Embassy of Japan in the United States of America
在米国日本国大使館

A Changing Japan in a Changing World

July 8, 2010

Once upon a time, there was a sage in the Orient who said that the world is not changing as quickly as young people wish, but it is certainly changing more rapidly than a lot of older people wish.
Today, we may be able to say that the world is changing less quickly than many think-tanks may predict, but it is certainly changing more rapidly than a lot of us believe.
By the way, please do not try to google such an O riental sage saying.
It is my creation.
But it sounds rather authentic, doesn’t it?
 
One curious thing is that those who predict changes often make their prediction based on the premise that basic conditions will remain intact.
In other words, no real changes.
Today is a continuation of yesterday. Tomorrow is a continuation of today.

But of course this has often been proved not to be true.
The USSR collapsed. Germany was unified. The EU expanded. As the Cold War ended, China, India and others entered the world market. Extremists and terrorism began to prevail. Climate change has become a real issue.
Many basic conditions have changed.
Remember “Japan as No.1”?
It was a product of such thinking that the basic conditions would continue.
It stated that Japan would become the No.1 country based on the premise that Japan would be able to continue to grow just as it did in the 70’s and 80’s.
This did not happen because basic conditions changed. 
 
Today, the challenges facing Japan are numerous.
These challenges are sometimes changes.
Sometimes they are not changes.
They may look different, but in reality the essence is the same.
There are changes which must be coped with by making policy changes.
There are also changes which must be met by holding on to original policies.
Monolithic response is not what is required.
I will address three areas, namely, security situations, economic situations, and social situations.
Let us see where we need policy changes and where we do not need them.
 
Security Situations
 
People often say that even after the end of the Cold War, uncertainty persists in the Asia-Pacific region.
This is an understatement.
Potential Soviet threat has decreased, but the situation now is more complicated than before.
Countries like North Korea no longer listen to even their aid donors.
They intimidate their neighbors.
Sometimes they even attack vessels.
Other than these obvious ones, the use of the word “threat” has disappeared.
 
Recent events such as the North Korean torpedo attack on the ROK ship Cheonan reminded us that this area is still far from peaceful.
This cliché is again an understatement.
As a matter of fact, we all know that it was only last year that North Korea conducted its second nuclear test and launched the long-range Taeopodong missile.
We have never had calm and restful times with this neighbor.

The Chinese military helicopters’ proximate flight towards our Self Defense Force escort ships in April has caused concern among Japanese as well.
Moreover, China’s military build up at the rate of 15.7% average annually over 20 years has kept the attention of Japanese whose military defense spending has increased only 0.9 % annually during the same period.  
 
Japan logically has three choices.
One, increase its defense spending and equip itself with weapons with deterrence capability. 
Two, depend on the goodwill of neighboring countries and believe that nothing bad will happen.
Three, continue with its security arrangements with the US and rely on US forces to deter potential adversaries.
According to any poll, Japanese people are in favor of the third option.
 
This is because Japanese people still have memories of WWII and do not want to have offensive capabilities of their own..
This is because Japanese people know that rebuilding Japan’s military would bring new tensions to the region.
This is because the US is seen as a country with principles, and it is seen as the only credible ally with the capabilities and will to defend Japan.

Japanese people trust America.
We need the US presence and are grateful to the service of the men and women in uniform of this country.
Their sacrifices are appreciated.
 
However, this of course is based on premises.
One, we have to continue to search how US bases can be accepted within local communities.
Accidents or incidents cannot be accepted.
All those stationed in foreign countries should conduct their behavior as good guests.
The situation regarding Okinawa where 75% of US bases are concentrated requires particular attention.
The Futenma marine base in southern Okinawa must be moved to a less inhabited area in the north, but other impacts have to be reduced as well.
This was agreed by the Ministers of the two countries, and the Japanese Cabinet endorsed it on May 28.
Prime Minister Kan has stated that he will work on the basis of this May agreement as well as ask the US to cooperate on burden reduction. 
There had been pundits who claimed that this base issue is not of primary importance.
I do not agree with such a view.
As it regards the treaty obligation, it cannot be a secondary issue.
Moreover, the top leaders of the two countries have closely been involved.
To have stated that this was not a primary issue, I think was misleading.
The base issues are always very delicate issues.
In dealing with delicate issues, we have very candidly discussed between the two governments but did not go public before we reached an agreement.
That was just like in any business negotiations.
I see no reason to change such manner of negotiations.

Two, US deterrence must be credible.
Strong statements by the leaders are important and welcomed.
But what is most important is the position taken when issues arise.
From this viewpoint, the position taken by the US and Japan is very firm and clear regarding the issue of the ROK ship Cheonan.
Please note that all the Asian countries are holding their breath and watching the US attitude.
This is seen as a model case.
We will continue to cooperate with the US and the ROK regarding this issue.
We will also cooperate with the US on issues such as Iran.
We cannot permit Iran to possess nuclear weapons.
This is the watershed period.
 
I am happy to note that in Toronto, where I sat in, the two leaders agreed that the Japan-US alliance remains the cornerstone of peace and stability in the Asia-Pacific region.

In a nutshell, our fundamental security policies have to be maintained, even as we respond to new challenges such as non-proliferation and terrorism.
It is premature to conduct a fundamental review.
 
Economic Situations
 
The world is changing rapidly in economic terms.
In 1990, the aggregated share of China and India in world GDP was 3%, and the CO2 emissions of the two countries were 13.5%.
In 2008, the GDP was 9%, and the CO2 figure was 25.4%.
Emerging countries are truly growing.

Their growth is expected to continue provided that they will continue to have access to the world market and resources around the world and to be able to maintain social stability in the country.
I will not go into these here.
Today, let me concentrate on Japan.
I think by talking about our experiences itself will help sketch some of the issues that may arise.

First, Japan had to meet establishments and adapt to the international community as the only nouveau riche.
Not as the champion of emerging countries as some others do now.
For example, Japan who was accumulating trade surpluses received pressure to appreciate the yen.
Japanese yen, which used to be 360 yen per dollar, was appreciated to 308 yen in the Smithsonian agreement in 1971.
In the Plaza accord in 1985, the yen was again appreciated from around 240 yen to around 140 yen.
Thus, top Japanese companies changed their strategies from just exporting to investment.
This was the right decision and it paid off.
Currently, Japan is the second largest investor to this country only after the UK.

Two, others coming up the ladder continued.
Japanese companies were caught up by ROK, China and others who had even lower wages.
This is simply inevitable.

Three, accumulation of wealth can cause inflation of assets and eventually a bubble.
The land price bubble exploded in Japan in the early 90’s, leaving financial institutions with non-performing loans.
We experienced the so-called lost decade.

Around the turn of the century, the Japanese government introduced deregulation and reforms to meet the challenges of globalism.
It took some time but the economy was beginning to pick up again.
But the political implication was significant.
If you deregulate, there certainly will be winners and losers.
And frustrated left-behinds always outnumber winners.
This, together with the Lehman shock of 2008, has brought huge political change.
It gave a landslide victory to a party that has never been in power.
Come to think of it, this tendency to alter the leadership has been the trend around the world in recent years.
The Republic of Korea, Turkey, Israel, the US, the UK, etc.
It was awfully difficult for the governing party to survive in this circumstance.
 
The problem facing Japan in the economic field is similar to many other countries.
The first is the balance between economic growth and a sound fiscal situation.
In other words, how to boost the economy while searching for an exit policy or mid- and long-term fiscal soundness.
In Japan, the government debt is so large that it is approaching 200% of GDP.
In the FY2010 budget, government tax revenue is less than half of government spending.
Most of the gap is filled by issuing bonds.
More than 95% of Japanese government bonds are consumed in Japan.
Thus it is borrowing from future generations and not from foreign governments as in the case of this country.
But such a situation cannot be continued.
The new Prime Minister Mr. Kan, having been Finance Minister himself, says he is determined to correct this situation.
The government of Japan is aiming to cut primary balance deficit by half by 2015.
The Prime Minister is stating that by meeting challenges such as emerging Asian countries, social welfare, environmental issues, and human resources development, we can create new jobs and new growth. He thinks that this strategy will lead to cohesive relations between economy, public finance, and social welfare.
Cutting unnecessary budget is also getting wide support in Japan.
People say let us cut unnecessary spending.
It is imperative.
At the same time, we have to keep in mind that “unnecessary” is not synonymous with “no quick tangible effect”.
There are important, significant budget allowances without immediate tangible effects.
Cultural exchanges like the JET P rogram, cherry blossom festivals, and long-term projects are some of these examples.
We hope this notion will prevail in the years to come.

 
The second issue is how to compete with others in the advanced technology area.
18% of Japan’s manufacture is related to the auto industry.
17% is electrics and electronics.
These areas will continue to be the main pillars.
Japanese industries have a lead in specific fields.
Japanese companies have a 70% share in the world’s semi-conductor production.
They have a 60% share in LCD production.
As for machine tool production, Japan has been No.1 in the world for 27 years.
I think a country must always be engaged in production to have these edges.
We have to keep searching for new and more advanced areas.
I think there are many areas where Japan and the US can cooperate.
 
Energy Efficiency
We have been the world’s leader in energy efficiency for more than two decades.
Last year, Prime Minister Hatoyama and President Obama agreed to cooperate in the area of clean energy technologies.

There is a seminar scheduled in order to promote cooperation between Okinawa and Hawaii.
This is a promising field.
 
Nuclear Power Plant
President Obama is restarting the building of nuclear power plants.
Although the No.1 country in terms of operating sites, the US, after the Three Mile Island incident, has made no new plants.
Meanwhile, Japan has made 29 plants, and this figure is the number one in the world.
Top Japanese companies are currently cooperating with US counterparts.
 
High Speed Railway
This also is an area initiated by President Obama.
Japan has already organized two seminars.
One in January in DC, attended by the Vice Minister, and the other week one in Chicago attended by the Minister himself.
In that seminar, I stated that the Japanese high speed railway has 6 E’s .
E for experience in safety. 46 years of operation without passenger casualty.
E for exactness. Average delay time per year is less than one minute.
E for economic efficiency.
E for environmental friendliness.
E for employment creation. Japanese railway car companies already have half a dozen manufacturing factories in this country.
E for earthquake proof. As soon as the train detects a large seismic wave, it automatically stops.
I say no other countries’ trains have all these features. Please just remember the 6 E’s.

In economic areas, as we have seen, changes are needed to improve our fiscal and financial situation.
At the same time, there are areas we have to maintain the lead we have.
That is to fortify our technological strength to lead the world in energy and other areas.
 
Social Situations
 
Japanese society is facing big challenges.
The biggest challenges facing Japan are the declining population and aging society.
Let me elaborate.
One, the fertility rate is 1.37 while 2.08 is needed to maintain the population.
The fertility rate for the US is 2.12.
Two, Japan has the longest average life expectancy in the world.
Male 79 years, female 86 years—each 4-6 years longer than in this country.
Therefore, people aged 65 and older already make up 22% of the population whereas in the US it is 13%.
Each person aged 65 and over is supported by 3 adults under 64 years old.
In comparison, in the US, each elderly person is supported by 4.7 adults.

Japan’s healthcare  and welfare systems are comparatively in good condition.
We have universal healthcare.
The cost of which is 8% to GDP compared to 16% in this country.

We have a nationwide long-term care insurance system.
Seniors can receive services such as in-home services, day care, short-term stay, and institutional services with 10% copayments.  50% of the remaining expenditure is furnished by insurance premiums paid by those 40 and older and 50% through public subsidies.

But these require review because of the above challenges regarding birthrate and longevity of life.

If the present trend continues, by 2055, our population, which is 128 million, will go down to 90 million, and those 65 and older will make up 40% of the total population.
By that time, each elderly person will be supported by 1.2 adults. Even though we have repeatedly reformed our social security system, social security benefits are outpacing the growth of national income.
It’s now about 24% of the national income.
As we have huge government debt as I stated above, it is becoming increasingly difficult to sustain the social security system from a fiscal point of view.

This is why the new Prime Minister, Mr. Kan, is saying he has to realize a strong economy, robust public finances, and a strong social security system cohesively.
He claims that by squarely meeting new challenges, such as the ones I have just mentioned, we can create employment and give a crucial boost to economic growth.
By creating a situation  where people feel secure about the future, they will feel more relaxed about spending.
This in turn will stimulate the economy.
 
Last month, our Cabinet decided on the New Growth Strategy.
Among the seven strategic areas is the “Health Power Strategy through Life Innovation,” which takes advantage of the aging society, aiming to create new markets of around 500 billion dollars and 2.84 million jobs for health care, long-term care, and health related services.
We are also trying to reverse the declining birthrate trend.
A new child allowance benefit, which is about 130 dollars per month for those under 15 years old regardless of family income, is just being started.
This is one of the measures that the new administration is taking in order to create a society where people can give birth and raise children without concern.
 
In the area of social security, we definitely need changes.
We cannot continue what we have been doing.
Then there is education.
In order to cope with the changing world we have to develop human resources.
The new government is making high school education free of charge in principle.
As English is becoming the international language, I hope we will strengthen our English language education.
My plan is to send all young Japanese teachers of English from the middle school level to the US for language training for a year or two.
There will be one thousand a year altogether.
The beneficiaries will be students as well as teachers.

Conclusion

These are a part of what I am thinking about the changes in the world and the changes in Japan.
As I have stated there must be policy changes as well as present policy fortification.
Let us not be swept by slogans.
Let us squarely face the situation.
I thank you very much.