December 2012

Japan Center for International Exchange

Myths of Decline:
Why Japan Matters as China Rises
Hitoshi Tanaka, Senior Fellow, JCIEThe narrative of a declining Japan has been invogue recently. Defeated US presidential candidate
Mitt Romney characterized Japan, somewhat offhandedly, as a state that has been in decline for a decade, ormaybe even a century. A recent spate of stories circulating in the US media has portrayed Japan as a playerthat had its time in the sun but is now down and out ofinternational politics. And China’s overtaking of Japanas the second largest economy in the world in 2010—
ignoring the large ground China has to cover to close
the GDP per capita gap—is often cited as a symbolic
example of Japan’s growing irrelevance. Consequently,
it is rashly presumed that as emerging powers such as
China and India burst onto the scene, Japan will be left
behind and slowly recede from the world stage.

Exaggerating Japan’s Decline
There is no denying that Japan’s economic performance over the last two decades has been rather stagnant. Since its asset price bubble burst at the beginningof the 1990s, Japan has averaged an annual GDP
growth rate of just 1.1 percent. This is less than half the2.4 percent the United States averaged over the sameperiod. When compared with Japan’s more immediateneighbors, South Korea’s average annual GDP growthsince 1990 of over 5 percent and China’s average ofover 10 percent blow Japan out of the water. Moreover,Japan’s economic problems are compounded by an aging demographic and a lack of strong leadership andpolitical vision. Most critically, Japan must reconcile
its mounting debt, which has resulted in a debt-toGDP ratio of more than 200 percent, even as demands
for improved social welfare are growing. This challenge is without precedent, as Japan is the first nationin the world to be confronted with such an advanced
aging population. Twenty-three percent of its population was over 65 in 2010, and this number is projected
to grow to 40 percent by 2050. While it is clear that thecurrent path is unsustainable, shifting to a fiscally sustainable alternative—including raising the consumption tax, which was passed in August—has proved tobe highly contentious politically.
Nevertheless, while Japan does face some serious
challenges, the current surge of stories coming out ofthe United States seriously exaggerates Japan’s malaise.
Japan is one of the world’s most industrialized andtechnologically advanced nations and is still ahead of
all other Asian countries on both counts. Japan also
continues to enjoy one of the highest living standards
and among the longest life expectancies in the world.
Japan concentrated great resources to catch up withthe developed nations of North America and Europe
and it is not about to simply give up that hard-earned
status. Looking ahead, many Japanese companies areutilizing the record strength of the yen and making
prudent, if not news-grabbing, overseas investments.
And the time will come when the Japanese people
forge a consensus on new post-industrial national objectives to manage their debt and aging population.

dispute or when it blocked banana imports from thePhilippines over the Scarborough Shoal dispute in2012 and fish imports from Norway as retribution
for awarding the Nobel Peace Prize to Chinese dissident Liu Xiaobo in 2010. This dilemma shows nosigns of easing with the new generation of leadershipin China. In a speech after being confirmed as thesecretary general of the Chinese Communist Party,
Xi Jinping demonstrated that he has his eye on theeconomy when he vowed to increase the Chinese
people’s incomes and to eliminate corruption andbribe taking. But the lofty nationalistic terms heused does not bode well for the future direction ofChinese diplomacy.
Japan and the US-Japan alliance must play a critical role in pursuing peaceful relations with China andpromoting a stable and prosperous region. Failing toutilize the US-Japan alliance will be the same as discarding a critical puzzle piece; without it, the puzzle
can never be completed successfully. The US-Japan
alliance is the United States’ longest serving and mostdurable platform for engaging with Asia. Moreover,Japan—as the only sizeable Asian nation with both anadvanced industrial structure similar to the West anddeep historical, cultural, and philosophical connections with the rest of Asia—has an important role toplay as a connector between both East and West anddeveloped and developing economies. Thus intensive
and regularized US-Japan consultations are criticallyneeded to solidify the alliance, resolve outstandingissues—such as Okinawa’s local opposition to USbases—and coordinate a joint approach toward China
and regional security.
Moreover, in coordinating a joint approach, theUnited States and Japan should be working together
to strengthen regional architecture by taking a multilayered and functional approach. This encompasses
bilateral alliances at the first level, trilateral forumsat the second level, sub-regional arrangements such
as ASEAN at the third level, and an inclusive regionwide institution based on the East Asia Summit at thefourth level. The strengthening of each level shouldinclude enhancing confidence building measures;
augmenting economic rulemaking, codes of conduct,

China’s Rise and Japan’s GeopoliticalImportance
The flawed US perception of Japanese decline and irrelevance has particularly negative ramifications for
the US-Japan alliance and the US pivot to Asia, andin turn, this weakens efforts toward addressing thegreat challenge they both must tackle: how to face up
to the rise of China. In particular, an overarching andcoordinated strategy is needed to avert confrontation
with China and ensure that it is brought into the fold
as a constructive stakeholder in the region. Neither
country can go it alone in dealing with China’s rise,
and this kind of US-Japan coordinated strategy would
be in the best interests of both countries.
The dilemma of the China challenge is that its
diplomatic posture is becoming increasingly assertive and nationalistic as its economic and military
power continues to grow, but at the same time economic interdependence with China has reachedunprecedented levels and is only set to deepen in
the future. So on the one hand, China is the largest
trading partner for Japan, South Korea, and manyof the ASEAN states, and it is the United States’
second largest trading partner after Canada. Buton the other hand, China has shown an increased
willingness to use its economic power as a political weapon—such as when it withheld rare earth
exports to Japan in 2010 over the Senkaku Islands
EAST ASIA INSIGHTS

2December 2012

and crisis management mechanisms; and getting serious about joint energy cooperation.
While US leadership and engagement in Asia is tobe welcomed, managing China’s rise and strengthening regional architecture is not a task that the UnitedStates can or should attempt to shoulder alone. Taking
a unilateral approach not only fosters resentment andanti-US sentiment, but it also forgoes the process ofconsultations with allies and starves the United Statesof crucial in-region insider knowledge. Besides, given
the current economic climate as the world stumbles
toward recovery after the global financial crisis, theUnited States cannot afford to maintain a bloated military budget indefinitely.

close cooperation with the United States but may also
want to be tough on China. So while a likely new conservative government could, with enough popularity,
provide a platform for stability for Japanese domestic
politics, there is a risk that if Japanese politics shifts
too far from the center, confrontation with China—
particularly over the Senkaku Islands—may boil over.
This risk is a particularly unsavory prospect for all
across the region. Thus as the new government takes
office in Japan, leaders in both Tokyo and Washington
would do well to create a joint strategy on the crucial
issue of regional peace and stability.
◆ ◆ ◆The myth that Japan is in decline and no longer important in the era of a rising China is a dangerous misperception. While Japan’s economy faces stiff challenges,
it is still fundamentally strong and will bounce back.
Moreover, the rise of China has increased, rather thandiminished, Japan’s geopolitical importance. The USJapan alliance is a vital platform for US engagementwith the rest of Asia. Allowing these misperceptions
to persist risks grave consequences. It weakens boththe United States and Japan’s ability to work together
to strengthen regional architecture and bring China
into the fold as a constructive regional stakeholder. As
the recently re-elected Obama administration looks
to follow through on its Asia pivot and foster a stableand prosperous Asia Pacific, early, regularized, and intensive US-Japan alliance consultations with the newadministration in Japan are an important first step.

Fulfilling Japan’s Potential
The sorry state of Japanese domestic politics risks becoming a stumbling block in efforts to solidify the USJapan alliance, utilize Japan as a connector between
East and West, strengthen regional architecture, andavert confrontation with China and bring it into thefold as a constructive regional stakeholder. Since theresignation of Junichiro Koizumi in September 2006,
the Japanese prime ministership has been a merrygo-round of instability with six prime ministers in sixyears. As a result, the formulation of any significant
foreign policy vision has been severely hampered.
Japanese politics must mature, and leaders from thedifferent parties must find some working arrangement that provides for greater political stability.
As Japan approaches a snap election later thismonth a change of government appears likely as rightleaning politicians—such as Shinzo Abe, Shintaro
Ishihara, and Toru Hashimoto, all well known
for their nationalistic rhetoric—are commanding
greater influence on the national scene. A conservative Japanese government is likely to be keen to forge

Hitoshi Tanaka is a senior fellow at JCIE and chairmanof the Institute for International Strategy at the Japan
Research Institute. He previously served as Japan’s deputy minister for foreign affairs.

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3© 2012 Japan Center for International Exchange

December 2012