Insights & Advice

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Japan, The Defense Dilemma

Japan is an island nation surrounded by countries who have expressed hostile intent in one form or another over recent years. It is also faced with turning around an economy that until recently was mired in a decades-long malaise. The launching of the “Izumo”, a 19,500-ton aircraft carrier, last week may be Japan’s answer to both problems.

Japan boasts the third-largest economy on earth and yet it is one of the few remaining countries that have no standing army, navy or air force. War, as a means of settling international disputes, is outlawed under Article 9 of the Japanese Constitution written into law (under U.S. insistence) on May 3, 1947. However, Japan (under U.S. occupation at that time) was allowed to maintain a self-defense force,

During the Cold War, the U.S., in desperate need of armed allies, quickly realized the folly of its ways but couldn’t get the Japanese to drop Article 9 and re-write their constitution. Since then the United States has had the responsibility (and the cost) of maintaining a nuclear umbrella over its island ally and surrounding seas. It has been a good deal for Japan, although to be fair, after the nuclear holocaust in Hiroshima and Nagasaki, the vast majority of Japan’s population was adamantly opposed to war and to re-arming their nation at any cost.

Times have changed, however, and those that suffered Hiroshima have given way to a new generation. A generation who have grown up by first being threatened by a hostile Soviet Union, then the People’s Republic of China and two generations of maniacs in North Korea. Disputes over the sovereignty of various islands, islets, rocks, fishing grounds and energy fields have pitted this nation against countries that could mount an offensive expeditionary force or launch a wave of ballistic missiles at a moment’s notice.

At the same time, The United States has made it clear that we can no longer afford to act as the world’s policeman. Budget cutbacks in defense, including the ten-year cuts agreed to under the Sequestration, have underscored the declining defense role of the U.S. towards Japan going forward.

Now I’m sure there are at least some readers out there who are going to take exception to the idea of re-arming Japan although where were they when Germany re-armed? Pacifists, WWII war veterans, most liberal thinkers and even a large number of Japanese will be dead-set against the idea. Fair enough, but at the same time all of the above also applaud the reduction in U.S. defense spending. You can’t have it both ways.

Prime Minister Shinzo Abe, a long-time supporter of re-arming Japan, has announced plans to revise Japan’s pacifist constitution. At the same time, Japan’s top general is calling for a big increase in military spending.  But “big” is a relative concept when Japan is only spending 1% of their GDP on defense each year since 2002 compared to almost 4% in the U.S.

One of the main criticisms of Japan’s present efforts to turn around their economy is that their past premier position as the world’s exporter can’t be resurrected.  By initiating a U.S.-style stimulus program, their currency may decline, but critics argue that no matter how low the yen falls, Japan’s bread and butter product operations have already been shipped overseas. Their plants are now in Europe, South and North America and elsewhere, blunting the impact of yen currency declines. Japan not only needs to boost their economy but they need to do so by re-inventing themselves. In my next column I will examine how that could come about.

Posted in A Few Dollars More, Macroeconomics