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Page 1INSS Special Report
Institute for National Strategic Studies
National Defense University

October 11, 2000

The United States and Japan:
Advancing Toward a MaturePartnership
About this reporthe following report presents a consensus view of the members of a bipartisan study group on the U.S.–Japan
partnership. It is not a political document andreflects the views of the study group members only. This is solely an attempt by thegroup to inject consistency and strategic
direction into what it believes is our essential Asian relationship.
The study group consisted of Richard L.
Armitage, Armitage and Associates; Dan E.
Bob, Office of Senator William V. Roth, Jr.;
Kurt M. Campbell, Center for Strategic andInternational Studies; Michael J. Green,
Council on Foreign Relations; Kent M.
Harrington, Harrington Group LLC; Frank
Jannuzi, Minority Staff, Senate Foreign
Relations Committee; James A. Kelly, Pacific
Forum, Center for Strategic and International
Studies; Edward J. Lincoln, Brookings
Institution; Robert A. Manning, Council on
Foreign Relations; Kevin G. Nealer, Scowcroft
Group; Joseph S. Nye, Jr., JFK School ofGovernment, Harvard University; Torkel L.
Patterson, GeoInSight; James J. Przystup,
Institute for National Strategic Studies,
National Defense University; Robin H.
Sakoda, Sakoda Associates; Barbara P.
Wanner, French and Company; and Paul D.
Wolfowitz, Paul H. Nitze School of Advanced
International Studies, The Johns Hopkins
University.

T

The opinions, conclusions, and recommendations expressedor implied in this paper are solely those of the authors anddo not necessarily represent the views of the National
Defense University, the Department of Defense, or any othergovernment agency or nongovernment organization.

Asia, in the throes of historic change,
should carry major weight in the calculus ofAmerican political, security, economic, andother interests. Accounting for 53 percent of theworld’s population, 25 percent of the global
economy, and nearly $600 billion annually in
two-way trade with the United States, Asia isvital to American prosperity. Politically, fromJapan and Australia, to the Philippines, South
Korea, Taiwan, and Indonesia, countries acrossthe region are demonstrating the universal
appeal of democratic values. China is facing
momentous social and economic changes, theconsequences of which are not yet clear.
Major war in Europe is inconceivable forat least a generation, but the prospects forconflict in Asia are far from remote. The region

hostilities that could
directly involve theUnited States in a major
conflict could occur at a
moment’s noticefeatures some of the world’s largest and mostmodern armies, nuclear-armed major powers,
and several nuclear-capable states. Hostilities
that could directly involve the United States ina major conflict could occur at a moment’s
notice on the Korean peninsula and in the
Taiwan Strait. The Indian subcontinent is amajor flashpoint. In each area, war has thepotential of nuclear escalation. In addition,
lingering turmoil in Indonesia, the world’s
fourth-largest nation, threatens stability inSoutheast Asia. The United States is tied to theregion by a series of bilateral security alliancesthat remain the region’s de facto security
architecture.
In this promising but also potentially
dangerous setting, the U.S.-Japan bilateralrelationship is more important than ever. With
the world’s second-largest economy and a wellequipped and competent military, and as our
democratic ally, Japan remains the keystone of
the U.S. involvement in Asia. The U.S.-Japan
alliance is central to America’s global security
strategy.
Japan, too, is experiencing an importanttransition. Driven in large part by the forces ofglobalization, Japan is in the midst of its greatest social and economic transformation since
the end of World War II. Japanese society,economy, national identity, and internationalrole are undergoing change that is potentiallyas fundamental as that Japan experienced
during the Meiji Restoration.
The effects of this transformation are yet
to be fully understood. Just as Western countries
dramatically underestimated the potential ofthe modern nation that emerged from the Meiji
Restoration, many are ignoring a similartransition the effects of which, while not immediately apparent, could be no less profound. For
the United States, the key to sustaining andenhancing the alliance in the 21st century lies
in reshaping our bilateral relationship in a waythat anticipates the consequences of changes
now underway in Japan.
Since the end of World War II, Japan has
played a positive role in Asia. As a mature
democracy with an educated and active electorate, Japan has demonstrated that changes
in government can occur peacefully. Tokyo
has helped to foster regional stability andS P E C I A L R E P O RT

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build confidence through its proactive diplomacy and economic involvement throughout
the region.
Japan’s participation in the United Nations peacekeeping mission in Cambodia in theTokyo has helped tofoster regional stability
and build confidence
early 1990s, its various defense exchanges andsecurity dialogues, and its participation in the
Association of Southeast Asian Nations Regional Forum and the new “Plus Three”
grouping are further testimony to Tokyo’s
increasing activism. Most significantly, Japan’s
alliance with the United States has served as
the foundation for regional order.
We have considered six key elementsof the U.S.-Japan relationship and put forth abipartisan action agenda aimed at creating
an enduring alliance foundation for the
21st century.

Post-Cold War Drift
As partners in the broad Western alliance,
the United States and Japan worked together to
win the Cold War and helped to usher in a newera of democracy and economic opportunity in
Asia. In the aftermath of our shared victory,
however, the course of U.S.-Japan relations has
wandered, losing its focus and coherence—notwithstanding the real threats and potential
risks facing both partners.

this lack of focus andfollow-through has been
evident in both countries
Once freed from the strategic constraintsof containing the Soviet Union, both Washington and Tokyo ignored the real, practical, andpressing needs of the bilateral alliance. Wellintentioned efforts to find substitutes for concrete collaboration and clear goal-setting haveproduced a diffuse dialogue but no clear definition of a common purpose. Efforts to experiment with new concepts of international security have proceeded fitfully, but without
discernable results in redefining and reinvigorating bilateral security ties.
This lack of focus and follow-through has
been evident in both countries. Some in Japan2S P E C I A L R E P O RT

have been drawn to the notion of “Asianization” and the hope that economic interdependence and multilateral institutions would put
the region on a path similar to that of Europe.
Many in the United States regarded the end of
the Cold War as an opportunity to return toeconomic priorities.
The early 1990s was a period of heightened bilateral tensions, primarily over thequestion of access to Japanese markets. Some
Americans saw economic competition fromJapan as a threat. In the past five years, however, trade tensions have diminished. Envy andconcern over Japanese economic prowess haveturned to dismay over the Japanese recession
and building financial crisis.
Neither country dealt with the need toredefine and reinvigorate the alliance. In fact,

neither country dealt
with the need to redefine
and reinvigorate thealliance
both took it for granted. The drift in the alliance was obvious until the mid-1990s when
the crisis on the Korean peninsula—punctuated by the horror of the Okinawa rape incident—captured the attention of policymakers
in Washington and Tokyo. These episodes
prompted them to recognize belatedly the costsof neglecting the bilateral relationship. The
subsequent Taiwan Strait confrontation in
March 1996 gave even more impetus to efforts
on both sides of the Pacific to reaffirm thebilateral security alliance.
The 1996 U.S.-Japan Joint Security Declaration went a long way toward directing attention in both capitals toward the need to refurbish the alliance, and led to concrete changes
that updated defense ties in the form of therevised Guidelines for U.S.-Japan Defense
Cooperation, the 1996 report of the Special
Action Committee on Okinawa, and the bilateral agreement to cooperate in theater missile
defense research. But the symbolism of the1996 declaration stood alone, unsupported bysustained high-level attention. As a result, theUnited States and Japan soon returned tobickering and poor policy coordination.
The costs of the deterioration in the U.S.Japan relationship have been insidious as well
as obvious. By the end of the 1990s, many U.S.
policymakers had lost interest in a Japan thatappeared incapable of renewing itself. Indeed,Japan’s prolonged recession has discouraged ordispirited even some Japanese officials.
In Tokyo, many see Washington as arrogant and unable to recognize that its prescriptions are not universally applicable to others’
economic, political, and social needs. A number of government officials and opinion-makers perceived the U.S. approach as a self-serving
rationale for commercial and economic interests and grew resentful of a United States seemingly preoccupied with its own self-centeredversion of globalization.
It has been obvious that U.S. attention
and interests have turned elsewhere in Asia.
More recently, the principal focus of American
policymakers has been the bilateral relationship with China—a relationship characterized
by a series of crises ever since the 1989 Tiananmen Square pro-democracy demonstrations.
Neither Washington nor Tokyo followed
through aggressively on the security agenda set
forth in the 1996 declaration, in large measure
because of concerns over Beijing’s hostile
reaction to the reinvigoration of the security
partnership.
Beijing let it be known in no uncertain
terms that it regarded the U.S.-Japan partnership as an important element of a broader
effort by Washington to constrain its regional
diplomacy. And as the United States and—to alesser extent—Japan sought to improve relations with China, both demonstrated a clear
desire to downplay the notion of a containment strategy.
In fact, the only active security dialogue
between the United States and Japan has been
a byproduct of a desire to coax North Korea
out of its self-imposed isolation. The UnitedStates, Japan, and the Republic of Korea all
concur that close cooperation and unity of
purpose offer the most effective strategy to deal
with Pyongyang.
This record of diffidence, uncertainty, andindirection has no single father, nor does it
support an oversimplified laying of blame.
Rather, it demands a recognition that the time
has arrived for renewed attention to improving, reinvigorating, and refocusing the U.S.Japan alliance.
Both the United States and Japan face anuncertain security environment in Asia at atime of political transition and importantchange in both countries—for the UnitedStates, a new national leadership, and forJapan, a continuing process of economic,
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Page 3same time, political and economic uncertainties in China and Russia, the fragile nature ofdetente on the Korean peninsula, and thethe time has arrived forrenewed attention to
improving, reinvigorating,and refocusing the U.S.Japan allianceprospect of protracted instability in Indonesia—all pose shared challenges.
For those who argue that Japan is a“wasting asset” in irreversible decline, it might
be useful to recall that it has been only adecade since it was taken as an article of faiththat American power was ebbing on the international scene. It would be foolhardy to underestimate the enduring dimensions of Japanese
power, much as it was unwise for some Japanese to dismiss the latent and enduring qualitiesof American power in the 1980s and 1990s.

Politics
Over the past decade, the ruling Liberal
Democratic Party (LDP), faced with internal
divisions, a clash of traditional interest groupagendas, and a growing split among key constituencies, has focused primarily on hanging
on to its dwindling power. At the same time, thepolitical opposition has failed to produce credible, well-conceived policy proposals. The net
effect is an LDP struggling to maintain its gripon the reins of government, an opposition
unable to provide a governing alternative, anda Japanese public, faced with a lack of credible
alternative leadership, reluctantly returning the
LDP to office. The result has been a govern-

the Japanese politicalorder is experiencing
protracted changement stuck in neutral, incapable of more thanmuddling through.
Nevertheless, the necessity of economic
reform and restructuring, driven by the pressures of a relentless globalization of the international economy, are likely to lead to politicalchange. These economic forces are breaking

apart the monopoly power of the so-called Iron
Triangle—the heretofore collusive relationships among politicians, business, and thebureaucracies—and making power morediffuse. The Japanese political order is experiencing protracted change.
Political changes in Japan could lead tounprecedented opportunities to reinvigorate the
U.S.-Japan relationship—as well as test it
further. The end of bipolar ideological confrontation in Japanese politics and the emergence of a new pragmatism about security
affairs among a younger generation of elected
officials provide fertile soil for creative new
approaches to leadership.
It would be unrealistic to expect the current leadership suddenly to embrace reform or
to assume a higher profile on the global stage.
The demands of Japan’s parliamentary system
make it difficult to implement policies, that
require short-term pain in exchange for longterm gain. The political system is risk-averse.
But the successor generations of politicians andthe public-at-large also recognize that economic power alone will no longer be enough tosecure Japan’s future. Moreover, the Japanesepublic, by giving official standing to the national flag and anthem, and in focusing onsuch territorial claims as the Senkaku islands,
has evidenced a new respect for the sovereignty
and integrity of the nation state. The implications for the U.S.-Japan relationship stemmingfrom these changes are profound.
A similar process is at work in the UnitedStates. The growing role of Congress as a force
in foreign policy, the rising influence of stateand local governments, and the dramatictransformation of the private sector as theinitiator of economic change—driven bytechnology and the empowerment of the individual—are altering the influence of oncecentral foreign policymaking institutions.
But, just as Japan’s risk-averse politicalleadership has held back the nation’s economictransformation, the lack of clear direction from
Washington also has taken a toll. Episodic
executive branch leadership has failed to produce a well-conceived game plan for America’s
relationship with Japan. This, in turn, has
accelerated the erosion of political support andpopular understanding of the importance of
the alliance. In short, the political, economic,
and social changes underway in the UnitedStates put an even greater premium on executive branch leadership in foreign affairs.

If the United States can exercise leadership—that is to say, excellence without arrogance—in its relations with Japan, the twocountries will be better able to realize the fullpotential for cooperation nurtured during thepast 50 years. If the changes underway inJapan ultimately produce a stronger, more
responsive political and economic system, thesynergy in U.S.-Japan relations will enhance
our abilities to play an engaged, mutually
supportive, and fundamentally constructiverole in regional and global arenas in the years
to come.

the synergy in U.S.-Japan
relations will enhance
our abilities to play an
engaged, mutually
supportive, and fundamentally constructive role

Security
Because the stakes are so high in Asia, it isurgent that the United States and Japan develop
a common perception and approach regarding
their relationship in the 21st century. The potential for conflict in Asia is lowered dramatically by a visible and “real” U.S.-Japan defense
relationship. The use of bases granted by Japan
allows the U.S. to affect the security environment from the Pacific to the Persian Gulf. The
revised Guidelines for U.S.-Japan Defense
Cooperation, the basis for joint defense planning, should be regarded as the floor—not theceiling—for an expanded Japanese role in thetranspacific alliance, and the uncertainties ofthe post-Cold War regional setting require amore dynamic approach to bilateral defense
planning.
Japan’s prohibition against collective selfdefense is a constraint on alliance cooperation.
Lifting this prohibition would allow for closer
and more efficient security cooperation. This isa decision that only the Japanese people canmake. The United States has respected thedomestic decisions that form the character ofJapanese security policies and should continue
to do so. But Washington must make clear that
it welcomes a Japan that is willing to make agreater contribution and to become a moreequal alliance partner.
We see the special relationship between
the United States and Great Britain as a modelS P E C I A L R E P O RT

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Page 4for the alliance. This arrangement requires thefollowing elements:■ Reaffirming the defense commitment. The
United States should reaffirm its commitment to thedefense of Japan and those areas under the administrative control of Japan, including the Senkaku
Islands.
■ Diligent implementation of the revised
Guidelines for U.S.-Japan Defense Cooperation,
including passage of crisis management legislation.
■ Robust cooperation of all three U.S. armed
services with their Japanese counterparts. The U.S.
and Japan should strive for greater jointness in theuse of facilities and for integration of training
activities and should review and update the roles
and missions of the Armed Forces agreed upon in
1981. Both partners should invest in training that
replicates reality, rather than follows old patterns.
They also should define how to assist each otherwith emerging new challenges, such as international terrorism and transnational criminal activity,
as well as longstanding potential threats, and how
to collaborate in peacekeeping and peacemaking
activities.
■ Full participation in peacekeeping andhumanitarian relief missions. Japan would need toremove its 1992 self-imposed restraints on these
activities so as not to burden other peacekeeping
nations.
■ Development of a force structure that has
the characteristics of versatility, mobility, flexibility,
diversity, and survivability. Any adjustments should
not be based on an artificial number, but shouldreflect the regional security environment. As thisprocess unfolds, changes to force structure should
be made through a process of consultation anddialogue, and be mutually agreeable. The UnitedStates should take advantage of technologicalchanges and regional developments to restructure
its force presence on the archipelago. We should
strive to reduce the American military footprint inJapan as long as our capabilities can be maintained. This includes continued consolidation of
U.S. bases and rapid implementation of the terms of
the 1996 U.S.-Japan Special Action Committee on
Okinawa (SACO) agreement.
■ Making priority availability of U.S. defense
technology to Japan. Defense technology must be
seen as an essential component of the overall
alliance. We should encourage the American defense industry to make strategic alliances withJapanese companies to facilitate a greater two-way
flow of cutting-edge military and dual-use technologies.
■ Broadening the scope of U.S.-Japan missile
defense cooperation.

There will be a healthy debate in bothcountries arising from the larger role that we
advocate for Japan. And U.S. Government

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OKINAWAlarge concentration of U.S. forces in Japan—approximately 75 percent—are stationed on Okinawa. They are situated there because in matters of
security, distance matters. Okinawa is positioned at the intersection of theEast China Sea and the Pacific Ocean—only about one hour’s flying time from Korea, Taiwan, and the South China Sea.
The U.S. Air Force base at Kadena provides a critical link to American power
projection throughout the region. It is also crucial to the defense of Japan. The
III Marine Expeditionary Force on Okinawa provides a self-sustaining, joint forwardechelon for rapid response to problems in the region, ranging from evacuation of
noncombatant personnel to serving as cutting edge combat elements to enablelarge formations to defeat aggression.
But the heavy concentration of U.S. forces on Okinawa also creates an obvious
burden for Japan and a less obvious one for the United States, arising, for example,
from restrictions, such as those on training. Because of their intense operational
tempo and younger demographic profile, the Marines have drawn particular
scrutiny from a Japanese public ready for some changes in the U.S. military presence in the southernmost prefecture of the country.
For their part, the Marines have striven to be better neighbors, but readinessand training have suffered with the growing constraints imposed on them by encroachment around the bases. And while statistics on incidents of misconduct by
American service personnel are sharply down, in the current political climate, attention to episodes of deeply unfortunate behavior that do occur is sharply magnified.
In 1996, the U.S.–Japan Special Action Committee on Okinawa (SACO) agreement called for a realignment, consolidation, and reduction of U.S. bases on Okinawa. The United States and Japan must complete implementation of that accord,
which will reduce U.S. assets by about 5,000 hectares and 11 facilities, including theMarine Corps Air Station at Futenma.
We believe the SACO agreement should have had an important fourth goal—
diversification throughout the Asia-Pacific region. From a military perspective, it isimportant for U.S. forces to have broad and flexible access across the region. But
from a political perspective, it is essential to ease the burden borne by the
Okinawans so that our presence is sustainable and credible. American thinking
about force structure in Japan must not stop with the SACO accord. The UnitedStates should consider broader and more flexible deployment and training options
for the Marines throughout the region.

A

officials and lawmakers will have to recognizethat Japanese policy will not be identical toAmerican policy in every instance. It is time forburdensharing to evolve into power-sharing

it is time for burdensharing to evolve into
power-sharing
and this means that the next administration
will have to devote the considerable time thatwill be necessary to bring this into being.

Intelligence
The changing nature of the potential
threats and the evident dangers for both theUnited States and Japan in East Asia require
greater cooperation and integration of intelligence capabilities between the two allies. Despite the importance of the bilateral alliance,
intelligence sharing with Japan contrasts
sharply with the increasingly close relationships we have enjoyed with our NATO partners
in this area. While global developments have
driven that trend, so, too, has the recognition

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Page 5that declining resources and such new missions
as peacekeeping and peacemaking require
greater cooperation and integration of allied
intelligence capabilities.
Ironically, with the end of the Cold War,the ambiguous nature of threats and the often
more complex policy choices have sharpened

new missions such as
peacekeeping andpeacemaking require
greater cooperation andintegration of allied
intelligence capabilities
the need to cooperate in analyzing and collecting vital information on shared security threatsaround the world. Tokyo has made it clear thatexisting U.S.-Japan intelligence ties do notmeet its needs.
For the United States, the potential for
greater cooperation with Japan is obvious.
Allies need to articulate their differences as well
as reach agreement on policy actions based oncomparative and competitive analysis. Sharedintelligence represents the road to that goal.
Moreover, a division of labor—apportioning
analytical tasks according to the comparativeadvantages of each partner—offers gains for a
resource-strapped intelligence community.
Japan has the capacity to bring valuable information and insights to a strategic intelligence
dialogue because of its global engagement.
Perhaps more important, a strategic
vision of intelligence cooperation with Japan islong overdue. Failure to strengthen U.S.-Japan
intelligence ties only raises the risks that ourperception—and possibly our policies—will
diverge when challenges demand common
understanding and action within the alliance.
Improved intelligence cooperation is noless important for Japan. The path to a greaterinternational contribution by Japan requires
both a stronger indigenous Japanese intelligence capability and greater cooperation with
the United States.
Strengthened intelligence cooperation will
help Japan to improve its own policymaking,crisis management, and decisionmaking
processes. In addition, both within and beyond
Asia, Japan faces more diverse threats and more
complex international responsibilities, whichcall for intelligence that provides a better
understanding of its national security needs.

Intelligence cooperation also will
strengthen Japan’s role in the bilateral alliance.
Given the disparity in size between the U.S. andJapanese intelligence communities, morebalanced sharing inevitably will take time. But
the long-term result—improved information
on potential threats, competitive analyticalproducts, and complementary perspectives—
will enrich cooperation as well as better inform
both allies.
As a national-level issue in both countries,
U.S.-Japan intelligence cooperation needs
national-level management. Cooperation needs
to take new forms and to expand existing
relationships.
It is incumbent on Washington to do thefollowing:■ The National Security Advisor must makestrengthened intelligence cooperation a policy andintelligence priority.
■ In coordination with U.S. policymakers, theDirector of Central Intelligence must work withJapan to broaden cooperation in a way that fits withtransnational issues, suchas illegal immigration,international crime, andterrorism all require
coordinated interagency
programs in bothcountries
Japan’s national security priorities. Transnational
issues, such as illegal immigration, international
crime, and terrorism all require coordinated interagency programs in both countries.
■ The United States should support Japan’s
reasonable desire to develop an independent intelligence capability, including its own satellites. Improving the quality of sharing requires immediate
attention.
■ U.S. policy should give priority to joint
staffing of analytical centers, reciprocal educational
programs, and similar elbow-to-elbow initiatives toenrich the intelligence network.

An enhanced intelligence relationshipbetween the United States and Japan also needs
political support in both countries. In thisregard, Tokyo needs to take several basic steps:■ Japanese leaders need to win public andpolitical support for a new law to protect classified
information.
■ While improved intelligence capabilities willoffer improved support to Japanese policymaking,leaders in Tokyo need to address their own decisionmaking processes as well. Intelligence sharing mustoccur within the Japanese Government as well as
between the United States and Japan.

experience argues strongly for a dialogue on how
to include the Diet in theintelligence process■ Experience argues strongly for a dialogue
on how to include the Diet in the intelligenceprocess. Oversight of intelligence in democracies is a
critically important component in sustaining
political support.

In short, as Japan addresses its future
defense needs and reorganizes its government,
the time has come to bring our intelligence
cooperation out of the closet.

Economic Relations
An economically healthy Japan is essential to a thriving bilateral partnership. Indeed,
U.S. interests in all of Asia benefit from having
a prosperous, growing, and robust Japanese
economy. Japan remains the third-largest
customer for U.S. goods, and its continued
frailty has meant lost opportunities for American workers and businesses. A weak Japan
contributes to volatility and uncertainty inglobal capital flows. In addition, an inwardlooking, frustrated, insecure Japanese populace
will be less willing or able to play a larger rolein the alliance.

an economically healthy
Japan is essential to a
thriving bilateral
partnership
Unfortunately, Japan has experienced adisappointing decade of economic stagnation
and recession. From 1992 through 1999,
average annual real economic growth was
only 1 percent. The decade ended with a recession in 1997 to 1998, and again in the second
half of 1999.
The restoration of sustained economic
growth in Japan will depend in large measureon opening markets and recognizing that thekey to economic recovery rests in allowing theS P E C I A L R E P O RT

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private sector to respond to the forces of globalization. This will involve continued deregulation and the reduction of trade barriers, as wellas the development of stronger rules and institutions to support more open markets.
This is a fact understood by some Japanese policy elites and documented in a host of

the key to economic
recovery rests in allowing
the private sector to
respond to the forces ofglobalization
official commentaries, beginning with theMaekawa Report of 1986. Since the mid-1970s,
foreigners have attempted to encourage Japanese policymakers to take steps to increase thetransparency and openness of the economy.
With mounting frustration, successive U.S.
administrations have tried to prod Tokyo toadopt a range of invented and reinvented tradeand economic policy options.
Barriers to reform are significant. Mature
workers (including the 20–30 percent who still
enjoy the cozy sanctuary of lifetime employment), protected industries, and bureaucrats
long accustomed to calling the shots for various industries continue to protect the statusquo. Moreover, the Japanese tend to be averse toradical change, except in circumstances where
no other options exist. And some in Japanargue that the nation’s economic problems
have yet to reach crisis proportions. The lack ofa sense of urgency, and a national character
resistant to abrupt shifts in established practices, impede adoption of necessary restructuring measures that are politically and psychologically painful.
At the same time, it is important to recognize that Japan has made some progress inaddressing its economic problems. For example,
many Western economists have given highmarks to Tokyo’s so-called Big Bang financial
sector deregulation package and the banking
bailout of 1998. Foreign direct investment has
increased dramatically (though it remains
lower than in any other major industrialized
economy). These developments have introduced
greater competition and new business models.
Businesses have begun to place greater emphasis on profitability over relationships, a shiftthat has weakened the increasingly archaic

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keiretsu system. Entrepreneurship is on the rise,
and the venture capital market is growing.
The information technology (IT) sector is
growing rapidly. New firms are starting up, andthe potential benefits across many sectors of theeconomy are substantial. Yet economists remain divided as to whether IT sector growth
will be sufficient to rescue the economy fromthe stagnation of the past decade. Regulatory
barriers have constrained growth and slowed
the adoption of IT technologies in other industries. The potential importance of this sector forthe economy, therefore, reinforces the need for
additional reform and deregulation of theeconomic system as part of ensuring a positive
future for the economy. Perhaps the mostimportant contribution IT can make is toprovide the thin wedge to encourage deregulation and greater flexibility of business models
in the broader Japanese economy.
Yet obstacles to recovery continue to exist,
In particular, banking problems have yet to beaddressed adequately, and fiscal stimulus hasrelied too heavily on pork-barrel public works
projects with little if any potential for fostering
long-term growth. This flawed fiscal approachbanking problems have
yet to be addressed
adequately
has produced a ratio of debt to gross domestic
product of at least 1.2:1, far higher than in therest of the world’s major developed economies.
A more innovative approach that uses
private sector dynamism to drive economicchange is now in order. For Japan, the pricestill will be high. Restoring the long-term
health of the Japanese economy will require
some short-term costs that Japanese politiciansso far have refused to incur. The United Statesshould urge Japan to develop policies along thefollowing lines:■ Further systemic reform of the Japanese
economy. Greater reliance on markets that are open
to all players—both domestic and foreign—iscritical to a sustained economic recovery:■ Continued short-term fiscal and monetarystimulus. Despite Japan’s growing debt problems,Tokyo should focus on areas that promise to foster
future growth. The era of building bridges, tunnels,
and high-speed rail links to nowhere must end.
■ There must be greater transparency inaccounting, business practices, and rule making.
The quality of Japanese economic statistics shouldbe improved, and financial institutions and local
governments should be required to give a fullaccounting of their true financial condition. The
government has a similar need to be more open inits disclosure of government information.
■ Deregulation should be accelerated, particularly in sectors with the greatest potential to benefit
the economy, such as telecommunications.
■ A free trade agreement between Japan andSingapore should be encouraged as a test case forgreater reliance onmarkets that are open
to all players—both
domestic and foreign—iscritical to a sustained
economic recovery
similar agreements with South Korea, Canada, theUnited States, and other interested countries.

The ability of American government
initiatives to open Japanese markets and todrive structural change is diminishing. The
United States does have legitimate interests
when the lack of reform affects U.S. firms orendangers the global economy. In these areas,
including the creation of corporate goodgovernance standards and greater transparency
in business practices, U.S. Government attention and action continue to matter.
The U.S. should pursue several key goals
in the years ahead that will foster an improved
bilateral partnership:■ American economic interests must be
expressed in one voice. Washington must have its
priorities straight in order to deal effectively with thesystemic change Japan is undergoing. In thisregard, the next administration must gain the
support of the American people for a focused economic agenda.
■ Washington should start a dialogue on enhancing foreign direct investment in Japan. Foreign
firms bring new technologies and new businessmodels that help the economy both directly andthrough their competitive impact on Japanese firms.
■ The new administration must make a newround of global trade negotiations one of its highest
priorities. American leadership is vital to this initiative. In this endeavor, the United States and its
partners should seek the elimination of industrial
tariffs, agricultural subsidies, and barriers to tradein financial services, and should pursue the negotiation of internationally accepted accounting standards, particularly for financial institutions.
■ Because of the importance of U.S.-Japaneconomic relations, bilateral trade negotiations

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remain an essential tool, even as the United States
and Japan turn to the World Trade Organization toresolve disputes and open new doors to cooperation.
■ The United States should encourage thefledgling economic coordination underway between
Japan and the Republic of Korea.

the United States has
encouraged Japan to playa larger international role

Diplomacy
Traditionally, the United States has encouraged Japan to play a larger internationalrole. The overlooked reality is that Japan has
responded to that encouragement, particularly
in humanitarian efforts and other nontraditional areas of security, often in cooperation
with the United States. Japan is either theleading or the second-largest contributor to theWorld Bank, the International Monetary Fund,the United Nations, and the Asian Development
Bank, as well as being a leading contributor to
all the major multilateral institutions. It isimperative to nurture popular support in the
United States and Japan to sustain current
cooperation and to open the door to new bilateral endeavors.
There should be no surprises in diplomatic cooperation. Japan often has promoted
ideas, such as the Asian Monetary Fund, without coordinating with Washington. The UnitedStates too often has brought Japan belatedly

it is past time for theUnited States to drop theimage of Japanesecooperation in foreign
policy as checkbook
diplomacy
into its own diplomacy. Both countries sufferwhen policymaking-by-afterthought characterizes our relationship. It is past time for theUnited States to drop the image of Japanesecooperation in foreign policy as checkbook
diplomacy. Japan must recognize that international leadership involves risk-taking beyond
its traditional donor’s role.
U.S. policy must consider Japan’s goals,
even as it strives to ensure that our agenda iswell understood and actively supported by

Tokyo. Washington must recognize that multilateral efforts are important to Tokyo. The
Japanese Government regards such initiatives
as expressions of national identity, not as
attempts to undermine U.S. leadership. Quiet,
behind-the-scenes coordination of strategies
often is more effective than theatrical pronouncements of partnership thrown together at
the last moment as an outcome of bilateralsummits.
The search for an independent Japanese
identity in foreign affairs is not in conflict with
American diplomacy. Indeed, the United States

the search for an independent Japanese
identity in foreign affairs
is not in conflict with
American diplomacy
and Japan largely share the same overall diplomatic goals. The two countries have many
common interests.
■ Maintaining an engaged, forward-deployed
American presence in Asia.
■ Reforming the United Nations as an institution to deal more effectively with conflict prevention, peacekeeping, and peacemaking activities. The
U.S. should continue to support Japan’s quest for apermanent seat on the Security Council. However,there are obvious obligations of collective security
with which Japan must come to grips.
■ Encouraging the People’s Republic of China
to become a positive force in regional political andeconomic affairs. The United States and Japan
should engage in an ongoing strategic dialogue on
this subject.
■ Fostering reconciliation on the Korean
peninsula. Washington and Tokyo should continue
to support the Trilateral Coordination Group (South
Korea, Japan, and the United States) to deal withissues related to the peninsula, while looking foropportunities to broaden their cooperation.

The Institute for National Strategic Studies publishes
books, monographs, and reports on national security
strategy, defense policy, and national military strategy.
For information on NDU Press visit the Web site at:
http://www.ndu.edu/inss/press/ndup2.html. INSS also
produces Joint Force Quarterly for the Chairman of the
Joint Chiefs of Staff; the journal can be accessed at:
http://www.dtic.mil/doctrine/jel/jfq_pubs/index.htm.

■ Supporting Russian stability in the Far Eastand facilitating the development of the vast Russianstore of natural resources. The United States andJapan should more effectively coordinate theirpolicies toward Russia.
■ Encouraging an activist, independent,
democratic, and prosperous Association of Southeast
Asian Nations even as the United States and Japan
have divergent policies toward individual ASEAN
members.
■ Coordinating our efforts to support territorial integrity and revival of Indonesia.

Japan, with the world’s second-largest
economy, should not allow its economic problems to become an excuse to reverse the evolution of its foreign aid policy away from one
that focuses on benefitting the recipient rather
than the donor. Japan’s policies should further
economic growth and openness in Asia. Tokyo’s
proposals for internationalization of the yen
will only succeed if Japanese financial markets
are transparent.

Conclusion
Since the arrival of Commodore Perry’s
Black Ships in Tokyo Bay nearly 150 years ago,
U.S.-Japan relations have shaped the history ofJapan and Asia—for better or for worse. At thedawn of the new millennium, the inescapable
forces of globalization and the dynamics of the
post-Cold War Asian security setting pose newand complex challenges to the United States
and Japan. How the two countries respond,
individually and as alliance partners, willdefine significantly the security and stability of
the Asia-Pacific as well as the possibilities of
the new century—much as their interaction
has affected the economic, political, and strategic contours of the past.

The Strategic Forum series presents original research bymembers of the National Defense University as well asother scholars and specialists in national security affairs
from this country and abroad. The opinions expressed or
implied in this publication are solely those of the authorsand do not necessarily represent the views of the
National Defense Universtiy, the Department of Defense,or any other governmental agency.

I N S T I T U T E F O R N AT I O N A L S T R AT E G I C S T U D I E S

NDU PRESS

Stephen J. Flanagan

Robert A. Silano

William R. Bode

George C. Maerz

Director

Director of Publications

General Editor

Supervisory Editor

S P E C I A L R E P O RT

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