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Japan's Foreign Policy in the Post-War
Period: A Road to Recovery and Major
Power Status')
After its disastrous defeat in the Second World War, Japan embarked on a nation building process again, which exclusively focused on reconstructing and strengthening its economy. Fortunately, the so-called Yoshida line — depend on the U.S. for national security and put first priority on economic growth — functioned successfully, enabling Japan to achieve the desired goal. While Japan's approach toward the world was entirely economic-orientated during the Cold War era, the changing security environment and the protracted ailing economy in the post-Cold War period compelled Japan to modify its one-dimensional economic approach, by expanding its reach to the security field. This chapter surveys Japan's foreign and security policy after the Second World War.
Japan's Foreign and Security Policy during 
the Cold War Period
Change of U.S. occupation policy
Japan's defeat in the Second World War resulted in an American occupation, which continued until 1952. The occupation itself can best be divided into two distinct periods. In the early days, the Americans were intent on disarming and weakening Japan, so that it would never pose a future threat to the world. The Japanese must be humbled by the occupation forces, with living standards forced to match those of neighboring countries (Borden, 1984: 62-67). Reflecting this conception, America's first investigating mission urged that Japan be kept weak through a series of reparation payments that would forcibly relocate Japan's remaining industrial facilities to other countries. An impoverished Japan would not pose a threat.
However, the Communist uprisings in Asia made the Americans quickly realize that they needed an economically strong Japan to stabilize the region and contain
Communism. By 1945, anti-colonial, independent governments had sprouted in Indonesia and Vietnam. These consequences did not only alarm their former European colonial masters, but the Americans as well. Vietnam became an instant trouble spot, exemplified by the Indochina War against France (1946-54), as the Vietnamese leader, Ho Chi Minh, was labeled a Communist. In 1948, Kim Il Sung established a Communist North Korea. But more importantly, American-supported Chiang Kai-shek seemed incapable of winning the battle against Communist Mao Zedong in China. Circumstances thus had fortuitously changed Japan's status.
These geopolitical changes soon made the Cold War the top agenda. By 1948, the punitive focus on reparations had been discarded in favor of reconstructing the Japanese economy as a strong ally. Marking the turnaround in 1948, the U.S. National Security Council (NSC 13/2) not only stopped the financial drain of imposed repayments, but also insisted on making "economic rehabilitation" a priority. This significant shift in American occupation policy became irreversible by developments in China and Korea.
In October 1949, the Chinese Communists achieved victory over their Kuomintang foes, and almost immediately concluded a Sino-Soviet Treaty of Friendship and Alliance. Moreover, the outbreak of the Korean War in June 1950 unexpectedly made Asia, not Europe, the center of Cold War confrontations. America, backed by a United Nations (UN) resolution, plunged into the war on the Korean Peninsula, which made a confrontation between the U.S. and China unavoidable. Responding to these current threats, American strategy now regarded Japan as a key Asian surrogate in the ongoing battle between the Communists and the Western Bloc. The outbreak of the Cold War in Asia inevitably changed Japan's value to the U.S.
Other considerations, namely, economic imperatives, also played a part in creating such a decisive shift in U.S. policy. An extended American occupation of Japan undoubtedly would be costly because of Japan's devastated economy. For instance, by the end of 1947, Japan's industrial production was still only 45% of its 1930-1934 average. The status of trade was even more forlorn, with exports accounting for only 19% of those pre-war levels. The U.S. supported Japan's shattered economy, but the size of the assistance was simply too large. Therefore, to American policymakers, Japan's rapid economic recovery now became an issue to be addressed.
 
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To assist Japan's quick recovery, the U.S. emphasized focusing on Southeast Asia to keep Japan away from Communist China. These countries were certainly capable of supplying the necessary food and raw materials that Japan required. The resulting increase in productivity from this advantageous trade would make Japan increasingly competitive with other industrialized countries. Thus it was hardly accidental that Japan chose to cultivate links with the Southeast Asian countries, even stretching to Australia, rather than with the Chinese Communists. Japan obediently took the required steps in this direction, by first initiating reparations to these favored Southeast Asian countries.
Conclusion of the Japan-U.S. Security Treaty
The key individual shepherding the vision of a mutually advantageous relationship with the U.S. was Prime Minister Yoshida Shigeru (1946-1947, 1948-1954). The traditional Yoshida line, which is dubbed the "Yoshida Doctrine", dominated Japanese thinking during the post-war period. He stressed a Japan that was fully aligned with the U.S., and a foreign policy that was largely economically determined. Fortunately, Japan could pursue this Yoshida line without difficulty, since Article 9 of Japan's constitution conveniently allowed Japan to avoid rearmament. Although eventually creating the Self-Defense Forces (SDF), Article 9 kept it from being fatally drawn into the U.S. Cold War strategy of containing Communism in Asia (see chapter 8).
Shifting its occupation policy, the American occupiers had anyway pushed Japan in a conservative direction as early as 1948, when the risk of Communist revolution in Japan and China—to say nothing of the Soviet threat—had come to be seen as a greater peril than the revival of militarism. The outbreak of the Korean War reinforced this American perception and made it necessary for the U.S. to secure strategic military bases. This meant that the U.S. wanted to maintain forces on Japanese soil following the official end of the occupation. Both Japan and the U.S. were well aware of America's newly developed strategic interests in Japan. So, as an enticement to encourage an early end to the occupation, Yoshida offered to host American bases in Okinawa, using UN Charter Article 51 as camouflage for this implicit trade-off (see Chapter 8). With its security being assured, Japan could then concentrate on an all-out economic recovery.
In September 1951, the bargaining resulted in the conclusion of the San Francisco 
 
Peace Treaty and the Japan-U.S. Security Treaty. As might be expected, the San Francisco Peace Treaty, initiated under U.S. leadership to meet its Cold War needs, was lenient to Japan, so as not to exacerbate Japan's wartom economy. It was fortunate for Japan to have concluded such a lenient treaty, but Japan had to pay the price. It failed subsequently to conclude peace treaties with Communist countries such as the Soviet Union. Japan also had to abandon effective control over the Okinawa and the Bonin Islands, and conclude a peace treaty with Taiwan as an authentic government of China. Due to strong animosity towards Japan, South Korea, Japan's former colony, declined to come to a formal peace arrangement. The partial conclusion of the peace treaty, however, divided the nation into two camps: one who supported an alliance with the U.S. and Western countries, and another who supported the idea to become a neutral state. In addition, the subsequent conclusion of the Japan-U.S. Security Treaty caused controversy (see Chapter 8).
Contrary to Japan's wishes and expectations, the terms of the Security Treaty did not leave the two countries on anything like an equal footing. Although the agreement allowed U.S. military forces to be based in Japan, there was no reciprocal obligation for them to defend Japan. Moreover, the treaty provided U.S. forces with the right to suppress domestic disturbances in Japan, an option normally deemed to be unacceptable in an independent state. Revision of the unequal security treaty therefore became an unfinished task for Japan.
Prime Minister Kishi Nobusuke (1957¬1960), a former Class-A war criminal, poured his energy to revise the Security Treaty on more equal terms. Kishi focused on getting a commitment from America to defend Japan against aggression, mainly from the Soviet Union and deleting the clause allowing U.S. forces to suppress Japanese
 
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domestic disorder. However, left-wing parties launched a campaign to completely abandon the Security Treaty in any form. Support for this movement was dispersed widely throughout the Japanese public. University students in particular became vocal opponents of these treaty negotiations. Ignoring the potential for unrest, however, the Kishi administration adopted the renegotiated treaty in May 1960, which was more equal. As anticipated, its passage was met with violence and recurrent demonstrations, not only outside the Diet building, but also throughout Japan. However, the anti¬Japan-U.S. Security Treaty movement soon disappeared after its adoption.
The Vietnam War and its implications
1965 marked the start of another Cold War division in Asia. The U.S. started air bombing against North Vietnam in 1965 in an effort to support South Vietnam. As part of its Asia-Pacific strategy, the U.S. persuaded South Korea, the Philippines, Australia, New Zealand and Thailand to provide at least a token contingent of military forces to support the war effort in Vietnam. Japan was not an exception. The U.S. put pressure on a newly wealthy Japan to assume a more significant role in financing the anti-communist struggle in Asia. Contrary to U.S. prospects for a quick operation, however, the U.S. was drawn into a stalemate. With increasingly bitter domestic opposition demanding the withdrawal of U.S. troops due to mounting death tolls, economic cost and the continued Vietnamese impasse, America became hard pressed. Desperately hoping to exit from the conflict, the U.S. shifted its strategy, which unexpectedly yielded two substantial results for Japan: reversion of Okinawa to Japanese sovereignty and normalization of diplomatic relations with China.
Not surprisingly, Prime Minister Sato Eisaku (1964-72) had a motive that guided his decision to provide support for U.S. efforts in Vietnam. In exchange for Japan's support, Sato hoped for early reversion of Okinawa. By assuring U.S. President Richard Nixon of America's ability to continue using its existing military bases on the island, he obtained U.S. agreement for reversion of Okinawa, scheduled in 1972. Such reassurance was vital, since Okinawa had played a key strategic role as America's vital Asian military base, especially during the Vietnam War. The reversion provided Japan with a sense that it was now competent to exercise a large degree of influence, as a member of international society.
 
The second was American normalization of its relationship with Communist China. Japan had long hoped to normalize relations with China, but its ties with the U.S. constrained Japan's hand. As an exit strategy from Vietnam, however, anti-communist Nixon suddenly turned around by visiting China, which supported North Vietnam's war, and normalized the relationship in 1972. Although Japan was taken by surprise, Prime Minister Tanaka Kakuei (1972-74) visited China soon after, and concluded a peace treaty in 1978.
Due to the improvement of Sino-American relations, Japan obtained room to initiate an increasingly autonomous Asian policy, without offending the ideological strictures formerly dictated by the U.S.. Regardless of differences in social, political or economic systems, Japan pursued its diplomatic advantage by improving relationships with all neighbouring countries, edging more toward the middle ground between East and West. It came as no surprise when the Japanese recognized North Vietnam in September 1973, with an embassy opening in Hanoi after the U.S. withdrawal from South Vietnam. Japan's attempt to conduct more autonomous policy was, however, soon frustrated due to the outbreak of the "new" Cold War.
Towards a more substantial alliance in the 1980s
Renewed Cold War tensions caused by the Soviet military build-up in the Far East and aggression against Afghanistan in 1979 encouraged Japan to focus more intently on its national security. Quickly realizing the rising tension, Prime Minister Ohira Masayoshi (1978-80) formulated a concept of "comprehensive security", which marked a watershed in Japanese foreign policy. The new concept illustrated Japan's determination to employ all means possible, such as a combination of diplomacy, national defence, economic and other policy measures, to protect its security that encompassed from national security to natural disasters. For the first time, the Japanese expressed their intention to take full responsibility for their own security, although the means were limited to economic and diplomatic aspects. A sense of responsibility as a major industrialized country and the changed strategic thinking resulted in Japan's readiness to take up more of a security role, in the face of U.S. demands.
Faced with a Soviet military build-up, the U.S. felt obliged to repeatedly pressure
 
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the Japanese government into increasing its defence budget and expanding its military role, to counter Soviet threats. An expansion of Japan's security role would allow the U.S. to shift its forces and more of its attention to the Indian Ocean and the Middle East. Japan's rapid economic growth also made Americans think that Japan seemed to be a "free rider", enjoying peace and stability without sharing the burden. In response to the revived Cold War tensions and U.S. pressure, Prime Minister Suzuki Zenko (1980-82) demonstrated Japan's willingness to ensure the safety of sea lanes for up to 1,000 miles in either direction of its home ports, at the 1981 summit meeting with the U.S.. Suzuki went further, by describing the long standing Japan-U.S. relationship as an "alliance" for the first time in the post-war era in the Japan-U.S. Joint Communiqué. But a Japanese military role extending outside the promised 1,000 miles seemed neither constitutionally nor politically realizable. Besides, not only the public, but also most politicians and bureaucrats were still unwilling to embrace an expanded security role. Accordingly, Suzuki's careless statements inevitably provoked domestic controversy.
The subsequent Prime Minister, Nakasone Yasuhiro (1982-87), hoped to elevate Japan's position by taking up a more activist stance. Nakasone limited his grand security strategy for the most part to repairing and improving Japan's relationship with the U.S.. His goal was to have the Americans come to regard the Japanese as an equal partner in containing the Soviet threat, and to expand Japan's security reach to increase Japan's visibility in the world. Fortunately, the Nakasone and Reagan administrations largely saw eye to eye on key diplomatic issues. Frequent meetings between them highlighted the developing close relationship between the two leaders, and demonstrated Japan's focus on strengthening its relationship with the U.S.. Nakasone expanded Suzuki's initiatives, by continuing to strengthen the Japan-U. S. alliance, and bulking up the defence budget. Following this approach, Nakasone in 1987 managed to remove the long-standing 1% of Gross National Product (GNP) cap on defence spending, which was instituted by the Miki administration in 1976. The budget has not largely increased however, fluctuating at around 1% of GNP (for instance, 1.004% of GNP in 1987 and 1.006% in 1989). He also partially lifted the previously imposed export ban on defence-related technology, to strengthen ties with the U.S.. Largely due to his efforts, the Japan-U.S. alliance became more substantial 
 
and equal in the 1980s, as he hoped.
Japan's Economic Diplomacy during the Cold War Period
Japan's economic advance in Asia
As mentioned, the San Francisco Peace Treaty tailored by the U.S. aimed to promote Japan's economic recovery as a strong ally. Because of Japan's critical shortage of American dollars, the U.S.-crafted treaty strictly limited Japan's reparations to provision of services. After having tough negotrations, Japan was able to reach agreements with Asian countries such as Thailand, Malaysia, Singapore, the Philippines and Indonesia in the 1950s and 1960s. As hoped, reparations paid by services and goods to the Southeast Asian countries greatly contributed to the rehabilitation of the war-damaged Japanese economy. They became new outlets for Japan's developing heavy industry and suppliers of natural resources. In line with American expectations, the Asian markets offset the loss of Japan's more traditional export destinations, namely, mainland China and Korea. Moreover, the adroit use of war reparations proved to be a convenient tool for reestablishing relationships with the Asian countries. For more than 20 years (ending with the Philippines in July 1976), reparations to these countries continued to act as an underwriter of Japan's economic security by enabling Japan to secure not only natural resources but also export markets. In addition to the governmental reparations, the private sector was also strongly encouraged to seek closer economic links with Southeast Asia, leading to Japan's bourgeoning economic growth.
In addition to the positive effect of the reparations, an "income doubling plan", introduced by Prime Minister Ikeda Hayato (1960-1964) to raise living standards and improve social infrastructure, quickly brought results. To accomplish this proposed growth, the government not only promoted exports and severely restricted imports, but also restrained most forms of investment abroad, to boost competitiveness of domestic industries in export markets. As a result of such protection of its domestic industries, Japan was able to become competitive in a short period, with its average economic growth rate reaching 10.9% during the boom years. In 1964, Japan earned admittance to the Organization of Economic Cooperation and Development (OECD),
 
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which meant that Japan obtained a position as a developed country internationally. The Tokyo Olympics held in the same year also boosted Japan's confidence. As an offshoot of this "miracle" growth, Japan considerably expanded its foreign aid program to Asia, which eventually completely replaced the reparations.
Moreover, the outbreak of the Vietnam War further accelerated Japan's economic growth. Ironically, post-war conflicts such as the Korean and the Vietnam Wars proved to be advantageous for rebuilding Japan's economy. The Vietnam War also provided the Japanese with new opportunities to conduct "economic diplomacy", although within a boundary limited by U.S. strategy.
America's rising demands on Japan to support U.S. efforts in Vietnam paralleled Japan's own rising economic strength. Due to deepening U.S. involvement in the Vietnam War, America turned to Japan to bear more of the burden in advancing western interests in Asia. Faced with such overarching demands, Prime Minister Sato put in an effort to establish the Asian Development Bank (ADB), with both the U.S. and Japan contributing 20% of the funds. Japan also began to provide direct aid to South Vietnam, to support the U.S. war in Vietnam. The U.S. demanded additional Japanese aid to Indonesia, where the anti-communist Suharto government was struggling to solidify a new regime. Consequently, Japanese economic assistance to the region from 1967 onwards increased considerably. The U.S. now expected Japan to share responsibility for future Asian development, since economic growth was thought to keep the Asian countries from any Communist infection. In American eyes, this was largely an attempt to reprise the "Marshall Plan", with the U.S. and Japan closely cooperating to achieve a common objective. Employing the pretext of aid, Japan ended up shouldering some of the burden of the Vietnam War without raising public controversy.
Japan's looming economic presence
Up until the late 1960s, the Japanese government had actively discouraged direct foreign investment into Japan to provide Japanese firms with space to grow. Japanese overseas investment was strictly limited as well. This strategy contradicted the policies adopted by other western industrialized countries that were reducing barriers for such economic activities. Despite western expectations to open its markets and lift
 
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restrictions, Japan's move towards liberalization was far from satisfactory.
In 1971, suffering from a worsening economy, Nixon suddenly decided to allow the dollar to float, scuttling the post-war financial architecture. This meant the end of the favorable fixed exchange rate ($1-360 yen) that had assisted Japan's post-war miraculous growth by spurring exports. While the floating dollar and corresponding appreciating yen shocked the Japanese, they helped Japan's economic advance into Asia by accelerating its investment. Accordingly, Japan's economic presence in Asia loomed, which made a clear contrast to the dwindling American presence due to the prolonged Vietnam War.
Reacting to the disastrous Vietnam War, the U.S. began to cut aid packages such as military assistance to Thailand, Indonesia and the Philippines. Following the fall of Saigon, the percentage of American aid (including military and economic) to Asia plummeted from 67% in 1973 to a mere 14% in 1976. The power vacuum arising from a diminishing U.S. presence provided corresponding scope for Japan to flex its economic muscle, resulting in the increase of Japan's regional aid, which surpassed that of the U.S. by 1975. By this time, partly because of the Oil Shock of 1973, America's focus was directed increasingly towards the Middle Eastern countries, such as Israel and Egypt. In contrast, Japan's assistance was mostly directed towards Asia.
However, Japan's ever-looming economic presence in Asia made the Asian countries anxious whether Japan was again trying to dominate the region, this time by economic means. Their fear of Japan's economic dominance was illustrated by anti-Japanese protests in Thailand and Indonesia, when Prime Minister Tanaka paid visits in 1974. By then, Japan came to regard the Association of Southeast Asian Nations (ASEAN) as the most reasonable regional option. But these protests made Japan reappraise its Asia policy, which was essentially dominated by economic transactions. With a hope to improve relationships, Prime Minister Fukuda Takeo (1976-77) announced the doctrine in 1977 which emphasized: (1) mutual confidence and trust between Japan and ASEAN, (2) its wish to play a bridging role between Indochina and ASEAN for peace and stability in the region, and (3) its promise not to become a military power. The key was Japan's willingness to regard ASEAN as an equal partner. In contrast to Tanaka's visit, Fukuda was warmly welcomed. Since Japan's economic inflows towards the Asian countries plunged after the 1973 Oil Shock, they looked
 
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to Japan's economic assistance as an effective tool to spur their economic growth. Expectations of economic assistance proved the driving force behind Fukuda's warm welcome. Thus, Japan's economic ascendance provided a mixture of both fear and expectation to the Asian countries, but it only alarmed the U.S.
Declining U.S. presence and rise of Japan
As Japan's trade surplus grew, trade frictions between the U.S. and Japan became intense. America's growing trade deficits seemed to symbolize the ascendancy of Japan as an economic power, and the decline of the U.S. economic presence. By 1980, Japan's economy had come to represent 10% of the world's GDP. In contrast, the out of control deficit of the U.S. ballooned. Faced with punitive tariffs from the U.S., Japan had no choice other than accepting a system of supposedly voluntary restraints on their exports. Among exports, the symbol for the trade frictions between the two was Japanese cars.
During the 1980s, America found itself entrapped by historically high twin deficits, encompassing both trade and federal budgets. It was largely a result of Reagan's arms race with the Soviet Union and tax cuts. With trade imbalances in 1985 appearing to threaten its economic viability, the U.S. attempted to rebalance trade patterns by skilfully influencing foreign exchange rates. The G5 countries (the U.S., Japan, France, the UK and West Germany) hoped to lessen America's out of control trade imbalances, and agreed to the terms of the 1985 Plaza Accord, which aimed to reconfigure the foreign exchange rates. However, the result proved otherwise. Even after the 1985 Plaza Accord, the U.S. trade deficit still stood high. Not only did the Accord fail to achieve the desired outcomes that had driven the meetings, but also ironically served mainly to increase Japan's economic influence. U.S. frustration at the failure of the agreement goaded the U.S. into escalating its demands on Japan to open its home market to U.S. products.
To help salvage an increasingly tense confrontation between Japan and the U.S., Japan committed itself to a foreign aid program which would alleviate some of America's financial burden within Asia. Japan tackled the foreign aid issue rather systematically, by setting out a series of targets. Compared to a total of $105 million provided in 1960, its aid increased by a factor of 50 times ($5.634 billion) by
 
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1986. Even when adjusted for worldwide inflation, the increase in Japan's Official Development Assistance (ODA) over the period was impressive. Thus, the boost in overseas assistance was not only an attempt by Japan to seize leadership in Asia, given the vacuum created by U.S. disengagement after the Vietnam War. The expanded initiative was also an attempt to placate the growing wrath of the U.S., as well as the world.
As expected, Japan's dramatic increase in aid was mirrored by its regional recipients. ASEAN countries became major beneficiaries, with Japan solidly in place as each country's largest donor. For instance, Japan's assistance in 1987 accounted for 63.1% of total aid received by Indonesia, 78.5% by Malaysia, 53.7% by the Philippines, 69.4% by Thailand, 50.6% by Singapore and 88.6% by Brunei. It also accounted for 55.7% of total aid received by China in 1989. By 1991, Japan had overtaken the U.S. as the world's largest donor. Such massive inflows of Japanese money into the region through governmental aid programs and the influx of Japanese private capital resulted in regional economic expansion and deeper interdependence.
The strong yen also contributed to the sizable increase of Japan's foreign direct investment (FDI). During this period, Japanese investment in the Asian region, to maintain competitiveness, grew to outstrip that of the U.S., due to an appreciating yen, a growing scarcity of blue-collar workers and an increase in wages. The surge in Japan's FDI did successfully create a division of labor, first producing a number of regional "sub-contractors" for production at the lower value-added end, and then promoting intra-industry trade. As a consequence, Japan's trade with Asia doubled in the 1980s, but Japan's growing dominance did not translate into greater regional imports to Japan. To the rest of the world, Japanese trade policy, which closed its home market without absorbing imports, seemed badly unfair.
As Cold War tensions eased, the Japanese government, encouraged by its unparalleled economic strength, became even more assertive. It believed that by effectively employing its economic muscle, it could target and increase Japan's political clout. However, this assumption unfortunately proved to be valid for only a brief period. The forthcoming Gulf War, together with the inevitable collapse of the bubble economy, would soon expose the limits of an economic-contribution-only approach.
 
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Japan's Security Policy in the post-Cold War Era
Japan's international contribution in the framework of the UN
The 1990s opened with a dramatic and largely unanticipated change, namely the end of the Cold War. Japan assumed that the end of the Cold War potentially opened up some space for Japan to maneuver and establish a new international order which was not dominated by military strength. Japan expected that it could now play a more positive international role, one that might be more commensurate with its growing economic power (now accounting for 14% of Gross World Product).
However, the Gulf War of 1991 came as a shock for the Japanese, by revealing their chronic inability to respond quickly to a pressing issue (see Chapter 8). Depending on the U.S. for its national security, Japan had avoided getting involved in security issues during the Cold War period and exclusively focused on economic affairs. Yet, the Gulf War gave rise to debates as to how to contribute to the peace and stability of the world as a member of international society.
To enable a humanitarian contribution, the Miyazawa government (1991-1993) adopted the Act on Cooperation for United Nations Peacekeeping Operations and Other Operations (hereafter, the PKO law) in 1992. Although the Five Principles adopted simultaneously constrained Japan's participation to a large degree, the law enabled the SDF to participate in peacekeeping operations conducted under the auspices of the UN. Soon after the adoption, Japan for the first time dispatched 600 SDF personnel to the UN Transitional Authority in Cambodia (UNTAC), where they engaged in repairing roads and constructing bridges in "safe" areas. Since then, Japan has been actively involved in peacekeeping missions, such as in East Timor (2002), Haiti (2010) and South Sudan (2012). It also extended its scope of action in 2009 by adopting the Anti-Piracy Measures Law, to enable Japan's naval vessels to protect any ship from pirates off the coast of Somalia, to cooperate with other countries in the framework of the UN.
Japan's pursuit for a larger security role is also illustrated by the decision in 2006 to upgrade peacekeeping missions conducted by the SDF, from incidental to core SDF
 
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activities. This meant that international duties gained roughly equal significance to territorial defense. Furthermore, in 2007, the government established Central Readiness Forces2), with a view to educating and training personnel for international peacekeeping missions, and swiftly dispatching SDF personnel to peacekeeping operations. Although still constrained on its roles and actions, Japan's contribution by military means has been broadening.
Expanding Japan's role in the framework of the alliance
The end of the Cold War and the following demise of the Soviet Union not only changed the international order, but also had an impact on the Japan-U.S. alliance. It seemed that the Japan-U.S. alliance lost the original purpose of its establishment—containment of the Soviet Union—and therefore was drifting apart (Funabashi, 1997). The unstable regional security situation exemplified by the 1993 North Korean missile launch, and its alleged nuclear weapons development program brought security issues to the fore (see Chapter 9), but a "drifting alliance" made the Japanese uneasy that the U.S. might not defend Japan in every contingency. Ongoing trade frictions also added bitterness to the already soured relationships between the two countries.
In addition to the North Korean security threat, China's missile launch towards Taiwan in 1996 further confirmed Asia was not stable. Faced with regional instabilities, Japan saw no other viable option than to broaden its role in cooperation with the U.S.. Japan's renewed perception resulted in a review of the alliance, transforming the alliance whose nature was simply "bilateral", to a more regional alliance for peace and stability in the region. The review of the alliance then led to adoption of the 1997 New Guideline, enlarging Japan's security role under the framework of the alliance (see Chapters 8 and 9). A driving force for the integration of Japan into the U.S. alliance system was a shared sense of crisis that was induced by the regional crises among Japanese policy makers. A changed domestic political landscape also facilitated the process.
Due to the inauguration of the Hosokawa coalition government in 1993, the "55 system" that had long dominated Japan's domestic political scene since the formation of the Liberal Democratic Party (LDP) in 1955, came to an end. Following this domestic turmoil, a new political alignment, the Murayama coalition government
 
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(including the Japan Socialist Party (JSP), the LDP, and the Sakigake Party) was formed in June 1994, which had an enormous impact on Japan's security and foreign policy. Murayama Tomiichi was the head of the JSP, which had long opposed the SDF and the alliance with the U.S. as unconstitutional. But as Prime Minister, Murayama abandoned the party's long standing tenet, and announced that he would support the SDF and the Japan-U.S. security treaty. Given the reality that Japan has totally depended on the U.S. for its national security, Murayama did not have a choice. Hence, political obstacles which had extensively constrained Japan's security policy disappeared. The abandonment of its principles was, however, a serious blow for the JSP, resulting in the loss of its traditional public support. The waning influence of the JSP meant the revival of the LDP, with Hashimoto Ryutaro as Prime Minister forming government in 1996. This resulted in the redefinition of the alliance and the adoption of the Guidelines in 1997.
Japan's move towards a more proactive role in security issues culminated in its support for the U.S.-led "War on Terrorism", when Koizumi Junichiro, an unequivocal nationalist, took power in 2001. Soon after the September 11 attacks, Koizumi showed his willingness to side with the U.S. by swiftly passing special legislation to enable military cooperation with the U.S. (see Chapters 8 and 9). Next, when the U.S. attacked Iraq by invoking the rationale of the "War on Terrorism" in 2003, Koizumi soon responded to U.S. demands by sending the Ground Self Defense Force (GSDF) to Iraq. As Chapter 8 shows, the decision to support the war was controversial because of the lack of an appropriate UN resolution, but in addition to Koizumi's strong leadership, a rough consensus among political parties on Japan's broader international contribution in the security field, allowing for some minor disagreements, enabled the government to smoothly expand its security role.
In 2004, partly responding to new perceived security threats such as terrorism, the government adopted a National Defense Program Guideline (NDPG)3) to develop "effective" forces. What was remarkable was that the 2004 NDPG firstly and explicitly identified China and North Korea as "threats" . This 2004 NDPG was replaced in 2010 by a new NDPG, which features a "Dynamic Defense Force", by substituting the "Basic Defense Force" concept of the former NDPG, to effectively respond to emerging security challenges. The central idea is to respond seamlessly to 
 
situations categorized as "grey zones", namely, in-between situations in peace time and other contingencies. At the backdrop, there were increasing China's research activities in Japan's Exclusive Economic Zones, and intensified tensions between Japan and China near the territorial waters of the Senkaku Islands.
Partly responding to the increasingly unstable regional circumstance, the second Abe coalition government (2013—present), which advocates Japan being a "proactive contributor to peace", implemented a series of institutional changes. To begin with, it set up the National Security Council (NSC) in 2013. The aim of the NSC was to formulate a more effective and consistent national security policy. It then adopted the National Security Strategy, a guiding principle of Japan's security and its national interests and objectives. The government also abandoned the arms trade ban policy announced in 1967 (Three Principles on Arms Exports), and installed a new policy in 2014, so that Japan can export or provide defense equipment to other countries, when such provision contributes to peace and stability. It also adopted the Development Cooperation Charter in 2015, to enable provision of assistance to a military arena for peaceful purposes. Japan's quest for a substantial military role culminated in reform of the Guidelines for Japan-U.S. cooperation in April 2015, after 18 years (see, chapter 9). Subsequently, the Abe government adopted the Legislation for Peace and Security in September 2015 (which came into effect in March 2016), to broaden the SDF's role in a security field. The adoption of the new legislation was divisive, since it enables Japan to exercise the right of collective self-defense, if limitedly, without geographical restriction. Although not only opposition parties but also the public made demonstrations against it throughout Japan, the Abe coalition government pushed through the bill.
Japan's Economic Diplomacy in the post-Cold War Era
The Asian economic crisis
During the Cold War period, a combination of Japanese overseas assistance, trade and investment contributed significantly to economic development throughout Asia. In addition to massive capital inflows, a relocation of Japanese manufacturing companies
 
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to Asia resulted in a new division of labor, with Asia producing low end products. Japan took its place, if not explicitly, as an innovative leader of new products and technologies. It seemed Japanese subcontractors brought to these Asian countries a Japanese model of economic development, which is characterized by a close coordination between the government and the business sectors and governmental interventions that serve to protect targeted infant industries. The World Bank's 1993 report, The East Asian Miracle: Economic Growth and Public Policy, acknowledged the dramatic economic growth of the region and the East Asian strategy of economic development, which differed from the Western approach focusing on the free-market
economy.
While Asia enjoyed miraculous economic growth, a collapse of the Thai baht pegged to the U.S. dollar in July 1997 heralded the start of the Asian economic crisis. The rapidly depreciating Thai baht enlarged not only the trade deficit, but also generated a large outflow of short-term capital, making a bad situation much worse. Investors became fearful that Thailand would be unable to sustain its growing current account deficit. In a domino like effect, foreign investors began to view other Asian countries, such as Indonesia and South Korea, with pessimism. Responding to the deteriorating situation, the International Monetary Fund (IMF) intervened to bail out the Thai economy, but its conditionality imposed on Thailand as a requirement for any loan granted, was drastic.
Japan thought the "one-size-fits-all" IMF conditionality (liberalizing FDI, breaking up conglomerates and dismantling close relationships between the Thai government and the private sector) was harsh. It considered the IMF's prescription to open financial markets to foreigners and to restructure their economic systems ignored the pragmatic economic development of Asian countries, which Japan had long supported through its sizeable ODA program. With ASEAN's agreement, the Hashimoto government therefore proposed a concrete plan in September 1997 to establish an Asian Monetary Fund (AMF), a regional institution with Japan at its center, but which excluded the U.S. The proposal implied a clash of economic norms between the Japanese government, whose hallmark was a close relationship between the government and the private sector, and the IMF, which pursued an American style market model. This attempt was, however, frustrated by explicit U.S. rejection.
CHAPTER 7 Japan's Foreign Policy in the Post-War Period: A Road to Recovery and Major Power Status 139
Unfortunately, the IMF's intervention did not work. Perceiving the IMF's failure to bail out the Asian economies such as Indonesia, South Korea and Thailand, Japan proposed the Miyazawa Initiative in 1998. Its aim was to bilaterally provide funds to the Asian countries in trouble, without imposing strict prior conditions like the IMF required. The proposal was of course hailed by Asian countries which were hit by this
economic turmoil.
By shifting its strategy from a multilateral to a bilateral emphasis, the Ministry of Finance (MOF) successfully implemented the Miyazawa Initiative without drawing U.S. opposition. Poll results conducted by the Japanese government in the Philippines, Thailand, and Indonesia measured the success of this alternative strategy. As mentioned, economic interdependence between Japan and the region grew deeper because Japanese manufacturers heavily invested in Asia. Even after the collapse of the bubble economy in 1990-1991, they continued to invest as a way of offsetting the domestic downturn. Given the deepening interdependence of the region, the Miyazawa Initiative was a plan to benefit not only the Asian countries, but also Japan. By supplementing the role of the IMF, the Initiative successfully bailed out the Asian countries. Despite the failed project of the AMF, Japan's economic assistance greatly contributed to the recovery of the region. Yet, its waning economy increasingly made it difficult for Japan to exercise its economic muscle as it did in the past.
Japan's ailing economy and decline of ODA
During the earlier post-war decades, Japan's provision of aid to Southeast Asia had been largely motivated by economic considerations. Through provision of economic assistance, Japan sought to re-establish good relationships with the Asian countries that were supposedly capable of not only absorbing Japan's exports, but also supplying natural resources to Japan. Its economic assistance during the early development stages was essentially tied, which meant contracts for large scale infrastructure projects would be awarded to Japanese firms. Although this mechanism was abandoned in the early 1970s, it undoubtedly served as a booster for Japan's rapid economic recovery and subsequent growth. Asia was also a beneficiary of Japan's economic assistance and enjoyed rapid economic development. Coupled with outpouring trade and investment to the region, the importance of foreign assistance as a tool for Japan's
 
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economic diplomacy gained political weight even more.
However, the collapse of the bubble economy and the concomitant staggering economy forced the Japanese government to cut the ODA budget. Dealing with such domestic economic problems became a priority. 1997 was the beginning of two consecutive years of negative growth for the Japanese economy, the first time ever in the post-war era. The collapse of financial institutions (Hokkaido Takushoku Bank and Yamaichi Securities) in the same year seemed to symbolize Japan's waning economic power. More concretely, the banking system was in disarray, with "non¬performing loans" (unofficially estimated to be as high as 100 trillion yen) stifling Japanese credit status both domestically and internationally. As a result, for the first time in the post-war era, the government was compelled to decrease the ODA budget by 10.4% in 1998, compared with the previous year. Since 2001, this trend became even more marked. In 2001, Japan slipped from the position of the largest donor, dropping to 5th in the world as of 2011. Lacking enough budgets, it belatedly embarked on improvement of ODA that essentially focused on quantity, rather than quality.
It was the concept of "human security"—a human-centered approach to provide protection to vulnerable people and communities threatened in their survival, livelihood and dignity—that emerged as one of the pillars of Japan's ODA policy. Emphasis on the concept that principally focuses on the security of individuals facilitated to raise the quality and shift the direction of ODA, which had been essentially directed towards improvement of infrastructure. While supporting elimination of landmines and prevention of conflicts as part of its efforts to enhance human security, Japan began to buttress the concept by linking it to its ODA policy. For instance, when Asia was hit hard by the Asian economic crisis, Prime Minister Obuchi Keizo (1998-2000) expressed Japan's intention to aid the weak, to meet food and medical needs, in line with the concept of human security at the Japan-ASEAN Summit in 1998. Furthermore, aiming to promote human security through protection and empowerment of people, Japan and the UN launched the UN Trust Fund for Human Security in 1999, with Japan's financial contribution. Thus, the nature of Japan's ODA, which had exclusively been fixated on project-based assistance in Asia, has gradually changed. Likewise, its geographical orientation which had underlined Asia became more diverse, spreading to Africa. Such a shift is well illustrated by continuous support for the Tokyo International Conference on African Development (TICAD) with the UN Development Programme and the African Union Commission (the 6th meeting was held in 2016).
One may think why Japan provides economic assistance when its economy is staggering with unparalleled fiscal deficits. Undeniably, there are voices demanding further reduction of ODA. As a trading nation without military power, however, Japan depends on the peace and stability of the world, not only for its economic prosperity, but also its survival. Under volatile circumstances, it would not be able to either export or import various products. Without such resources, Japan would soon stumble. It is, therefore, in Japan's interests to provide economic assistance to help economies of other countries grow to ensure stability of the world.
Regional cooperation in the Asia-Pacific region
In Europe in the latter 1980s, the European Community agreed to accelerate the move for regional economic integration, by removing trade barriers. In the Americas, the formation of the North American Free Trade Agreement (NAFTA) as a regional institution was under way. In Asia, Japan enjoyed overwhelming economic strength, but its trade frictions, in particular with the U.S. intensified even more. Under these circumstances, the Ministry of International Trade and Industry (MITI), concerned
 
with the emergence of exclusive trade blocs in Europe and North America, sought to establish a regional framework in the Asia-Pacific region. The aim was to set up a framework to promote free trade and "open regionalism". In 1989, with an Australian and Japanese initiative, Asia-Pacific Economic Cooperation (APEC) was established to reduce tariffs and other trade barriers across the region.
At an early stage, APEC served as an effective vehicle, somewhat achieving its original purposes. However, due to a consensus-based approach and the lack of a strong binding force, trade liberalization did not proceed smoothly as expected. Not only did it fail to reach agreement on trade liberalization (for instance, Early Voluntary Sectoral Liberalization), but it was also unable to play any role at the time of the Asian economic crisis. As a result, it gradually lost its momentum in the late 1990s. In contrast to the waning presence of APEC as a platform for liberalization and regional cooperation, ASEAN+3 (Japan, China and South Korea), which was first held in the middle of the Asian economic crisis, materialized as an effective framework for regional cooperation and confidence building. In 2005, the East Asian Summit, which embraces the members of the ASEAN+3, India, Australia and New Zealand, was also launched as a regional cooperation framework. Disappointment with APEC as a locomotive for liberalization and regional cooperation provided many countries incentives to seek for conclusion of Free Trade Agreements (FTA).
As a trading nation, the maintenance of an open trading system is indispensable for Japan's survival and economic prosperity. The Ministry of Economy, Trade and Indust?) had previously depended on multilateral negotiations through APEC and the World Trade Organization as a vehicle to promote liberalization. However, due to the internationally rising trend for free trade agreements, and the inability of these institutions to forward the issue, Japan has come to look towards both bilateral and multilateral mechanisms. As a start, Japan concluded a free trade agreement with Singapore in 2002 (see Chapter 5) and as a main pillar, has pursued the conclusion of Economic Partnership Agreements (EPAs) that broadly include FDI, financial services, industrial harmonization, telecommunications and human resources.
Although APEC has still been an important forum for trade liberalization and regional cooperation, a move to cultivate free trade agreements became increasingly more popular and central internationally. A prospect of the Trans-Pacific Partnership (TPP, 
 
see Chapter 5), which once gained momentum, is unclear due to US withdrawal from the negotiations. However, open trade mechanisms may function as a booster to revive Japan's economy. It may also function as a framework for further regional integration.
Issues Ahead
Japan had been the second largest economy after the U.S. in the world since 1972. Its outstripping economic strength was once considered by other countries even as a threat. However, its inability to get out of the "lost decade" after the collapse of the bubble economy, and China's dramatic ascendance as an economic power pushed Japan down to the third largest, next to the U.S. and China in 2010. In addition, the unprecedented appreciation of the yen after the outbreak of the 2010 European sovereign debt crisis, the catastrophe caused by the 2011 earthquake and the ensuing meltdown of the Fukushima nuclear power plant, all of which added tremendous strain on Japan's staggering economy. Faced with ever increasing fiscal deficits and a waning economy, the Abe government implemented "Abenomics", which is supported by aggressive monetary policy, flexible fiscal policy, and a growth strategy including structural reform. As a result, it seems the Japanese economy is slowly recovering.
In the security field, Japan faces serious challenges. Even after the disappearance of the animosity between the US and the Soviet Union, Asia has not been stable at all. China's defense expenditure, underpinned by its growing economy, has been dramatically growing. Its claims of territorial sovereignty over uninhabited islands in the South and East China Seas have caused disputes and tensions with neighboring countries. North Korea's possession of nuclear weapons and its repeated missile launches have also posed a grave security concern, not only to Japan but also to the world. Under the unstable security situation in Asia, the Abe government has sought to strengthen the alliance with the US. However, Article 9 of the Constitution limits the scope of Japan's military action. Should Japan revise the Constitution to become a "normal country" by either removing or revising the famous Article 9, and then expand its scope of action in the military field? What ramifications would this have? Chapter 8 will answer these questions.