destroyers, the jointly developed missile-defense system, and, now, in the new F-35 program, allow the United States to engage in an arms race with China by proxy, checking China while cutting its own defense budget by an announced $487 billion over ten years. This paradigm also allows Japan to engage in saber rattling without breaking its constitutionally bound pacifist principles since guided missiles, ballistic missile defense systems, and stealth fighters can all be considered as part of a comprehensive defense-only arsenal. Accordingly, on March 19, Japanese Defense Minister Naoki Tanaka warned that if North Korea's satellite launch, which is scheduled for April 12-16, was deemed to pose a threat to Japan, Tokyo would not hesitate to use its ballistic missile defense system to bring it down.
The F-35 continues a decades-long trend of Japanese policymakers continuously reinterpreting the country's constitution to allow for an expanding SDF role both within Japan and in the broader region. To date, the SDF has participated in international peacekeeping missions, antiterror activities, and anti-piracy operations. But it is still not quite a military. Shooting down DPRK ballistic missiles, whether they carry satellites or not, moves Japan one step closer to possessing a true military with the will and ability to project power.
Even so, the gradual expansion of the SDF's roles and capabilities need not create frictions between the United States and Japan. For one, the F-35 is being developed jointly by several nations, and the number of potential buyers has been increasing, thus reducing pressure on Japan to buoy foreign sales of U.S. defense hardware. Additionally, Japan will work with the United States, Australia, and others to produce the F-35. As ever, joint development will allow the United States and Japan to profit mutually from Japanese military modernization, as well as benefit from a united front toward China's rise.
To be sure, the F-35 purchase decision was met with some surprise and opposition by both domestic and foreign observers. Many felt that the project might be technically disappointing and that it would too greatly increase Japan's defense spending. Alessio Patalano, a lecturer in war studies at Kings College, has called the F-35 "unfinished, untested, and astronomically expensive" and wrote in the Asahi Shimbun that "the dilemma for Japanese policymakers is evident: are they ready to risk [investing] in a product with no real guarantee (at the moment) to meet the core requirement of Japan's own effort to procure the best means to defend the archipelago?" None of these reasons, however, changes the fact that the United States and Japan share a common interest in the region -- countering China -- and that a strong U.S.-Japanese alliance, bolstered by Japan's procurement of highly advanced weapons from the United States, is the most effective check on Chinese expansion in the region. As long as the two countries' regional interests continue dovetail, that strategic logic will win out.