Comparative Connections

A Quarterly E-Journal on East Asian Bilateral Relations
U.S.-Japan Relations:

Weathering Political and Economic Turmoil
Michael J. Green, CSIS/Georgetown University
Nicholas Szechenyi, CSIS
The quarter began with President Bush and Prime Minister Fukuda meeting on the sidelines of
the G8 summit in Hokkaido, but their bilateral agenda and Fukuda’s own premiership were
eclipsed by dramatic political and economic developments in both countries. Fukuda resigned
suddenly on Sept. 1 having failed to convince the public he could strengthen the economy andmove important legislation through a divided legislature. Aso Taro won the Liberal Democratic
Party (LDP) presidential race in a landslide and began his tenure as prime minister stressing
economic stimulus measures, the importance of the U.S.-Japan alliance, and Japan’s role as a
global leader, but with uncertainty about whether his government would even survive to the endof the year. Ozawa Ichiro was re-elected president of the opposition Democratic Party of Japan(DPJ) and touted a populist manifesto to woo the public in anticipation of a Lower House
election this fall. Meanwhile, the U.S. government struggled to contain a financial crisis thatrattled world markets, prompting Japanese banks to take major stakes in ailing U.S. businesses.
A successful ballistic missile defense test in September augured well for sustained bilateraldefense cooperation, assuming defense budgets survive the current financial turmoil. And North
Korea’s move toward reprocessing plutonium at Yongbyon threatened to erase the diplomatic
progress made in the Six-Party Talks at a time when leaders in Washington and Tokyo alreadyhad plenty of diplomatic challenges and tough domestic elections to manage.
Aso takes over; election rumors
Prime Minister Fukuda Yasuo hoped to boost his approval ratings after hosting the G8 summit inJuly, but the public rewarded him with a much smaller bump than he had expected. He tried
again by revamping his Cabinet on Aug. 1 and a few weeks later by unveiling a stimulus package
worth $107 billion, only to see his popularity drop even further. Frustrated by his inability to
win popular support or convince his recalcitrant coalition partner, the New Komei Party, tosupport his legislative agenda, Fukuda stepped down Sept. 1 and argued that someone else in the
LDP might succeed where he had failed. While some pundits blamed Fukuda’s lackluster
political style, it is hard to see how any political leader could overcome the policy paralysis in
the Diet that resulted when the opposition parties wrested control of the Upper House after July
2007 elections. Still, the LDP held out hope that colorful former Foreign Minister Aso Taromight add new energy to the government coalition and elected him party president on Sept. 22
with a wide margin over four other contenders for the top job. On Sept. 24, the Diet approved
Aso as Japan’s fourth prime minister in four years. Meanwhile, Ozawa Ichiro was re-electedpresident of the DPJ Sept. 21, setting up a battle between two veterans of Japanese politics.

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Aso flew to New York on Sept. 25 to address the United Nations General Assembly in a speechthat argued Japan will maintain its global leadership role in areas such as development,
nonproliferation, regional diplomacy, and the war on terror. Once back in Tokyo, he moved
quickly to improve his party’s standing with the public by proposing a supplementary budget andarguing for tax cuts and other stimulus measures. In his opening address to the Diet on Sept. 29,
Aso vowed to stimulate the economy and address other issues such as pension reform, healthcare, and regional revitalization. He also accused the DPJ of putting politics ahead of thelivelihood of the people and challenged the opposition to articulate positions on key foreign
policy issues such as Japan’s refueling mission in the Indian Ocean, set to expire in January
2009, to support coalition operations in Afghanistan. For his part, Ozawa pushed a populist
policy platform focused on reform of the pension and health care systems and “putting money inthe hands of the people” by providing subsidies for education, reducing a gasoline tax, andcutting spending by eliminating government-affiliated research organizations. He also advocatedincreased support for small- and medium-size enterprises in rural areas, a key constituency
linked traditionally to the LDP but courted by the DPJ in the 2007 Upper House elections.
Conventional wisdom dictated Aso would try to pass a supplementary budget in the Diet andthen dissolve the Lower House, sometime in the fall, even though an election need not be held
until fall 2009. Several public opinion polls released in late September had Aso’s approval
rating hovering close to 50 percent with the LDP slightly more popular than the DPJ. A Kyodo
News poll published Sept. 25 showed a public preference for Aso over Ozawa, 53.9 percent to29.4 percent. However, respondents were split over which party they intended to support in thenext general election with 34.9 percent favoring the LDP and 34.8 percent the DPJ. Aso’s
strategy will clearly be to make this a contest between himself and Ozawa. If Aso succeeds andmaintains the coalition majority in the Lower House, he can argue that the LDP has a popularmandate and try to win defections from the opposition to regain control of the Upper House. But
even in that best case scenario for the LDP, the government will lose its two-thirds supermajority
and no longer have the option of forcing bills through the Lower House when obstructed by theUpper House. On the other hand, a convincing victory by the DPJ would remove the LDP frompower for the first time since 1994. The question then would become whether the ideologicallydiverse DPJ could hold together in power. Some pundits suggested another election could
follow within months regardless of which party is in power due to fissures within both camps,
which could increase the probability of a major political realignment to end the stalemate in theDiet.
Trying to sustain the bilateral agenda
President Bush met with Fukuda on the sidelines of the G8 summit in July just a week after Bush
had announced his decision to begin the process of removing North Korea from the State
Sponsors of Terrorism List, interpreted by many in the Japanese media as a betrayal of a pledge
not to do so until the fate of Japanese abductees had been resolved. The president reiterated his
commitment to the abductees in a joint press conference and held up a book written by Yokota
Sakie, the mother of an abductee, whom he greeted at the White House back in 2006. The two
leaders agreed on the need to verify the nuclear declaration submitted by North Korea in Juneand push forward with denuclearization. The two key elements of the G8 agenda, climate

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October 2008

change and development in Africa, also garnered significant attention and set the stage forbilateral cooperation in those areas.
The realignment of U.S. forces in Okinawa remained a top agenda item for the alliance, thoughpolitical turmoil in Japan appeared to have slowed down that process. One bright spot continues
to be missile defense cooperation. On Sept. 17, the Air Self-Defense Force (ASDF) conducted a
successful test of the Patriot (PAC-3) ballistic missile defense system at the White Sands Missile
Range in New Mexico. The Defense Ministry also announced that the Maritime Self-Defense
Force would conduct a test of the sea-based SM-3 missile over the Pacific near Hawaii in
November. The nuclear-powered aircraft carrier U.S.S. George Washington arrived at Yokosuka
naval base Sept. 25, the first such carrier to be forward deployed in Japan.
The deadlock in the Diet led to increased uncertainty about what Tokyo might do next in therealm of global security. The Defense Ministry announced in September that ASDF personnel
conducting airlift operations between Kuwait and Iraq would be withdrawn by the end of thisyear. The fate of the refueling mission in the Indian Ocean was unclear and analysts questioned
whether Japan could consider other missions to support coalition operations in Afghanistan.
Prime Minister Aso vowed to push for an extension of the refueling mission and stated publicly
his belief that Japan should reinterpret the constitution to exercise the right of collective self
defense. Ozawa’s position on Afghanistan is unclear; he has adamantly opposed the refueling
mission and declared it unconstitutional but also stated in 2007 that Japan might be able tosupport the International Security Assistance Force (ISAF) in Afghanistan, a much moredangerous mission. Ozawa generally favors Self-Defense Force (SDF) deployments strictly
under United Nations auspices. Officials could not expect movement on these issues before thepolitical impasse is resolved.
Agricultural protectionism derailed the latest round of World Trade Organization (WTO)
negotiations in Geneva in July. The collapse of the Doha Round, and the lack of movement on
the U.S.-Republic of Korea (KORUS) bilateral free trade agreement, seemed to stunt any
momentum the U.S. and Japan might have generated on trade liberalization. The governments
did issue reports on investment and regulatory reform in July, signaling a sustained commitment
to the bilateral framework known as the Economic Partnership for Growth (EPG). In August,the Ministry of Finance reported that Japan posted its first trade deficit in 26 years due to high oil
prices and decreased demand from the U.S. The financial crisis put U.S. and Japanese financial
firms in the headlines in September as Mitsubishi UFJ Group agreed to take a 21 percent stake inMorgan Stanley, and Nomura Holdings, Inc. acquired some Asian, European, and Middle
Eastern portfolios of Lehman Brothers.
Pyongyang changes course
The submission of a nuclear declaration by North Korea in late June and the symbolic
destruction of the cooling tower at the Yongbyon complex led to a heads of delegation meetingof the Six-Party Talks in mid-July. The parties determined that a Denuclearization Working
Group would settle on the details of a verification mechanism for declaration previously
submitted by North Korea. North Korea also agreed to complete the disablement of the
Yongbyon facility by the end of October 2008. The six foreign ministers of the member

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October 2008

countries to the Six-Party Talks then met informally on the margins of the ASEAN Regional
Forum (ARF) in Singapore in late July, again focusing on the verification protocol. The JapanDPRK Working Group made some progress on the abduction issue in August as North Korea
promised to re-open an investigation to determine the fate of missing Japanese citizens; Japan inturn would end the ban on travel between the DPRK and Japan (instituted after North Korea
tested a nuclear weapon in October 2006) once that investigation was initiated. North Korea
then jeopardized the entire process by announcing Sept. 19 its intentions to restore the nuclear
complex at Yongbyon, accusing the U.S. of violating the spirit of “action for action” by notremoving North Korea from its State Sponsors of Terrorism List. Japan extended economic
sanctions against North Korea for six months in response to that announcement and Pyongyang’s
failure to reopen the investigation on the abductees. U.S. Assistant Secretary of State
Christopher Hill was in Seoul Sept. 30 preparing for a trip to Pyongyang in a last-ditch attempt tosave the Six-Party Talks.
The fourth quarter
The U.S., and possibly Japan, will elect a new leader next quarter, symbolizing a fresh start foran alliance with several bilateral, regional, and global priorities. Both governments will have toweather political transitions as their respective economies weaken. The fallout from the financial
crisis will take center stage during a meeting of G7 finance ministers in conjunction with the fallmeetings of the World Bank and International Monetary Fund in Washington. Japan’s
development aid profile will reach new heights in October when the Japan International
Cooperation Agency (JICA) merges with part of the Japan Bank for International Cooperation(JBIC) to become the world’s largest bilateral development agency. The Asia-Pacific Economic
Cooperation (APEC) forum scheduled for November in Peru will present an opportunity forregional coordination on economic integration in the wake of failed WTO negotiations. Climatechange also will remain on the bilateral agenda as both governments prepare for the 14th
Conference of the Parties (COP 14) to the United Nations Framework Convention on Climate
Change (UNFCCC) in Poland in December.

Chronology of U.S.-Japan Relations
July-September 2008
July 2, 2008: U.S. Ambassador to Japan Thomas Schieffer meets relatives of Japanese abductees
in Tokyo.
July 3, 2008: Cabinet Office poll reveals that only 30 percent of the Japanese public is familiar
with Prime Minister Fukuda’s “Low Carbon Society” initiative on climate change. Ninety
percent of respondents offered general support for the measure.
July 5, 2008: The office of the U.S. Trade Representative releases the seventh report of the U.S.Japan Regulatory Reform and Competition Policy Initiative, established in 2001 to promotechanges that improve the business climate and enhance opportunities for trade and commerce
between the two countries.

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October 2008

July 6, 2008: President Bush and Prime Minister Fukuda meet in Hokkaido, Japan, and discuss
the North Korean nuclear issue, U.S. support for Japanese abductees, Japan’s contributions in
Iraq and Afghanistan, climate change, and economic issues.
July 7-9, 2008: PM Fukuda hosts the G8 summit at Lake Toyako, Hokkaido, focusing on
climate change, development and Africa, global economic issues, and nonproliferation.
July 12, 2008: The latest round of the Six Party Talks, the first since September 2007, concludes
in Beijing with a general agreement on principles for verifying North Korea’s declaration on
denuclearization.
July 15, 2008: A poll by Asahi Shimbun shows the G8 summit did little to increase PM Fukuda’s
approval rating, which stood at 24 percent.
July 15, 2008: A government advisory panel submits to the prime minister a report withproposals for reform of the Defense Ministry.
July 23, 2008: The foreign ministers of the parties to the Six-Party Talks meet informally on thesidelines of the Association of Southeast Asian Nations (ASEAN) Regional Forum in Singapore
to discuss ways to verify North Korea’s efforts at denuclearization.
Aug. 1, 2008: PM Fukuda reshuffles Cabinet to boost his approval rating with a focus on
economic revitalization.
Aug. 4, 2008: PM Fukuda’s approval rating is 38 percent according to a Nikkei Shimbun poll, a12-point increase from a previous survey in June.
Aug. 5, 2008: Liberal Democratic Party (LDP) Secretary General Aso Taro suggests the rulingparty postpone efforts to balance the budget by 2011 in favor of stimulus measures.
Aug. 6, 2008: The Japanese government changes its assessment of the economy to“deteriorating” and concedes Japan may enter a recession.
Aug. 12, 2008: Ambassador Schieffer meets Defense Minister Hayashi Yoshimasa and urges
extension of Japan’s refueling mission in the Indian Ocean.
Aug. 13, 2008: North Korea agrees to reinvestigate the fate of Japanese abductees by this fall ina bilateral meeting with Japanese Foreign Ministry officials in China. Japan agrees to allow
general travel and charter flights between North Korea and Japan once the investigation begins.
Aug. 14, 2008: The first telecommunications satellite built and designed solely by Japan goessafely into orbit.
Aug. 21-27, 2008: Japan encounters resistance to its sectoral approach to greenhouse gas
emissions reductions during United Nations Framework Convention on Climate Change(UNFCCC) meetings in Accra, Ghana.

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Aug. 27, 2008: A Japanese aid worker is killed by Taliban forces in Afghanistan.
Aug. 27, 2008: A law allowing the use of space for defense purposes goes into effect.
Aug. 27, 2008: In a report submitted to the ruling LDP, the Ministry of Defense requests a 2.2
percent increase in the defense budget for fiscal year 2009 to cover increasing fuel costs andupgrades to the F-15 fighter fleet.
Aug. 29, 2008: The Japanese government unveils a stimulus package worth $107 billion.
Sept. 1, 2008: A Nikkei Shimbun poll reports PM Fukuda’s approval rating falls to 29 percent, a
9 percent drop from early August.
Sept. 1, 2008: PM Fukuda announces his resignation unexpectedly, suggesting that anotherleader may be better able to handle the challenges of a divided legislature.
Sept. 5, 2008: Fukuda Cabinet approves Defense White Paper 2008, which cites concerns about
the lack of transparency in China’s military build-up and Russian military drills close to Japan.
Sept. 9, 2008: During a hearing in Yokohama district court, prosecutors demand a three-year
prison term for a Maritime Self-Defense Force lieutenant commander accused of leaking
classified data on the Aegis air defense system.
Sept. 11, 2008: The LDP presidential race kicks off with five candidates vying to succeed
Fukuda as prime minister: Aso Taro, Yosano Kaoru, Ishiba Shigeru, Koike Yuriko, and Ishihara
Nobuteru.
Sept. 11, 2008: Japan’s Defense Ministry announces that Air Self-Defense Forces providing
airlift support between Kuwait and Iraq would be withdrawn by the end of 2008.
Sept. 12, 2008: Government data shows the Japanese economy contracted at annualized rate ofthree percent in the second quarter.
Sept. 16, 2008: Bank of Japan moves to stabilize financial markets by injecting an additional$24 billion into the financial system.
Sept. 17, 2008: Japan’s Air Self-Defense Force conducts a successful test of the Patriot (PAC-3)
missile defense system at the White Sands Missile Range in New Mexico, intercepting a target
simulating a ballistic missile.
Sept. 18, 2008: Japan’s banks and insurers announce a combined ¥245 billion ($2.3 billion) in
potential losses stemming from the collapse of Lehman Brothers Holdings, Inc.
Sept. 19, 2008: North Korea announces its intention to restore a nuclear reactor at Yongbyon in
response to the U.S. failure to remove Pyongyang from the State Sponsors of Terrorism List.

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Sept. 19, 2008: Japan’s Agriculture Minister Ota Seiichi resigns in the wake of a scandal
involving the sale of tainted rice by Mikasa Foods.
Sept. 19, 2008: Fukuda Cabinet approves a bill to extend Japan’s refueling mission in the Indian
Ocean until January 2010.
Sept. 19, 2008: In a Jiji News survey, 31 percent of respondents said they would vote for the
Democratic Party of Japan (DPJ) in the next general election while 29 percent support the LDP.
Sept. 21, 2008: Ozawa Ichiro is re-elected president of the DPJ.
Sept. 22, 2008: Aso Taro wins the LDP presidential election race in a landslide.
Sept. 22, 2008: Mitsubishi UFJ Group agrees to take up to a 20 percent stake in Morgan Stanley.
Nomura Holdings Inc. buys the Asia units of Lehman Brothers.
Sept. 22, 2008: Japan announces a plan for conducting a missile defense test with the U.S. in
November, citing concerns about North Korea’s plans to restart its main nuclear complex.
Sept. 23, 2008: Nomura Holdings Inc. announces the purchase of the European and Middle
Eastern equities and investment banking operations of Lehman Brothers.
Sept. 23, 2008: Ota Akihiro is re-elected as leader of New Komeito (Clean Government Party), a
coalition partner of the ruling LDP.
Sept. 24, 2008: Aso Taro becomes prime minister and forms a Cabinet.
Sept. 24, 2008: The International Atomic Energy Agency (IAEA) announces that North Korea
has barred its inspectors from the Yongbyon nuclear facility and intends to restart nuclear
processing in a week.
Sept. 25, 2008: Prime Minister Aso addresses the UN General Assembly in New York.
Sept. 25, 2008: The nuclear-powered aircraft carrier USS George Washington arrives at
Yokosuka naval base amid protests from local residents.
Sept. 25, 2008: An Asahi Shimbun poll shows a 48 percent approval rating for the Aso Cabinet.
Sept. 25, 2008: Japan’s Finance Ministry reports that Japan posted its first trade deficit in 26
years in August due to rising oil prices and decreased demand in the United States.
Sept. 25, 2008: A poll by Kyodo News shows a 48.6 percent approval rating for Aso’s Cabinet.
The poll also declares Aso a favorite in a head-to-head contest with DPJ president Ozawa Ichiro,
garnering 53.9 percent to Ozawa’s 29.4 percent. Respondents were split over which party they

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would support in the next general election with 34.9 percent favoring the LDP and 34.8 percent
siding with the DPJ.
Sept. 26, 2008: Several news organizations publish polls with approval ratings for the Aso
Cabinet as follows: Asahi Shimbun: 48 percent; Nikkei Shimbun: 53 percent; Yomiuri Shimbun:
49.5 percent; Mainichi: 45 percent. The LDP proved more popular than the DPJ in every poll by
an average of 4.5 percent.
Sept. 26, 2008: Foreign Minister Nakasone Hirofumi meets U.S. Secretary of State Condoleezza
Rice in New York to discuss North Korea policy, the financial crisis, the situation in Georgia,
and counterterrorism issues.
Sept. 26, 2008: During a media availability in New York, Prime Minister Aso expresses support
for reinterpreting Japan’s constitution to exercise the right of collective self defense.
Sept. 28, 2008: Just four days after his appointment, Nakayama Nariaki resigns as Japan’s
Minister of Land, Transport, Infrastructure, and Tourism due to a series of gaffes.
Sept. 29, 2008: Prime Minister Aso outlines his agenda in an address to the Diet, touting an
economic stimulus package and vowing to extend Japan’s refueling mission in the Indian Oceanin support of coalition operations in Afghanistan.
Sept. 29, 2008: The Aso Cabinet approves a ¥1.81 trillion ($17 billion) supplementary budget
for fiscal year 2008 to stimulate the economy.
Sept. 30, 2008: The Japanese government announces that the unemployment rate increased to
4.2 percent, a two-year high. Separate data shows that household spending fell 4 percent inAugust compared to last year.
Sept. 30, 2008: Ruling coalition partner New Komeito (Clean Government Party) agrees to holdDiet deliberations on the supplementary budget proposal as early as October 6.
Sept. 30, 2008: A poll conducted by public broadcaster NHK shows that 72 percent of the public
supports Prime Minister Aso’s decision to postpone for three years any consideration of aconsumption tax increase.
Sept. 30, 2008: The Japanese government announces a six-month extension of economic
sanctions against North Korea in response to Pyongyang’s failure to reopen an investigation ofJapanese abductees and its decision to restart nuclear processing at the Yongbyon complex.
Sept. 30, 2008: U.S. Assistant Secretary of State for East Asian and Pacific Affairs Christopher
Hill arrives in Seoul to confer with counterparts in the Six-Party Talks on North Korea’s nuclear
programs and prepare for an Oct. 1 visit to Pyongyang.

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