Japan's Place in the World

Ichiro Fujisaki,
Ambassador of Japan to the United States

  I know I have to say that I am happy to be here.

  Yes, I like to speak. It’s my duty as well. But there is one thing I do not like about coming to Colombia. It’s not because you students are too clever for me. Of course you are. It is because there is good old Professor Curtis. Wonderful gentleman and an old friend. The problem is that he is the person from whom Japanese politicians and media pundits learn Japanese politics. I feel like a student before a thesis interview. I do not mind him giving me a C minus after my presentation. But, Professor, please do not start shaking your head while I am talking. Before I go into my main theme today which is ‘ Japan’s Place in the World’, let me touch upon two focal issues. One is the political situation in Japan. The other is the implication of the present financial crisis on Japan.

  First politics.

  One of the key elements which supported post-war Japanese development was political continuity. With the Cold War long behind, the situation is changing. The new party DPJ claims that they are ready to take over. By appealing to the people tired of reform and also questing for change, they actually seized the upper house just one year ago. Now, we have the so-called twisted situation where the upper house is in the hands on the opposition parties and the lower house in the hands of the ruling parties. We have a divided house. This situation makes decision making extremely difficult. You may say you know this here in the U.S. No. It’s very different from the White House and the Congress in the hands of different parties or the Senate and the House of Representatives ruled by different parties.

  Let me elaborate.

 Unlike the upper house in the UK, the House of Lords, the upper house in Japan, the House of Councillors, has actual power. If the views of the two houses differ, the lower house needs a two thirds vote by its members to pass any law other than budgets or treaties. For budgets and treaties, which are an exception, the lower house decision will prevail after a certain number of Diet session days. The ruling parties of the lower house, the Prime Minister’s party, are often stonewalled in the upper house. This is because the main objective of the opposition is “change in government.” This is possible because, unlike the US President, the Prime Minister does not have a fixed term nor veto power. So if he or his party is stonewalled, he either has to resign or dissolve the lower house. By calling an election, the Prime Minister is asking for the people to show their support.

  However, the upper house cannot be dissolved. This is why successive prime ministers have had to give up. It’s not because they were weak. The system did not let them do the work. Now there is speculation that the new Prime Minister will dissolve the lower house and go for an election sooner or later. This is so, even if he is seen not to be able to maintain the important two-thirds majority. Why? This is because the next election is deemed to be a referendum for the Prime Minister and the opposition leader. The opposition leader is saying that he will resign if he cannot win the next election. Let us see how the Japanese will decide.

  Now the next question is the economy.

 The US economic difficulty is affecting the world economy, including that of Japan. The plunging of the New York stock exchange has spilled over to London, Singapore, Tokyo—you name it. Central banks around the world are cooperating to supply dollars in order to prevent a crunch. However, if there are too many dollars that would create a situation where the dollar is weakened and would affect other currencies. A fundamental solution has to be sought.

 Japan has had 10 years of the so-called “lost decade.” We lost so many years because it was our first experience. It took years to identify what were non-performing loans. In the end, we were able to identify these loans and cut them off from banks and financial institutions. In order to do so, a total of about 500 billion dollars of public money was spent. This includes about 120 billion dollars for capital injection.

 Now Japanese banks and other financial institutions are in healthier condition. Non-performing loans, which consisted of more than 8% of the total assets of banks, are now down to less than 2%. This process took several years, and we have learned an important lesson. In order to restore market confidence, there are 3 fundamental steps:

 1. To identify the exact amount of bad assets and loss

 2. To disclose that information and have people understand the actual situation

 3. To raise capital if necessary, either public or private

 This is a lesson that we can share with the US. Since the emergence of the financial crisis last year, the US has passed bills to address GSEs (government sponsored enterprises), such as Fannie Mae and Freddie Mac. This time the US passed an emergency package to purchase troubled assets worth 700 billion dollars. We admire the cooperation of the US Congress, Federal Reserve, and the Treasury and the efforts made to address the situation. We hope that with this quick response from the US government, the market confidence will be restored quickly.

  Japan is ready to share all of its knowledge and experiences to help improve this situation. This is the instruction Prime Minister Aso has given to the Minister of Finance. Thus, the Bank of Japan and the Federal Reserve Bank of New York have concluded a foreign exchange swap agreement. Japan’s private financial institutions are also working to prevent global turmoil. This is a good example of the close cooperation between Japan and the US and the commitment of our partnership. We hope that together we can overcome the difficulty we are facing today as quickly as possible. We are hoping that the G7 and IMF/World Bank ministerial meeting, which will take place this weekend, will help in this endeavor.