Text of President Obama’s Speech in Hiroshima, Japan

Seventy-one years ago, on a bright cloudless morning, death fell from the sky and the world was changed. A flash of light and a wall of fire destroyed a city and demonstrated that mankind possessed the means to destroy itself.

Why do we come to this place, to Hiroshima? We come to ponder a terrible force unleashed in a not-so-distant past. We come to mourn the dead, including over 100,000 Japanese men, women and children, thousands of Koreans, a dozen Americans held prisoner.

Their souls speak to us. They ask us to look inward, to take stock of who we are and what we might become.

It is not the fact of war that sets Hiroshima apart. Artifacts tell us that violent conflict appeared with the very first man. Our early ancestors having learned to make blades from flint and spears from wood used these tools not just for hunting but against their own kind. On every continent, the history of civilization is filled with war, whether driven by scarcity of grain or hunger for gold, compelled by nationalist fervor or religious zeal. Empires have risen and fallen. Peoples have been subjugated and liberated. And at each juncture, innocents have suffered, a countless toll, their names forgotten by time.

The world war that reached its brutal end in Hiroshima and Nagasaki was fought among the wealthiest and most powerful of nations. Their civilizations had given the world great cities and magnificent art. Their thinkers had advanced ideas of justice and harmony and truth. And yet the war grew out of the same base instinct for domination or conquest that had caused conflicts among the simplest tribes, an old pattern amplified by new capabilities and without new constraints.

In the span of a few years, some 60 million people would die. Men, women, children, no different than us. Shot, beaten, marched, bombed, jailed, starved, gassed to death. There are many sites around the world that chronicle this war, memorials that tell stories of courage and heroism, graves and empty camps that echo of unspeakable depravity.

Yet in the image of a mushroom cloud that rose into these skies, we are most starkly reminded of humanity’s core contradiction. How the very spark that marks us as a species, our thoughts, our imagination, our language, our toolmaking, our ability to set ourselves apart from nature and bend it to our will — those very things also give us the capacity for unmatched destruction.

How often does material advancement or social innovation blind us to this truth? How easily we learn to justify violence in the name of some higher cause.

Every great religion promises a pathway to love and peace and righteousness, and yet no religion has been spared from believers who have claimed their faith as a license to kill.

Nations arise telling a story that binds people together in sacrifice and cooperation, allowing for remarkable feats. But those same stories have so often been used to oppress and dehumanize those who are different.

Science allows us to communicate across the seas and fly above the clouds, to cure disease and understand the cosmos, but those same discoveries can be turned into ever more efficient killing machines.

The wars of the modern age teach us this truth. Hiroshima teaches this truth. Technological progress without an equivalent progress in human institutions can doom us. The scientific revolution that led to the splitting of an atom requires a moral revolution as well.

That is why we come to this place. We stand here in the middle of this city and force ourselves to imagine the moment the bomb fell. We force ourselves to feel the dread of children confused by what they see. We listen to a silent cry. We remember all the innocents killed across the arc of that terrible war and the wars that came before and the wars that would follow.

Mere words cannot give voice to such suffering. But we have a shared responsibility to look directly into the eye of history and ask what we must do differently to curb such suffering again.

Some day, the voices of the hibakusha will no longer be with us to bear witness. But the memory of the morning of Aug. 6, 1945, must never fade. That memory allows us to fight complacency. It fuels our moral imagination. It allows us to change.

And since that fateful day, we have made choices that give us hope.

The United States and Japan have forged not only an alliance but a friendship that has won far more for our people than we could ever claim through war. The nations of Europe built a union that replaced battlefields with bonds of commerce and democracy. Oppressed people and nations won liberation. An international community established institutions and treaties that work to avoid war and aspire to restrict and roll back and ultimately eliminate the existence of nuclear weapons.

Still, every act of aggression between nations, every act of terror and corruption and cruelty and oppression that we see around the world shows our work is never done. We may not be able to eliminate man’s capacity to do evil, so nations and the alliances that we form must possess the means to defend ourselves. But among those nations like my own that hold nuclear stockpiles, we must have the courage to escape the logic of fear and pursue a world without them.

We may not realize this goal in my lifetime, but persistent effort can roll back the possibility of catastrophe. We can chart a course that leads to the destruction of these stockpiles. We can stop the spread to new nations and secure deadly materials from fanatics.

And yet that is not enough. For we see around the world today how even the crudest rifles and barrel bombs can serve up violence on a terrible scale. We must change our mind-set about war itself. To prevent conflict through diplomacy and strive to end conflicts after they’ve begun. To see our growing interdependence as a cause for peaceful cooperation and not violent competition. To define our nations not by our capacity to destroy but by what we build. And perhaps, above all, we must reimagine our connection to one another as members of one human race.

For this, too, is what makes our species unique. We’re not bound by genetic code to repeat the mistakes of the past. We can learn. We can choose. We can tell our children a different story, one that describes a common humanity, one that makes war less likely and cruelty less easily accepted.

We see these stories in the hibakusha. The woman who forgave a pilot who flew the plane that dropped the atomic bomb because she recognized that what she really hated was war itself. The man who sought out families of Americans killed here because he believed their loss was equal to his own.

My own nation’s story began with simple words: All men are created equal and endowed by our creator with certain unalienable rights including life, liberty and the pursuit of happiness. Realizing that ideal has never been easy, even within our own borders, even among our own citizens. But staying true to that story is worth the effort. It is an ideal to be strived for, an ideal that extends across continents and across oceans. The irreducible worth of every person, the insistence that every life is precious, the radical and necessary notion that we are part of a single human family — that is the story that we all must tell.

That is why we come to Hiroshima. So that we might think of people we love. The first smile from our children in the morning. The gentle touch from a spouse over the kitchen table. The comforting embrace of a parent. We can think of those things and know that those same precious moments took place here, 71 years ago.

Those who died, they are like us. Ordinary people understand this, I think. They do not want more war. They would rather that the wonders of science be focused on improving life and not eliminating it. When the choices made by nations, when the choices made by leaders, reflect this simple wisdom, then the lesson of Hiroshima is done.

The world was forever changed here, but today the children of this city will go through their day in peace. What a precious thing that is. It is worth protecting, and then extending to every child. That is a future we can choose, a future in which Hiroshima and Nagasaki are known not as the dawn of atomic warfare but as the start of our own moral awakening.

The above text is a transcript of President Obama’s speech in Hiroshima, Japan, as recorded by The New York Times.

---New York Times(28.5.27)

Obama Stands With Abe

The U.S. declares solidarity with Japan over the Senkakus.

Full marks to President Obama for removing any ambiguity about whether the U.S. is treaty-bound to defend Japan's Senkaku Islands against Chinese attack. "Our commitment to Japan's security is absolute and Article Five covers all territories under Japan's administration, including the Senkaku Islands," he told a press conference with Prime Minister Shinzo Abe Thursday.

U.S. President Barack Obama Zuma Press

That helps undo the damage from a weak and uncoordinated U.S. response to China's imposition of an air defense zone over the islands last November. China's bellicose rhetoric and brinksmanship around the islands suggest that Beijing doesn't take the possibility of war with the U.S. seriously. Perhaps now it will.

Earlier this month, the U.S. military showed it can saber-rattle too. Marine General John Wissler expressed confidence that his forces in Japan could quickly retake the Senkakus if China invaded. It's clear the general wasn't free-lancing. Defense Secretary Chuck Hagel gave a somewhat more nuanced but equally tough warning in Beijing the same week. That threw the Chinese Foreign Ministry and its mouthpieces into a rage.

Less noticed so far is a comment Mr. Obama made to Japan's Yomiuri newspaper this week: "I commend Prime Minister Abe for his efforts to strengthen Japan's defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense." This puts the U.S. on record as supporting Mr. Abe's coming reinterpretation of the constitution to allow Japanese forces to defend allies. The change will attract opposition from pacifists at home, including Mr. Abe's coalition partners.

Mr. Obama's comments also rebut wishful thinking in China's state media that the U.S. fears re-emerging Japanese militarism. In Beijing's view, Mr. Abe is alarming Asian neighbors who suffered under the Imperial Army in World War II.

China's leaders may believe the anti-Japanese propaganda the Communist Party spouts to justify its rule. But the image of Mr. Obama standing shoulder to shoulder with Mr. Abe should convince them it won't play abroad. The U.S. and others recognize the contributions Japan has made to the peace and prosperity of the region since the war. Japan can do even more by becoming a normal nation that contributes its military share to the democratic alliances that deter the rise of new tyrannies.

It's true that Mr. Abe and other politicians alienate would-be friends with their visits to the Yasukuni Shrine, where war criminals are honored along with other war dead. U.S. officials rebuke this practice by paying their respects at the national cemetery instead. But those who continue to hang a portrait on the Tiananmen Gate of Mao Zedong, the greatest mass murderer of the 20th century, could be more circumspect.

A Chinese spokesman this week referred to the U.S.-Japan alliance as a relic of the Cold War. A few years ago he might have had a point, as the difficulty of relocating Marine bases on Okinawa showed. But Beijing's desire to return to the days when neighboring countries paid tribute to the emperor has brought the alliance to the fore again. Presidential visits are mostly about symbolism, and Mr. Obama's trip sent the needed message of solidarity with a democratic ally.

---Wallstreet jurnal (26.4.25)
Updated April 24, 2014 6:38 p.m. ET

Shinzo Abe's Yasukuni Offense

Japan's whitewashing of history is a strategic liability.

Dec. 26, 2013 12:26 p.m.

Japanese Prime Minister Shinzo Abe opted for controversy Thursday, marking his one-year anniversary in office by visiting central Tokyo's Yasukuni Shrine, which honors 2.5 million Japanese war dead, including Hideki Tojo and 13 other "Class A" war criminals from the Imperial Army's darkest days. Criticism flowed quickly from China, South Korea and the United States—a strange coalition that highlights the enduring delicacy of East Asian politics nearly 70 years after World War II.

A Shinto priest leads Japanese Prime Minister Shinzo Abe as he visits the Yasukuni war shrine in Tokyo on December 26, 2013.


Dressed in formal morning suit and trailed by media on foot and in helicopters, Mr. Abe bowed at the Shinto shrine's entrance and then paid his respects inside. "Some people criticize the visit to Yasukuni as paying homage to war criminals," he said afterward, but he was there "to renew the pledge that Japan must never wage a war again. . . . This is my conviction based on severe remorse for the past." He said he prayed for all war dead, "regardless of nationalities," and added that "It is not my intention at all to hurt the feelings of the Chinese and Korean people."

Easier said than done. Within hours China's Foreign Ministry summoned Tokyo's ambassador and expressed its "strong indignation that Japanese leaders brutally trample the feelings of the Chinese and other Asian peoples victimized in wars." South Korea's culture minister said that Seoul "cannot withhold regret and anger over the visit," while the U.S. Embassy in Tokyo says it is "disappointed that Japan's leadership has taken an action that will exacerbate tensions with Japan's neighbors."

Mr. Abe's visit (the first by a sitting prime minister since 2006) is a gift to Chinese leaders who like to use the supposed specter of Japanese military resurgence as an excuse to expand their own power. Internationally, Beijing is aggressively threatening Japanese control of territory in the East China Sea while protesting Japanese plans to increase defense spending by a tiny amount compared with China's own expenditures. At home, Beijing stokes anti-Japanese nationalism to buttress the legitimacy of its one-party state (which on Thursday celebrated the 120th birthday of Mao Zedong, whose policies killed tens of millions of Chinese).

In days ahead, watch for riots and boycotts against Japanese-owned businesses in China, often with tacit government support. "We fear the deterioration in sentiment towards Japan," warned the Japanese Embassy in Beijing in an email to Japanese nationals in the country on Thursday. "In dealing with Chinese people, pay attention to your behavior and your language."

South Korea is a different case—a fellow liberal democracy that will likely demonstrate its bitterness toward Japan in diplomatic iciness more than lawless rioting. But the consequences of such diplomatic difficulty are enormous when China's assertiveness makes regional cooperation imperative, especially among wealthy U.S. allies with the most potential to deter Chinese hegemony.

This is crucial context to the Yasukuni story. It is troubling enough that some senior Japanese officials persist—due to personal belief, political pandering or both—in whitewashing the truth about chemical weapons, sex slavery and other wartime atrocities. But Japan's offenses against truth become strategic liabilities when they hurt the ability of like-minded states to promote a peaceful, liberal regional order.

Mr. Abe, who is generally clear-eyed about the dangers of an authoritarian China, may bear this in mind when Tokyo inevitably considers its next proposal for a new, secular war memorial untainted by the darker details of Yasukuni.

―――Wall Street Journal, Editorial(25.12.26)

Japanese prime minister’s visit to war memorial was provocative act

CHINA UNITED its neighbors last month when it unilaterally declared an air-defense zone in the East China Sea , covering territory claimed by Japan and South Korea. The act prompted a symbolic show of force by the United States, which dispatched B-52s through the new zone without notice to Beijing. It also set the stage for closer security cooperation between Japan and the United States — and potentially, an improvement in strained relations between Tokyo and Seoul.

Japanese Prime Minister Shinzo Abe took an important and needed step toward that stronger military alliance this week by engineering the approval of a new base for U.S. forces in Okinawa, a long-standing irritant in bilateral relations. But he also complicated the prospects for an effective regional response to China’s belligerence and unnecessarily exacerbated a tense atmosphere in the region by paying the first visit by a Japanese prime minister in seven years to the Yasukuni memorial in Tokyo, where, among others, war criminals from World War II are enshrined. It was a provocative act that is likely to further weaken Mr. Abe’s international standing and Japan’s security.

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Yasukuni is meant to commemorate Japan’s millions of war dead, not just the leaders later convicted of war crimes, and it’s inconceivable that a U.S. president would heed demands by former U.S. enemies for a boycott of Arlington National Cemetery. But the Tokyo memorial has taken on special significance for China, South Korea and other victims of Japanese aggression because of the reluctance of postwar leaders to accept full responsibility for that aggression as well as for crimes, including the enslavement of foreign “comfort women.”

Mr. Abe is particularly notorious for his revisionist take on history, which is often linked to his practical goals of increasing defense spending and revising Japan’s postwar constitution to loosen the strict controls on its armed forces.

Given the behavior of China and North Korea, Mr. Abe has good reason to pursue some of these reforms and to seek closer defense cooperation with the United States. But when he appears to link his policies to nostalgia for Japan’s prewar empire, as he did this week, he undermines his own cause. As the prime minister surely foresaw, the Yasukuni visit provoked outrage in China and South Korea, and it will be milked by nationalists in both countries. China will use it to deflect negative reaction to its defense-zone declaration, while South Korean President Park Geun-hye will be reinforced in her refusal to meet Mr. Abe or take measures to improve relations.

For its part, the Obama administration, despite its pleasure over the Okinawa base development, rightly felt compelled to publicly criticize Mr. Abe. A statement issued by the U.S. Embassy in Tokyo said, “The United States is disappointed that Japan’s leadership has taken an action that will exacerbate tensions with Japan’s neighbors.” Some in Tokyo speculate that Mr. Abe has an interest in those tensions, because they could help him persuade skeptical Japanese to support his military and constitutional reforms. But the prime minister risks isolating his government in the region and making cooperation with the United States more difficult. Japan can ill afford either development.

---Wahington Post(25.12.28)
By Editorial Board, Published: December 28

Risky Nationalism in Japan New York Times editorial(25.12.26)

On Thursday, one year after coming to power, Prime Minister Shinzo Abe visited Yasukuni, the controversial Shinto shrine that honors Japan’s war dead, including war criminals from World War II. China and South Korea swiftly criticized the move, as did the United States. Mr. Abe’s visit will worsen Japan’s already tense relations with China and South Korea, which see the shrine as a symbol of imperial Japan’s wars of aggression and colonialism. The United States Embassy said America was “disappointed that Japan’s leadership has taken an action that will exacerbate tensions with Japan’s neighbors.”


The question is why Mr. Abe decided to visit Yasukuni now. It had been seven years since a Japanese prime minister visited the shrine, a recognition at the highest levels that the site is symbolically repugnant to China and South Korea and that such a visit is detrimental to relations with them. Japan’s relations with those two nations are worse now than during the mid-2000s. Both Chinese and South Korean leaders have refused to meet with Mr. Abe since he became prime minister in 2012 (his first stint as prime minister was 2006-7), in part because of issues over territory in the East China Sea and Korean comfort women, who were forced into sexual slavery by Japanese soldiers during World War II.

Paradoxically, it is Chinese and South Korean pressure on these fronts that has allowed Mr. Abe to think a visit to Yasukuni is a good idea. China’s belligerent moves in the past year over Japanese-administered islets has convinced the Japanese public that there is a Chinese military threat. This issue has given Mr. Abe cover to ignore all the signals from China and to pursue his goal of transforming the Japanese military from one that is strictly for territorial defense to one that can go to war anywhere. The visit to Yasukuni is part of that agenda.

South Korea’s continuing and sharp criticism of Japan’s grudging stance on the comfort women issue and the refusal by President Park Geun-hye to meet Mr. Abe to discuss the issue have sown distrust of South Korea among Japanese citizens, nearly half of whom, polls say, also see South Korea as a military threat. Such views among voters have effectively given Mr. Abe license to act without regard to the reactions in Beijing and Seoul.

The three major national newspapers — Yomiuri, Asahi and Mainichi — have been editorializing against a prime ministerial visit to Yasukuni, especially in the year since Mr. Abe took office. And more important for Mr. Abe and his nationalist supporters, Emperor Akihito has refused to visit Yasukuni, as did Emperor Hirohito before him.

Mr. Abe’s ultimate goal is to rewrite Japan’s pacifist Constitution, written by Americans during the postwar occupation, which restricts the right to go to war. Here, too, Emperor Akihito disapproves, though he has no political power under the Constitution. A few days before Mr. Abe visited Yasukuni, the emperor, in comments marking his 80th birthday, expressed his “deep appreciation” toward those who wrote the post-1945 constitution in order to preserve the “precious values of peace and democracy.”

So, if history is the problem, Chinese and South Korean leaders will find allies in Tokyo, and they should meet Mr. Abe to confront, to negotiate and to resolve these issues. Their refusal to meet will only give Mr. Abe license to do what he wants. Japan’s military adventures are only possible with American support; the United States needs to make it clear that Mr. Abe’s agenda is not in the region’s interest. Surely what is needed in Asia is trust among states, and his actions undermine that trust.
--- New York Times editorial(25.12.26)


Published: December 26, 2013

With Shrine Visit, Leader Asserts Japan’s Track From Pacifism

TOKYO — Shinzo Abe’s past year as prime minister has concentrated chiefly on reviving Japan’s long-ailing economy. Yet in Mr. Abe’s mind, the country’s newfound economic prowess is a means to an end: to build a more powerful, assertive Japan, complete with a full-fledged military, as well as pride in its World War II-era past.

Prime Minister Shinzo Abe’s visit to the Yasukuni Shrine in Tokyo angered China and South Korea. Relations with both nations are already strained.

That larger agenda, which helped cut short Mr. Abe’s first stint in office in 2006-7, has again come to the forefront in recent weeks, culminating in his year-end visit Thursday to the Yasukuni Shrine, which honors the nation’s war dead, including several war criminals who were executed after Japan’s defeat. Past visits by Japanese politicians have angered China and South Korea, both of which suffered greatly under Japan’s empire-building efforts in the 20th century.

The latest visit set off swift rebukes from officials in Beijing and Seoul, who accused Mr. Abe of trying to obscure imperial Japan’s atrocities. And in a rare criticism of a close ally, the new American ambassador to Japan, Caroline Kennedy, also expressed disappointment with Mr. Abe’s government.

Mr. Abe has shown, however, that he is willing to take on big political risks to steer the country away from its postwar pacifism. Last month, he ignored blistering criticism from political opponents as well as the news media and steamrollered through Parliament a law that would tighten government control over state secrets. The law was presented by the government as a mechanism to aid in the sharing of military intelligence with allies, and create an American-style National Security Council.

Mr. Abe has also increased military spending for the first time in a decade, and loosened self-imposed restrictions on exporting weapons. A new defense plan calls for the acquisition of drones and amphibious assault vehicles to prepare for the prospect of a prolonged rivalry with China.

And experts say that next year, Mr. Abe could start taking concrete steps to reinterpret, and ultimately revise, Japan’s 1947 pacifist Constitution, something he has described as a life goal. Proposed changes could allow the country to officially maintain a standing army for the first time since the war, and take on a larger global security role.

“The past year has given Mr. Abe confidence to start flying his own colors,” said Koji Murata, president of Doshisha University in Kyoto. “He is signaling to his supporters that he is a politician who will fight for his convictions.”

Mr. Abe’s push is at once timely and risky. Regional anxiety over Beijing’s own rapid military buildup — and the relative decline of American influence here as Washington remains distracted by the Middle East — has seemed to set the stage for a more confident Japan. And tensions with China and South Korea have made a skeptical public more willing to accept Mr. Abe’s rightist agenda, including the establishment of a more robust military.

But territorial disputes, as well as sharp disagreements over the legacy of the war, also make for a dangerous backdrop to Japan’s rise. Japanese and Chinese patrol boats remain in a tense standoff near uninhabited islands in the East China Sea claimed by both countries, prompting concern among some military analysts that a miscalculation or accident could set off an armed confrontation.

Japan’s relations with South Korea are at rock-bottom because of a separate territorial dispute and disagreements over interpretations of history. Raised hopes for a reconciliation after recent reports of a meeting involving vice ministers from the two countries have been dashed by Mr. Abe’s Yasukuni visit.

“Mr. Abe has poured even more fuel on the fire,” said Tetsuya Takahashi, a professor of philosophy at the University of Tokyo and author of a best-selling book on the Yasukuni Shrine’s role in Japanese politics. “That does not bode well for Japan’s relations in Asia at all.”

Mr. Abe walks a fine line in part because the many facets of his agenda do not sit well together. For one, good relations with China — Tokyo’s largest trading partner — are critical to Japan’s ongoing economic recovery. Experts warn that taking a belligerent stance toward Beijing could deal another blow to Japanese business interests in China, and to Mr. Abe’s economic agenda.

Nor do Mr. Abe’s deeply revisionist views of history — which he inherited from his grandfather Nobusuke Kishi, who was jailed for war crimes before eventually becoming prime minister — inspire confidence that Tokyo can play a bigger security role in Asia.

Washington has generally been keen for Japan to take on a more active military presence in the region to counterbalance China’s growing might. But rather than become a stable ally, Tokyo has become another Asian problem for American officials because of its quarrels with Beijing.

When Secretary of State John Kerry and Defense Secretary Chuck Hagel visited Japan in October, they paid their respects at a different cemetery for Japan’s unnamed war dead, in an apparent effort to nudge Japanese leaders away from visiting Yasukuni.

“In the end, Mr. Abe’s historical views diverge sharply from America’s,” Mr. Takahashi said. “After all, Mr. Abe does not believe in the postwar order that America established.”

Yet thanks to his early focus on the economy, Mr. Abe’s ratings of around 50 percent are high by recent Japanese standards; he faces no credible opposition and no nationwide elections are scheduled until 2016. His ruling Liberal Democratic Party won a landslide victory in parliamentary elections in July, giving it control over both chambers of Parliament, and the power to push through legislation.

Mr. Abe has, at times, worked well with the Americans. For example, he was personally involved in a long-stalled plan to move an American Marine base on the island of Okinawa.

“He began by focusing on economic revival, and cementing his support, which was wise,” said Eiji Yoshida, a professor of law at Kansai University in Osaka. “But he’s been waiting and waiting for the moment he can move on to his true agenda, and that moment is now.”

China has little room to maneuver after last month unilaterally declaring a new air defense zone over the East China Sea islands, raising alarm across the region. In a direct challenge to threats by China that it could take military action against foreign aircraft entering the zone, the United States sent two unarmed B-52 bombers through the airspace, after which China appeared to backpedal from its threats.

“China has already played its card. There’s little room for it to escalate matters over Prime Minister Abe’s visit,” Mr. Murata of Doshisha University said.

Some analysts say that Mr. Abe did his best to minimize the fallout from his Yasukuni visit. He avoided worshiping there during the shrine’s seasonal religious festivals, or during politically or historically significant anniversaries.

Many Japanese conservatives say the visit should not be so politically charged, because it was simply meant to honor the 3.1 million military personnel and civilians who perished in World War II.

Mr. Abe himself made that claim, saying he contemplated on the “preciousness of peace” as he paid his respects at Yasukuni.

Few analysts, however, think that he will now turn his full focus back to the economy. Instead, the new year is likely to mark new steps to change the Constitution.

Mr. Abe has said he would first push to reinterpret the Constitution to allow Japan to take action on behalf of allies under attack. But he has made no secret that he would seek a wide-ranging revision of the document itself, allowing Japan a national army.

“Perhaps the most important lesson of Abe’s visit to Yasukuni is that despite claims that Abe is focused on economic recovery above all else, the prime minister does not believe that his mandate is limited to his economic policies,” said Tobias Harris, an expert on Japanese politics at Teneo Intelligence, an advisory firm.

---By Choe Sang-Hun contributed reporting from Seoul, South Korea. Patrick Zuo contributed research from Beijing, and Makiko Inoue and Hisako Ueno from Tokyo.
---New York Times asiapasific edition(25.12.26)

The Tax Debate Japan Needs (25.8.7)

After winning an impressive mandate in Japan’s Upper House elections last month, Prime Minister Shinzo Abe finds himself embroiled in a tax debate. The immediate question is whether to increase the consumption tax next April, but the broader opportunity is to use the debate as a catalyst for progrowth tax reform.

The Diet last year approved a gradual five-percentage-point rise in the consumption tax, to 10% by 2015. Mr. Abe can delay the first increase to 8% if he deems the economy not healthy enough to absorb the hit.

Some economists and investors view Mr. Abe’s decision as a major test of Tokyo’s commitment to fiscal responsibility, or at least their notion of it. In recent years Tokyo has steadily expanded both public works and social spending well ahead of efforts to pay for them. Under a realistic growth and revenue forecast, the fiscal deficit will still be 3% of GDP in 2023 even if the consumption-tax hike is fully implemented.

Spending restraint would certainly be helpful, but the current tax system is broken. Corporate income tax rates are the second highest in the world behind the U.S. and the top marginal personal income tax rate is set to rise as high as 56%, while government revenue as a share of GDP lags most other developed economies.

These phenomena are related. High marginal tax rates are disincentives to work for an additional yen of income. High rates also create political pressure on Tokyo to offer a bewildering array of exemptions and deductions, which distort economic decisions, generate enormous compliance costs, and reduce revenue.

One priority for Mr. Abe should be to lower marginal rates dramatically, while eliminating exemptions and deductions. This would broaden the tax base, especially on corporations, by eliminating the loopholes that allow up to half of Japanese companies to pay no income tax at all. A low rate, uniformly applied, also would remove the myriad tax incentives on favored industries that stifle entrepreneurship.

Mr. Abe could also revisit the way Tokyo funds local governments. Localities rely heavily on corporate income taxes whose rates are effectively set by Tokyo. This adds 12 percentage points to the corporate income tax bill. This pushes corporate tax rates higher than they otherwise would be, and it leaves local government finances vulnerable to wide swings in corporate income as the economy waxes and wanes. Allowing local governments to shift to other forms of taxation, such as property taxes, and to exercise greater discretion over tax rates would broaden the tax base and perhaps also stimulate beneficial tax competition and experimentation among regions.

Tokyo could also eliminate the effective double taxation of limited liability corporations, in which the firm’s profits are taxed once at the corporate rate and then again when the owners receive dividends from their partnerships. This would bring Japan into line with other developed countries and stimulate the creation of new companies, especially in service industries.

Policy makers could revisit personal income tax provisions that discourage labor mobility and participation, especially for women. A generous income tax deduction for the main breadwinner that applies only if the household’s second earner makes less than around $10,000 per year deters many wives from working. The tax treatment of Japan’s traditional retirement bonuses, which applies lower effective rates in part based on a retiree’s tenure at the company, discourages labor mobility.

So far Mr. Abe has preferred to stick to the tax giveaways and incentives Tokyo has always favored. And skeptics will argue that with a debt well in excess of 200% of GDP and fiscal deficits as far as the eye can see, Tokyo is in no position to lower tax rates. While even the revenue harpies at the OECD recognize the need for pro-growth income-tax reform, they still propose increasing the consumption tax rate to 20% or more.

But Japan has managed to become a fiscal basket case even with high tax rates because those rates limit growth. Tax reform is part of a pro-growth strategy, and growth is the best fiscal strategy. Mr. Abe can’t afford to leave tax reform off his agenda, and neither can Japan.

Abe’s electoral win is great news for Japan (25.7.22)

Japan has the perfect opportunity for further reform,

Japanese voters have given their prime minister and his ambitious economic reform plan a boost as Shinzo Abe’s Liberal Democratic party won a majority in Japan’s upper house elections.

After two decades of lacklustre growth, “Abenomics” – Mr Abe’s plan to jolt Japan’s economy back to life – continues to shake things up. Trillions of yen in fiscal stimulus and the Bank of Japan’s commitment to double the monetary base have paid dividends. Consumer confidence, despite a dip last month, remains close to a six-year high. The Nikkei 225 share average is up more than 60 per cent over the past eight months.


Can the success last? Mr Abe’s strong position suggests it can. His LDP-led coalition already held a supermajority in Japan’s lower house of parliament and now has a working majority in the upper house, giving the prime minister firm control of the legislative agenda. Short of a crisis, Mr Abe need not face elections before 2016.

Such time to press forward with reform is a priceless asset in a country that has seen 15 prime ministers in 20 years.

The most critical tests await. Some in Japan want a more assertive foreign policy and Mr Abe must resist any temptation to boost his popularity with actions that antagonise the country’s neighbours. Japan’s strength will come from the power and dynamism of its economy, its innovations, companies, workers and consumers, not from a more defiant diplomatic posture.

In particular, constructive relations with China are crucial. As we saw during anti-Japanese protests and boycotts there last autumn, the greatest threat that Beijing poses for Japan’s resilience is not around contested islands, but inside China, where Japanese companies are working to build market share, despite the Chinese government’s tendency to allow anti-Japanese anger to flare whenever it is politically useful.

Yet Mr Abe has taken the first steps to build a “mutually beneficial strategic partnership” with China. In June Shotaro Yachi, Mr Abe’s special adviser, secretly visited Beijing. Even more promising, Mr Abe’s government confirmed the meeting a few days later. These were the first publicly acknowledged high-level talks since last year’s war of words over a dispute in the East China Sea. Dialogue matters – and improved relations with Beijing are critical for Japan’s economy and Mr Abe’s reform drive. Some fear that, with elections out of the way, Mr Abe will adopt a more nationalist approach to foreign policy at the expense of the next delicate stages of Abenomics. We see evidence that he will avoid this mistake.

Another promising sign: Mr Abe has overcome domestic resistance to bring Japan into talks on membership in the US-led Trans-Pacific Partnership. Once finalised, the TPP would provide Japanese businesses with enhanced access to other member countries, including the US, Canada, Mexico, Chile, Australia and others. It would strengthen Tokyo’s security ties with Washington. It would also increase foreign pressure that Mr Abe can use to help sell the need for continued reforms to Japan’s economy.

The greatest test for Abenomics will come from the prime minister’s ability to take on Japan’s long-term structural challenges. First, there is the debt problem. Mr Abe has promised to honour his predecessor’s pledge to halve Japan’s primary budget deficit as a percentage of gross domestic product by March 2016. Mr Abe understands that stimulus must come first, but spending cuts cannot wait forever if his government is to keep Japan’s borrowing costs manageable.

Second, Mr Abe has also passed on opportunities to make it easier to fire full-time workers – and, therefore, to hire new ones – which would ease the flow of labour from underperforming industries to more productive economic sectors. He has asked Japanese companies to raise wages, commit to greater domestic investment and keep operations in Japan, but he has not reduced corporate taxes to help them compete more effectively at home and abroad.

Does Mr Abe have the political will to stay the course with this agenda? That remains to be seen. But as this weekend’s election results show, Abenomics has already boosted confidence in a revival of Japan’s potential, a prerequisite for passing the tougher tests to come.

That’s the best news so far.

By Ian Bremmer and David Petraeus

---The Financial Times Limited ,Opinion(2013.7.22)

Abe’s master plan(25.5.18)

Shinzo Abe has a vision of a prosperous and patriotic Japan. The economics looks better than the nationalism

May 18th 2013 From the print edition, The Economist 


WHEN Shinzo Abe resigned after just a year as prime minister, in September 2007, he was derided by voters, broken by chronic illness, and dogged by the ineptitude that has been the bane of so many recent Japanese leaders. Today, not yet five months into his second term, Mr Abe seems to be a new man. He has put Japan on a regime of “Abenomics”, a mix of reflation, government spending and a growth strategy designed to jolt the economy out of the suspended animation that has gripped it for more than two decades. He has supercharged Japan’s once-fearsome bureaucracy to make government vigorous again. And, with his own health revived, he has sketched out a programme of geopolitical rebranding and constitutional change that is meant to return Japan to what Mr Abe thinks is its rightful place as a world power.

Mr Abe is electrifying a nation that had lost faith in its political class. Since he was elected, the stockmarket has risen by 55%. Consumer spending pushed up growth in the first quarter to an annualised 3.5%. Mr Abe has an approval rating of over 70% (compared with around 30% at the end of his first term). His Liberal Democratic Party is poised to triumph in elections for the upper house of the Diet in July. With a majority in both chambers he should be able to pass legislation freely.

Pulling Japan out of its slump is a huge task. After two lost decades, the country’s nominal GDP is the same as in 1991, while the Nikkei, even after the recent surge, is at barely a third of its peak. Japan’s shrinking workforce is burdened by the cost of a growing number of the elderly. Its society has turned inwards and its companies have lost their innovative edge.

Mr Abe is not the first politician to promise to revitalise his country—the land of the rising sun has seen more than its share of false dawns—and the new-model Abe still has everything to prove. Yet if his plans are even half successful, he will surely be counted as a great prime minister.

The man in Japan with a plan

The reason for thinking this time might be different is China. Economic decline took on a new reality in Japan when China elbowed Japan aside in 2010 to become the world’s second-largest economy. As China has gained confidence, it has begun to throw its weight around in its coastal waters and with Japan directly over the disputed Senkaku/Diaoyu islands. Earlier this month China’s official People’s Daily even questioned Japanese sovereignty over Okinawa.

Mr Abe believes that meeting China’s challenge means shaking off the apathy and passivity that have held Japan in thrall for so long. To explain the sheer ambition of his design, his people invoke the Meiji slogan fukoku kyohei: “enrich the country, strengthen the army”. Only a wealthy Japan can afford to defend itself. Only if it can defend itself will it be able to stand up to China—and, equally, avoid becoming a vassal of its chief ally, the United States. Abenomics, with its fiscal stimulus and monetary easing, sounds as if it is an economic doctrine; in reality it is at least as much about national security.

Perhaps that is why Mr Abe has governed with such urgency. Within his first weeks he had announced extra government spending worth ¥10.3 trillion (about $100 billion). He has appointed a new governor of the Bank of Japan who has vowed to pump ever more money into the financial system. In so far as this leads to a weaker yen, it will boost exports. If it banishes the spectre of deflation, it may also boost consumption. But printing money can achieve only so much and, with a gross debt of 240% of GDP, there is a limit to how much new government spending Japan can afford. To change the economy’s long-run potential, therefore, Mr Abe must carry through the third, structural, part of his plan. So far, he has set up five committees charged with instigating deep supply-side reforms. In February he surprised even his supporters by signing Japan up to the Trans-Pacific Partnership, a regional trade agreement that promises to force open protected industries like farming.

Bad blood

Nobody could object to a more prosperous Japan that would be a source of global demand. A patriotic Japan that had converted its “self-defence forces” into a standing army just like any other country’s would add to the security of North-East Asia. And yet those who remember Mr Abe’s first disastrous term in office are left with two worries.

The danger with the economy is that he goes soft, as he did before. Already there are whispers that, if second-quarter growth is poor, he will postpone the first of two consumption-tax increases due in 2014-15 for fear of strangling the recovery. Yet a delay would leave Japan without a medium-term plan for limiting its debt and signal Mr Abe’s unwillingness to face up to tough choices. The fear is that he will bow to the lobbies that resist reform. Agriculture, pharmaceuticals and electricity are only some of the industries that need to be exposed to competition. Mr Abe must not shrink from confronting them, even though that means taking on parts of his own party.

The danger abroad is that he takes too hard a line, confusing national pride with a destructive and backward-looking nationalism. He belongs to a minority that has come to see Japan’s post-war tutelage under America as a humiliation. His supporters insist he has learned that minimising Japan’s wartime guilt is unacceptable. And yet he has already stirred up ill will with China and South Korea by asking whether imperial Japan (for which his grandfather helped run occupied Manchuria) really was an aggressor, and by allowing his deputy to visit the Yasukuni shrine, where high-ranking war criminals are honoured among Japan’s war dead. Besides, Mr Abe also seems to want more than the standing army Japan now needs and deserves. The talk is of an overhaul of the liberal parts of the constitution, unchanged since it was handed down by America in 1947, Mr Abe risks feeding regional rivalries, which could weaken economic growth by threatening trade.

Mr Abe is right to want to awaken Japan. After the upper-house elections, he will have a real chance to do so. The way to restore Japan is to focus on reinvigorating the economy, not to end up in a needless war with China.


Japan’s leader should stick to what is important(25.4.28)

Shinzo Abe must resist dangerous distractions

It was only a matter of time. Until now, Shinzo Abe, Japan’s prime minister, has managed to control the demons of his inner nationalism. Unlike his first term five years ago, this time he has concentrated on the business of reviving Japan’s long-moribund economy. He has avoided opening up fractious questions of history and has refrained from visiting Yasukuni, the shrine hated by Japan’s neighbours because it honours 14 convicted Class-A war criminals as well as 2m ordinary war dead.

Now Mr Abe – riding high with more than a 70 per cent approval rating – has let the mask slip. Last week he sent an offering of a cypress tree branch to Yasukuni along with several members of his cabinet. Worse, he appeared to question whether Japan had been “aggressive” in the second world war, a rightwing hobby horse. He has also opened a campaign to make it easier to amend the constitution.

These actions have provoked a predictable reaction from neighbours. South Korea’s foreign minister cancelled a meeting. Beijing condemned the actions and, coincidentally or not, upped the stakes over the Senkaku/Diaoyu islands by officially designating the disputed islands a “core” Chinese interest. Even the US, Japan’s ally, is annoyed that Mr Abe should have opened up this can of worms.

Mr Abe holds some unpleasant views. Still, his wish to be able to mourn his country’s war dead is not unreasonable. The problem is that Yasukuni, which is irredeemably associated with the nationalist cult of emperor worship, is the wrong place to do it. Mr Abe should use his rightwing credentials to push for the establishment of a less controversial secular memorial.

In general, though, Mr Abe has better things to do with his time. He has set in train the boldest effort in many years to spark the economy into life. His establishment of a 2 per cent inflation target and appointment of a can-do central bank governor has brought a real sense of hope that perhaps Japan can turn things around. The experiment, however, is exceedingly risky. It also requires the goodwill of other countries, which must tolerate a weaker yen as a side-effect of massive monetary expansion.

That cause will hardly be helped if the world loses sympathy. Mr Abe must also follow up with structural reforms to improve economic efficiency. His forays into revisionism are distractions at best, dangerous at worst. He should stick to his knitting.

Copyright The Financial Times Limited 2013. Editorial ;April28,2013

Who Has Abe's Back?(25.2.25)

Obama leaves doubts whether he fully supports Japan.

Japanese Prime Minister Shinzo Abe's visit to Washington last Friday bore fruit in several ways. In public, both sides emphasized the strength of the alliance and the importance of Japan shouldering more responsibility for global peace and prosperity. In private, Mr. Abe discussed with President Barack Obama Japan's plans to participate in the Trans-Pacific Partnership trade negotiations. Perhaps most encouraging was the Prime Minister's optimistic message: I am back and so is Japan.

Mr. Abe has enjoyed considerable success in the first two months of his return to power. With the stock market on a tear and his popularity rating above 70%, he has momentum needed to overcome domestic vested interests and commit to trade liberalization. But he also needs the Obama Administration's support to ensure American interests don't block Japan's entry into TPP. That support is still in question, in part because U.S. automakers and unions don't want to see lower tariffs on Japanese trucks.

The Prime Minister was also focused on shoring up Japan's security, which depends on the U.S. alliance. In public he only obliquely referred to the long-running conflict over a deal to relocate U.S. bases on Okinawa, but he left little doubt that his government will work to clean up the mess left by the Democratic Party of Japan's attempt to renegotiate the plan.

China's challenge over the Senkaku Islands drew the most pointed comments of his visit. In an interview with the Washington Post published as the visit began, and again in a speech to a foreign policy think tank, Mr. Abe stressed that he would not allow Beijing to change the status quo in the East China Sea by force or intimidation. At the same time, the Prime Minister made clear that he is not spoiling for a fight with China. He offered an open hand of cooperation and compromise to Beijing, and he steered clear of controversies over Japan's wartime history.

One disappointment was the tepid U.S. public statements on the Senkakus. According to Japanese media reports, Secretary of State John Kerry reiterated in private to Foreign Minister Fumio Kishida the U.S. treaty commitment to help Japan defend the Senkakus if they come under attack. Mr. Obama failed to mention the islands in his joint public appearance with Mr. Abe, perhaps for fear of offending China.

Yet if the Japanese experience with the Senkakus teaches anything, it's that Beijing likes to ratchet up tension until it receives a strong response. Reticence can be dangerous. As Mr. Abe told the Post, the Chinese Communist Party has a deeply ingrained need to maintain its historical grievances with Japan because its hold on power depends in part on fanning the flames of nationalism.

A Chinese Foreign Ministry spokesman promptly complained that Mr. Abe's comments "defamed China." But Beijing's behavior says otherwise. Chinese government vessels make almost daily incursions into Japanese waters and maneuver aggressively, in one case turning weapons radar on a Japanese ship. Such actions are a clear threat of force, and they risk an accidental confrontation like the collision between a U.S. Navy EP-3 and a Chinese fighter in 2001.

In two months in office, Mr. Abe has already shored up relations with other Asian countries threatened by China. But such ties are no substitute for the engagement of a U.S. President. Let's hope the Obama Administration will remove any doubts about U.S. support for Mr. Abe before the tyranny of events takes over.

---A version of this article appeared February 25, 2013, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: Who Has Abe's Back?.--- Wall street journal

Political climates in Japan and China ratchet up island dispute(1.26,2013)

By Editorial Board,

GIVEN PRESIDENT Obama’s preoccupation with ending what he calls “a decade of war,” it’s hard to believe that the United States could be dragged into a military conflict in the western Pacific over a group of tiny, uninhabited islands claimed by both Japan and China. Probably, it won’t be. Yet thanks to a disturbing confluence of events in those countries and Mr. Obama’s own commitments, the chance that it will happen is rising.

The Senkaku Islands, called the Diaoyu by China, have been under Japanese administration since 1895; for decades, China agreed to leave its claim to them on a back burner. But Japan’s nationalizationin September of three of the islets — undertaken in an attempt to head off an attempt by a nationalist politician to gain hold of them — provided China’s military and Communist leadership with a pretext for rabble-rousing.

In recent weeks Beijing’s provocations have escalated from dispatching surveillance ships to the islands to scrambling warplanes in response to Japan’s. China’s state-controlled media have been whipping up something like war fever, with one paper declaring that a military fight is “more likely” and the country “needs to prepare for the worst.” Disturbingly, this provocative and dangerous campaign has been overseen by the new Communist leadership under Xi Jinping, which has ample motive to divert attention from domestic problems.

The political climate in Tokyo, too, gives cause for concern. The new prime minister, Shinzo Abe, is a nationalist who has packed his cabinet with politicians who share his aims of boosting Japanese defense spending and standing up to China. Japan has refused negotiations over the islands, declaring that there is nothing to discuss.

The Obama administration has been trying to defuse the dispute, dispatching a senior State Department official to Tokyo last week to call for “cooler heads to prevail.” But Secretary of State Hillary Rodham Clinton has also reiterated a position the administration first adopted two years ago: A security treaty binding the United States to defend Japan against attack applies to the islets. That public stance may have been intended to deter China from provoking a crisis, but it also magnifies the stakes for Washington. Should China attempt to seize control of the territory, Mr. Obama could have to choose between backing Japan in a military confrontation and a climb-down that would undermine the “pivot to Asia” he has placed at the center of his foreign policy.

Fortunately, there were signs of a cooling-off this week. Mr. Abe dispatched an emissary to Beijing with a letter for Mr. Xi. The Japanese leader, who has been invited to Washington for a meeting with Mr. Obama next month, should be looking for ways to ease tensions without rewarding Beijing’s belligerence. With U.S. help, it ought to be possible to return the issue of the Senkakus to the back burner, where it belongs.

Published: January 26、2013

 Staring Down the Paper Dragon

China appears ever more willing to use its economic muscle to strategic ends. Japan is the most recent target, as tensions flare over a maritime territorial dispute. Customs processing has been delayed for some Japanese goods, and visas are somewhat less forthcoming. There are concerns about consumer boycotts, especially of Japanese cars. It's reasonable to view such economic aggression with concern. But for now, businesses can relax—a little.

The Japanese might be skeptical of that argument. China is now Japan's largest trading partner, destination for 24% of Japan's exports and home to $6.3 billion in Japanese investment as of 2011, according to Citi Research.

The relationship has evolved over time. A decade ago, Japanese companies' revenue from mainland subsidiaries was attributable in equal measure to sales on the mainland, exports from the China subsidiary back to Japan, and exports to third countries, research firm Capital Economics notes. But now, mainland sales have shot way up so that, in yen terms, they are three times as great as the value of Chinese subsidiaries' re-exports to Japan and six times as great as those subsidiaries' exports to third countries.

Numbers like those suggest that Chinese boycotts could do some serious damage to Japanese companies' bottom lines. Faced with anemic growth in the home market, those companies are ever more dependent on sales elsewhere in the world to provide repatriate-able cash for debt service, R&D and capital investment in Japan. Oh, and dividends, too—Japanese companies with operations in China paid a total of 498 billion yen ($6.4 billion) in dividends in 2010, economists at RBS note.

But time to panic about Beijing pulling the plug? Not exactly. It turns out China puts the "co" in "co-dependency"—a key topographical feature, as it were, of this economic battlefield.

As the China-Japan economic relationship has grown in scale over the past decade, it also has changed dramatically, according to RBS: Whereas Japanese firms used to ship inputs to China simply to exploit cheap manufacturing labor to produce goods for sale elsewhere, nowadays mainland subsidiaries of Japanese manufacturers buy two-thirds of their raw materials in China, and sell three-quarters of the goods they produce to China.

This raises the question of just how "Japanese" a Japanese factory or a Japanese retail outlet is anymore. The factories are staffed by Chinese employees who use Chinese inputs to make shirts, electronics and other products for Chinese consumers—at a more reliable quality standard than the indigenous competition.

Japanese manufacturers are thoroughly integrated into China's supply chains. Roughly one-third of Japan's sales in China are "wholesale trade," according to RBS. That broad category captures company-to-company sales involving components and the like. Another one-quarter are items such as chemicals, electrical machinery, information and communication electronics equipment, iron and steel, and the catch-all "other manufacturing industries."

Many of these goods are inputs or capital goods China needs for its development. This is especially true of high-tech machine parts and the like, which China simply can't manufacture on its own yet.

Oh, and although China remains an important market for Japan, it is hardly the only market. China ranks fourth in the league tables for sales by Japanese subsidiaries, in both manufactured and non-manufactured items. North America and Asia excluding China each account for nearly twice as much sales in yen terms, and Europe places third, according to Capital Economics.

A sustained dent in Japan's China business would be a problem for Japan. But it would be a problem for China, too. And Japan can probably afford a longer wait for China to come to its senses than some in Beijing might think.

Japan, of course, is the world's third-largest economy behind America and China, with a developed-world level of per-capita income and decades of industrialization under its belt. Surely that gives it an advantage in weathering Chinese hissy fits. But it's not the only country with certain advantages.

The Philippines became the object of China's ire this spring, when Manila responded forcefully to Chinese incursions on the Scarborough Shoal. Beijing blocked imports of Philippine bananas, and also discouraged Chinese tourists from visiting the archipelago. It seems like an uneven fight, given the relative sizes involved.

And yet, the Philippine economy grew at an annualized 5.9% in the most recent quarter, a figure which disappointed only due to weak agricultural production—not Chinese reprisals. Some industries have taken a hit from China's actions. But overall, the economy is thriving at the moment because a popular president is enacting a series of reforms that are spurring more foreign investment and domestic consumption. Gee, Beijing sure showed the Philippines.

Meanwhile, the Philippines sits atop significant reserves of the kind of natural resources Beijing craves. And Manila is increasingly eager to tap them. How long, then, could China really afford to ostracize the Philippines?

China can do a lot of damage, both to other economies and to its own, by venting its strategic spleen on foreign companies. But such weight-throwing is never cost-free. That's why mature great powers generally don't do it barring extenuating circumstances. China, which is not a great power in either a military or an economic sense, can ill afford this sort of petulance.
--WallStreet Jarnal Japanese Edition,Oct.1,2012

Mr. Sternberg edits the Business Asia column.

Tokyo's Fiscal Recko

Japan is running out of time to choose how it handles the crunch.

Japanese politics is in turmoil, with the government's approval ratings around 20%. Prime Minister Naoto Kan is trying to force out his rival within the Democratic Party of Japan, Ichiro Ozawa, which might boost his own popularity but would probably cause enough defections to destroy a precarious majority. And he has chosen as his New Year initiative an increase in the consumption tax?a hugely unpopular policy that cost him the upper house election last year and would surely harm the economy.

Japanese Prime Minister Naoto Kan

Looks like it's almost time for another change of leader in Tokyo. Whoever it is, he will have to tackle Japan's problems before unpleasant outcomes are forced upon it. Without cuts to entitlements and tax cuts to promote growth, Tokyo will continue turning into Athens.

Mr. Kan's claims to fiscal rectitude are belied by the draft fiscal 2011 budget released late last month. It calls for another year of near-record addition to a national debt already approaching 200% of GDP. Of the $867 billion of spending, $542 billion will be funded by new bond issues; by contrast, total government revenue amounts to just $501 billion. The budget proposes trimming discretionary spending only marginally, cuts that are overwhelmed by the uncontrolled growth of entitlement programs, which make up 53% of total spending.

Japan is foundering on the promises made by past generations of politicians that are coming due in a rapidly aging society. These include unfunded pensions and medical care for the elderly. And it will only get worse?2012 is expected to be a watershed year when the biggest wave of baby boomers begins to retire.

As two lost decades since the bursting of the bubble show, Japan's consensus-based political system seizes up when it comes to allocating societal losses. In the 1990s, that meant that the government encouraged banks to sit on bad loans rather than undergo the kind of cathartic restructuring the U.S. is now undergoing. That made Japan appear more stable, but without creative destruction the economy was unable to return to growth. This time the leverage is spread across generations, with the lack of growth making the promises to the old a bigger burden, which in turn makes it impossible to pursue pro-growth policies.

Payments on the national debt next year are projected at an already substantial $263 billion, but this assumes a payout of no more than 2% on 10-year bonds. Yields may remain well below this level for now, but in recent auctions signs have emerged that investors are losing their appetite for government bonds. The national debt is forecast to exceed household savings in the next year, as retirees continue to spend down savings. As long as growth remains slow, corporations will probably continue to save. But if Tokyo is forced to look abroad for funding, it will have to pay much higher rates.

That has the potential to blow out the budget in spectacular fashion. With central and local government debt now estimated at over $11 trillion, each one percentage point increase in yields will cost $110 billion. Adding in its unfunded liabilities, Japan has already reached the point at which its debt load will continue to increase regardless of how much it cuts spending or raises taxes.

In other words, Japan is about to run into the late economist Herb Stein's obvious but oft-overlooked law, which states that if something cannot continue it won't. The crunch is coming in one form or another.

If Mr. Kan or his successor cannot convince legislators to put entitlement spending on a sustainable track, despite the inevitable anger of retirees who will see their spending power cut back, all of Japan will have to suffer an even more catastrophic loss as taxes rise to confiscatory rates. That would reveal Mr. Kan's increase in the consumption tax for what it is, rearranging the deck chairs on the Titanic.


Printed in The Wall Street Journal, page 11

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