Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
Last September, tens of thousands of opponents of Japanese Prime Minister Shinzo Abe gathered outside the National Diet building in Tokyo, often in torrential rain, holding placards and shouting antiwar slogans. They were there to protest the imminent passage of legislation designed to allow Japan’s military to mobilize overseas for the first time in 70 years—a shift they feared would undermine Japan’s pacifistic constitution and encourage adventurism. On September 17, Japan’s normally sedate parliament dissolved into scuffles as opposition politicians tried and failed to prevent a vote on the bills, which ultimately passed.
They and the protesters may have failed in their objective, but they got something right: Japan’s foreign policy is indeed changing. Since returning to power in September 2012, Abe has pushed through a series of institutional, legal, diplomatic, and military reforms that are reshaping Japan’s national security posture and that promise to enhance Japan’s regional role over the coming decade. Responding to rapid changes in the region, particularly the dramatic increase in China’s power, Japan’s prime minister has distanced his country from its postwar pacifism—which was predicated on a benign view of the international system—and unveiled a new, more realist foreign policy.
Japan’s pacifism, which many Japanese see as key to their country’s postwar identity, dates to 1946. That year, the country, still occupied by the United States, accepted a U.S.-drafted constitution forbidding Japan from maintaining a military with the potential to wage war. When the U.S. occupation ended, in 1952, Tokyo essentially outsourced its defense to its new ally, Washington. In the decades that followed, Japanese leaders also put their faith in the liberal international institutions, such as the UN, that defined the postwar world.
In recent years, however, Abe has increased the defense budget and loosened the constitutional restrictions on Japan’s military, passing laws that allow it to cooperate with partners in limited security operations. Bidding for a larger leadership role in Asia, he has deepened the country’s engagement with regional groups, such as the Asia-Pacific Economic Cooperation forum and the Association of Southeast Asian Nations, and he has strengthened the U.S.-Japanese alliance. He has also built military ties with other democracies in Asia, including Australia and India.
Taken together, Abe’s actions, and those of some of his predecessors, will enable Japan to play a larger role in defending its interests and contributing to regional stability. Although controversial both at home and abroad, changes in Tokyo’s foreign and security policies are a positive step, moving Japan toward a regional posture more commensurate with its economic strength. They enhance the U.S.-Japanese alliance and serve as a liberal counterweight to China’s increasingly assertive challenge to Asia’s rules-based order.
Since the end of the Cold War, Tokyo has expanded the primary goal of its defense policy from defending the Japanese home islands to also protecting its far-flung maritime possessions—small, largely defenseless islands, such as Yonaguni, located just off Taiwan, more than 1,200 miles from Tokyo. To that end, it has sought to uphold freedom of navigation and an open, rules-based order in Asia. It has stepped up its military preparedness and strengthened security cooperation with an expanding set of partners.
These shifts in Japanese policy can be traced to the uncertainty that followed the collapse of the Soviet Union in 1991. Almost overnight, the original rationale for the long-standing U.S.-Japanese alliance disappeared, and the future of East Asia’s security order—not to mention the future of the U.S. presence in the western Pacific—became uncertain. As the United States struggled to craft a post–Cold War global strategy, the U.S.-Japanese alliance entered a period of drift, tied in part to questions about Washington’s commitment to the region in the new era.
In August 1990, less than a year after the fall of the Berlin Wall, Iraq’s Saddam Hussein invaded Kuwait. Washington assembled a huge military coalition to oust him, but Tokyo refused to send troops, paying $13 billion instead to help defray the costs. The move failed to win Japan much credit, however. Critics in the United States and elsewhere widely derided it, and the episode, which raised new questions about Japan’s ability to translate its economic might into strategic clout, tarnished the country’s image as a leading global power.
Then, in 1998, North Korea launched a ballistic missile over the island of Honshu. This was Tokyo’s “Sputnik moment”: raising Japan’s sense of insecurity and fears that its key ally might not be able to protect it from new threats. And Japan suddenly realized that it was facing what could become an existential threat from a rogue regime known to be pursuing nuclear weapons.
A final, ongoing reason for Japan’s strategic evolution has been the steady rise of China as a political, economic, and military power. Long accustomed to being the major player in Asia, Tokyo has recently been forced to contemplate a future in which Beijing will dominate the region.
Together, these shifts have helped erode Tokyo’s commitment to pacifism and have undermined its leaders’ belief that international institutions alone can be trusted to shape the future. In response, Japanese leaders have embraced a sort of classical realism, predicated on the belief that nations seek power above all else and that the only way to defend Japan is to forge stronger security partnerships and pursue a more activist foreign policy.
Seven decades after World War II, Japan is once again becoming a player of some significance in Asia.
This new worldview has led Japan to seek closer security cooperation with the United States. After 9/11, then Prime Minister Junichiro Koizumi surprised many Japanese by agreeing to support the U.S.-led “war on terror.” Unable to send combat troops, since that would have violated Japan’s constitutional ban on “the threat or use of force as means of settling international disputes,” Koizumi dispatched Japan’s Maritime Self-Defense Force to the Indian Ocean to support allied combat operations in the region. He also sent Japanese reconstruction troops to Iraq in February 2004 and deployed an Air Self-Defense Force team to transport supplies between Kuwait and Iraq. Finally, between 2002 and 2009, Tokyo pledged $1.4 billion in aid to Afghanistan.
When Abe first became prime minister—he succeeded Koizumi in 2006—he pushed through a number of laws to allow for greater security cooperation with Japan’s partners. He also conducted a review of Japan’s ban on sending troops overseas and proposed the creation of a national security council and a centralized intelligence organization to modernize planning.
But just one year into the job, Abe resigned when his ruling Liberal Democratic Party lost control of the upper house of the Diet. And when the Democratic Party of Japan (DPJ) took over the lower house in 2009, Yukio Hatoyama, the new prime minister, shelved Abe’s ambitious security reforms. Hatoyama, who felt that Japan’s future lay with Asia, not the United States, drove a wedge between Washington and Tokyo by fighting a plan to relocate a U.S. Marine Corps base on Okinawa and attempted to reorient Japan toward China and South Korea. Like Abe, however, Hatoyama lasted only about a year in office. His successor, Naoto Kan, scarcely did better: overwhelmed by the 2011 tsunami and the subsequent Fukushima nuclear crisis, he was forced to resign in September 2011.
The next DPJ prime minister, Yoshihiko Noda, adopted a more conservative foreign policy, reemphasizing close ties with the United States and taking a harsh tone toward China, which he identified (along with North Korea) as Japan’s main strategic threat. Noda agreed to purchase the F-35 stealth fighter jet and eased a 1960s-era de facto ban on exporting weapons. Noda also joined negotiations over the Trans-Pacific Partnership, supporting Washington in its attempt to establish a free-trade bloc of largely liberal nations that excluded Beijing.
Perhaps most significant, Noda nationalized three islands in the Senkaku chain (known as the Diaoyu chain in China) also claimed by China and Taiwan. Since the return of Okinawa to Japanese control in 1972, Japan had administered these privately owned islands, but in September 2012, to prevent their purchase by the right-wing governor of Tokyo, Noda had the Japanese government buy them instead. Although Noda’s move was meant to block an even sharper provocation, it dramatically worsened Japan’s relationship with China. Beijing responded by sending private fishing boats and maritime patrol vessels into the waters around the islands on a regular basis, and Noda began warning that China sought to undermine Japan’s administrative control of the Senkakus as a first step toward challenging its territorial claim. Beijing’s actions raised alarms in Japan about China’s growing military strength, its presence in the East China Sea, and the threat China posed to Japan’s southwestern island chain (which stretches from the southernmost island of Kyushu to just off Taiwan). The defense of these islands and the seas around them thus became the focus of Japan’s new strategic vision, which it would be under Abe as well, when he returned as prime minister in December 2012.
Before Abe could set his new policies in motion, however, he had to dismantle the various postwar restrictions that blocked Japan from using force abroad. His first move was to get the Diet to approve the creation of a national security council in November 2013, dusting off plans from his first term. Abe picked his close adviser Shotaro Yachi to run the new body and staffed it with personnel from the Foreign and Defense Ministries. He then directed the council to draw up a new national security strategy and approve the formal five-year guidelines that inform Japan’s defense procurement plans. The NationalSecurity Council also coordinates Japan’s security policy and serves as a central body for crisis planning and response.
Abe was able to make these institutional changes with relatively little fanfare. His broader reforms to Japan’s security policies sparked far more controversy, however—especially his efforts to ease the arms export ban. The prohibition had long cut off Japan’s defense industry, whose ten largest companies had only about $7.25 billion in domestic contracts in 2012, from the global market and the international research-and-development community, thus forcing it to produce products that were often one and a half times as expensive as comparable foreign models, and sometimes more. In 2014, Abe received Diet approval to expand the types of arms Japan could export and allow Japan to cooperate more closely with the United States and other partners on defense technology.
Abe’s next move—pushing through laws to allow Japan’s military to mobilize abroad—sparked even more public outcry. Japan’s constitutional prohibition on collective self-defense had created various awkward problems for the country over the years; among other things, it required the Diet to pass a special law every time Japan wanted to deploy its forces overseas. Now, under Abe’s reform (which was passed by parliament last September), the government has the right to assist allies whose forces or territory are under attack and provide logistical support to countries engaged in military operations that do not directly concern Japan’s security.
Abe has also begun to boost Japan’s military capabilities. After a decade of military stagnation, he has gradually increased the defense budget: by 2.9 percent in 2014 and 2.8 percent in 2015. In December 2015, the Diet passed an increase of 1.5 percent for 2016, which would bring Japan’s total annual defense spending to a record $42.4 billion. These additions pale in comparison to China’s $132 billion defense tab in 2014 and double-digit budget hikes in recent years. Yet they are nonetheless significant. Abe has reaffirmed Noda’s plan to buy 42 F-35 fighters and has announced his intention to purchase 17 Osprey tilt-rotor aircraft and 52 amphibious assault vehicles. He has also pledged to build two new destroyers and to increase Japan’s submarine force to 22 modern diesel boats. Japan’s Ministry of Defense also intends to buy three top-of-the-line surveillance drones and around 20 new maritime patrol planes to replace old models, as well as to upgrade Japan’s ballistic missile warning systems and satellites.
Tokyo has already bolstered its defenses in the southwestern island chain, building radar sites on Yonaguni Island, near Taiwan, and constructing bases on three more key islands in the area. By 2020, Abe intends to place up to 550 troops on Amami Oshima, the largest island between Kyushu and Okinawa; he has also started setting up bases on Ishigaki and Miyako, near the Senkaku chain, to facilitate the quick deployment of military personnel in a crisis. All told, nearly 10,000 Japanese troops will be stationed on islands in the East China Sea, along with a network of antiship and antiaircraft missiles there. And in August 2015, Abe launched the country’s second Izumo-class helicopter carrier, which has dramatically strengthened Japan’s ability to project force in its territorial seas.
As significant as Abe’s domestic security reforms have been, it is his foreign initiatives that have revealed the true scope of his ambition. Not content for Japan to keep acting as a sort of international bystander, Abe has made more than 40 trips abroad since 2013 and has used visits to Canberra, Singapore, and Washington, D.C., to lay out his foreign policy vision.
Abe has also attempted to reassure critics that Japan will never again engage in offensive war. To drive home this message, he has made nonmilitary diplomacy a large part of his foreign outreach. His government has raised Japan’s profile in various multilateral institutions, such as the East Asia Summit and the Association of Southeast Asian Nations, by raising questions of maritime security, and in October 2015, it signed the Trans-Pacific Partnership treaty. Underscoring his growing regional influence, in 2015, Abe also succeeded in getting a reference to stability in the South China Sea added to the final communiqué issued by the East Asia Summit, despite Chinese opposition.
Throughout the Cold War, Japan remained largely isolated in Asia, with the United States as its only ally. In part because Japanese relations with China and South Korea have become strained, Abe has built new relationships with Australia and India and strengthened ties with Southeast Asia. Abe has also resurrected the political and security dialogue he began in 2007 with Australia, India, and the United States, part of an initiative to create a community of liberal interests in Asia. And unlike his predecessors, who maintained primarily diplomatic relations with those countries, he has made security cooperation a key element of his diplomatic and economic outreach.
Japan’s closest relationship in Asia may be with Australia; Japanese officials have described it as a “quasi alliance.” In 2014, the two countries signed an agreement that enhanced the sharing of information and defense technology. Last November, Tokyo submitted a formal offer to build advanced submarines for the Royal Australian Navy, which would allow the two countries’ navies to work together more closely.
Nearly as high on Abe’s list of partners is India. Abe enjoys good relations with Prime Minister Narendra Modi and has declared a “special strategic and global partnership” with New Delhi. He also joined the United States in participating in the Malabar naval exercise hosted by India in 2015, and India and Japan have discussed the possibility that New Delhi might purchase Japanese submarines and search-and-rescue planes, which would help the Indian navy patrol the eastern Indian Ocean, where Chinese ships increasingly roam.
Tokyo is seeking to play a similar role in Southeast Asia, where a number of other countries are increasingly finding themselves targeted by China’s territorial claims. Abe has championed Japan’s role in maintaining maritime security and freedom of navigation, positioning his country as the defender of a liberal, rules-based order in the region. In 2015, Tokyo signed strategic partnership agreements with Indonesia, Malaysia, the Philippines, and Vietnam. Abe has also agreed to give six maritime patrol vessels to Vietnam and sell three to Indonesia, has loaned Manila the money to purchase ten maritime patrol vessels, and has announced plans to loan used surveillance aircraft to the Philippine navy. Last May, Japan and the Philippines conducted their first joint military exercises, and Vietnam agreed to joint naval exercises last November.
Abe has also reached out to Europe, attempting to position Japan as the continent’s main Asian partner. In 2014, he formalized Japan’s ties to NATO by concluding an “individual partnership and cooperation program” and signaled his interest in joining a NATO missile-building consortium. Abe has also deepened Japan’s bilateral defense ties with France and the United Kingdom by signing a military equipment and technology transfer agreement with the former and a defense equipment cooperation agreement with the latter.
Japan will need to play a global role commensurate with its size and economic strength.
Above all, Abe has taken several moves to strengthen Japan’s most important strategic relationship: its alliance with the United States. In April 2015, Tokyo and Washington upgraded their ties for the first time since 1997, announcing that they would start cooperating more closely on maritime security and regional stability. The two nations also agreed to work together to deal with ambiguous security situations that fall short of formal conflict and to jointly respond to threats in space and cyberthreats.
By slowly eliminating its restraints on security cooperation, by deepening its relationship with the United States, and by emphasizing more muscular, liberal rhetoric, Abe’s Japan has positioned itself as a sort of anti-China in Asia and beyond. Yet many of the other restrictions on Japan’s military remain in place, and these will not be revoked anytime soon. Japan’s society would not allow its military to play a more normal role in dealing with foreign crises; the Japanese also remain highly wary of entangling alliances.
Yet many of Japan’s elites—who are worried about the threats from China and North Korea and who fear that the United States is distracted by crises in the Middle East and Ukraine—have embraced the country’s new realism. Leading thinkers, including the journalist Yoichi Funabashi, the former diplomat Kuni Miyake, the political scientist Koji Murata, and the former defense minister Satoshi Morimoto, are among those writing and speaking about the need for a more muscular Japanese posture. Indeed, there is a growing community of academics, policy analysts, and politicians who believe that Japan must do more to ensure its own security, as well as to help support the global system that has protected it since the end of World War II.
As Abe expands Japan’s global role, his policies will include new activities abroad and entail deeper security cooperation with existing partners. The more unstable the global environment becomes, the more Japan will need to play a global role commensurate with its size and economic strength. That role should take advantage of multilateral organizations, but it will, realistically, privilege Japan’s security.
After decades of stagnation in Japan’s foreign and security policies, the new posture will contribute to the maintenance of Asia’s liberal post–World War II order over the coming decade and beyond. Abe’s policies, which build on some of those of his predecessors, are a series of small yet interlinked steps that will enhance Japan’s security, diplomacy, and economy. In focusing primarily on stemming the growing threat from China, Abe is attempting a tricky balance: to prevent the souring of relations between Beijing and Tokyo but also to keep Asia’s balance of power from tilting too far toward China.
Abe’s plans are controversial, but a healthy democratic tension between a largely pacifistic populace and an elite that worries about emerging threats to Japan’s security will likely help Tokyo avoid the extremes of isolation, on the one hand, and intervention, on the other. In openly advocating liberal values, Abe is making clear that he recognizes Japan’s responsibility to preserve stability. Japan’s new policies are particularly important in ensuring that the U.S.-Japanese alliance, which remains perhaps the key guarantor of regional peace, will remain a credible and robust instrument in the coming decades.
Seven decades after the end of World War II, Japan is once again becoming a military player of some significance in Asia, as well as a political force. Yet unlike during the 1930s, when ultranationalism propelled Japan onto a disastrous path of invasion and war against its neighbors, today Japan is shedding old restraints so as to strengthen and defend the open, liberal system that has enriched Asia and led to decades of general stability. In a world where resurgent authoritarian powers threaten global peace, Japan’s new realism will help shape the next decade in the Pacific and ensure that no one power dominates Asia.