A bimonthly magazine on international affairs, edited in Germany's capital

An Uncomfortable Position


Overshadowed by the rise of China, Japan is facing myriad challenges. It has been forced to seek new alliances and reposition itself on the global stage.

© REUTERS/Hoang Dinh Nam/Pool

It was some 100 years ago that a Japanese doctor, Hakaru Hashimoto, first described a troubling malady afflicting patients. The symptoms included listlessness, fatigue, and bouts of depression. Hashimoto had discovered a widespread autoimmune disorder affecting the thyroid gland. The eponymous condition cannot be cured, only aided by medication. Those suffering from Hashimoto have to adjust to living with diminished energy.

It can be argued that the doctor’s native country is suffering from the very same malaise. For a generation now, the Japanese have been yearning to return to the boom years of the 1970s and 80s, when the world and many Japanese believed their country could achieve the same grandeur China is ascribed today—the ability to conquer the world. The Japanese economy has witnessed a series of ups and downs but has not regained its swagger. Meanwhile the Japanese themselves and indeed the world still seem to see the Japan of today through the lens of the country’s boom days.

It would serve Europe well to look kindly upon Japan in its struggles. Europe and Germany in particular are suffering from many of the same symptoms, and Japan’s efforts to turn things around may provide an important blueprint. In Europe, most eyes are fixed upon China and India today, but among Asian economies, Japan is still the closest to ours.

The components of Japan’s woes are well known by now: stagnant economic growth, an over-dependency on exports, and soaring (public) debt on the one hand; a shrinking society and a growing chasm between rich and poor on the other; politically, a democracy facing real challenges to its governance and caught in a tricky position among neighbors in the region.

No Sick Man of Asia

And yet Japan is no sick man of Asia. Its challenges are not merely the result of failures, but also of important successes. Japan may not be a part of the current boom in Asia, but that is precisely because it was Japan that originally mastered it. And despite its woes, the country fares well in leading international benchmarks.

Japan ranked sixth in the Bloomberg Innovation Index in 2018, for example, while Germany came in fourth and the US in eleventh place. On the Human Development Index, Japan ranked 17th worldwide in 2016 (here, too, Germany landed fourth and France far further down at 21). While social inequality is a growing problem in Japan, it remains rather moderate by global standards. The country is ranked 22nd on the Gini coefficient of inequality register of OECD countries, between Italy and Australia. Germany, meanwhile, is ranked 13th. The United States is near the bottom (34), just ahead of Turkey and behind Russia.

Japan, it would appear, is suffering from first-world problems. Still, the extent to which these problems weigh on the country, and its economy, is unusual. Japan’s GDP in real terms has mostly stagnated over the last 20 years while the country’s public debt soared to 240 percent of GDP in 2017 (it is around 65 percent in Germany).
Meanwhile, Japan’s population is shrinking at record speed. If the current demographic trend continues, the country will plummet from 127 million people today to 87 million by the year 2060. In comparison, Germany will see a steady decline from 82 million to 68 in the same time period.

The fact that these trends affect Japan more than other wealthy countries is also reflected in the well-being of its citizens. In the UN’s annual World Happiness Report, Japan recently placed a lowly 51, alongside Russia, Belize, and Algeria; Germany ranks 16th. The studies show that many Japanese feel their country is not heading in the right direction. There is a lack of clear perspectives and opportunities.

Conflicting Interests

Part of the problem is that Japan finds itself in an uncomfortable position. Trade with China is currently the biggest opportunity for economic growth; at the same time, the rise of China is Tokyo’s biggest foreign policy challenge.

For years, the foreign policy debate in Japan has centered around both the commitment to the United States and integration in the region. At one end of the scale are the moderate pragmatists who advocate regional integration. They demand a more independent foreign policy, especially with an eye to China: They fear that cozying up too close to America will hurt Japanese interests. China is Japan’s biggest trading partner—in fact, the value of bilateral trade exceeds that between Japan and the US by more than half. And that gap is widening.

At the opposite end of the scale are the traditionalists, led by Prime Minister Shinzo Abe; they see a strong alliance with America as the highest priority. They believe Japan must work toward curbing China’s rise to prevent its powerful neighbor from becoming overly dominant—and that will only be possible with the help of Washington.

It would be as if Germany’s biggest trading partner were a booming, surging Russia—a Russia that is on the verge of dominating Europe economically and dethroning America as the most powerful in the world; a Russia where defense spending grows by double digits every year and which, at the same time, starts to make territorial claims on Germany and other European states. It is an imagined parallel, of course, but it helps to understand why Japan is lukewarm toward its budding partnership with China.

When Barack Obama was still US president, Abe knew he was on the safe side. Obama’s “pivot to Asia” was very much founded upon a strong alliance with Japan. Donald Trump has complicated the relationship, however; Abe was the first leader invited to golf with the new US president, but that show of friendship has brought Japan very little benefit so far.

Tools of Trade

The turmoil in the US has left Tokyo with no other choice than to take its fate into its own hands. The Trans-Pacific Partnership (TPP) provided the first example. Negotiated under the Obama administration, the TPP was to become the largest free trade area in the world, bringing together ten other Pacific Rim nations with the US and Japan. China was not invited to the club, which Beijing rightly saw as an attempt to rein in its influence in East and Southeast Asia.

After Trump’s withdrawal from the TPP, Abe’s government pursued a fresh deal with the remaining ten interested parties. The agreement, now known as TPP-11, is due to be signed in March. It is a striking success for Japan, not only because Tokyo led the negotiations. Its goal of creating a serious counterweight to China may not be achievable without the US, but the TPP-11 is an important signal that Japan supports global free trade and is capable of forging its own alliances.

Tokyo’s free trade agreement with the EU, called JEFTA, which enters into force next year, also shows that Japan is an important global player. Together, the participating countries in JEFTA account for around 30 percent of global GDP. Shinzo Abe described the agreement as “the birth of the largest economic zone in the world.” And JEFTA should bring significant benefit to Japan: According to a study by Germany’s Bertelsmann Foundation, it will generate growth of up to 1.6 percent of Japan’s GDP. Germany stands to benefit most of all the EU countries, with growth expected to reach 0.7 percent of GDP. It is not a game changer for any of the participating countries, but it certainly brings significant improvement and sends a signal of strength.

Abe’s Populism

Nevertheless, Japan’s possibilities are more limited than its economic power would suggest at first glance. This holds especially true in its own region. East Asia lacks the solid institutional basis that is taken for granted here in Europe. There is nothing in East Asia that comes close to the EU or NATO.

In all fairness, East Asia does present a unique set of circumstances. The size and proportions of East Asian nations are vastly different. China will never engage in European-style alliances in the region but rather pursue its own agenda; Japan is still so dominant that its neighbors fear integration would lead to domination.

Not to mention that today, more than 70 years after the Second World War, Tokyo still has not clearly distanced itself from its war-time atrocities—and that, too, worries neighbors. Nearly every post-war government in Japan has taken a revisionist stance on the country’s history, especially Shinzo Abe. Donald Trump’s former chief advisor Steve Bannon gave him the dubious praise of being a “Trump before Trump.” In reality, Abe is a far cry from the US president. But his aim to revise Japan’s pacifist constitution, restore pride in the country’s military traditions, and discredit “mainstream media” resemble the right-wing’s platform in the US.

In fact, Abe’s populist overtones have possibly prevented any party from gaining ground to the right of his Liberal Democrats. The populist sentiment he has stoked has served Abe well in cementing power at home. But abroad, he has harmed Japan’s image and deepened his country’s malaise.

Economic Strengths

Still, Japan’s technology and economy could emerge as possible bright spots for the future. Though economic growth has been weak, the country is well-positioned in key industries and has good opportunity to extend its advantage going forward.

For example, Japan regularly spends around 3.5 percent of GDP on research and development (R&D) . This is an extraordinarily high proportion, surpassed only by Israel and South Korea (in Germany, R&D expenditure has reached around 2.8 percent in recent years). Even in absolute terms, R&D spending in Japan—at around $180 billion—is among the best in the world, surpassed only by the US and China. German R&D spending, meanwhile, is around $110 billion a year.

Japan excels in robotics—it is currently the world’s number one manufacturer of industrial robots, meeting around 52 percent of global demand. This is nothing short of spectacular. While there is one major industrial robotics player in Germany (Kuka, which is now a Chinese-owned company), Japan’s Fanuc, Yaskawa, and Kawasaki Heavy are all competing.

Germany may have Siemens, but Japan has Hitachi, NEC, and Toshiba. A similar picture can be found in the chip industry and Japan’s electronics companies, which are growing and investing again after years of crisis.

Japan also has extremely ambitious goals in terms of energy and transport, including the evolution of hydrogen as an energy source. It is promoting this technology far more than any other country, and Shinzo Abe regularly speaks of a “hydrogen society” when talking about the future of Japan energy technology.
The focus on promoting new technology in the public and private sector has placed Japan on a unique path, turning the country into one of the leading drivers of innovation worldwide.

Robots for Guests

That spirit of innovation is too often overshadowed in debates and analysis of Japan. Outsiders struggle to shed the image of a directionless, listless Japan—a bit like Germany in the late years of former Chancellor Helmut Kohl’s leadership. Many are hoping the Olympic Games in 2020, due to be held in Tokyo, will jolt Japan back to life.

Even the best sports extravaganza in the world cannot change Japan’s situation dramatically, but it can certainly have a positive influence on its image. The games could provide a platform for the country to display its prowess in technology. That is why Tokyo has said it will prepare a small army of robots for the Olympics, to impress and woo foreign guests as soon as they arrive at the airport.

There is, for example, Cinnamon the humanoid who can talk to people and give directions; robotic stuffed animals translate into four languages at the airport while other robots help carry travelers’ luggage. Japan’s hydrogen technology, too, will be on display.

It may be entertaining and even useful. It could also serve as reminder to the rest of the world, that Japan is not on a detour. It is busy registering the results of its own success, and Europe would be well advised to pay closer attention.