Japan Defence and Security Report Q1 2009

On December 3 2008, Japan joined around 100 other countries (notable exceptions being the US, China and Russia) in signing a ground-breaking treaty banning stockpiling and use of cluster bombs. Foreign Minister Hirofumi Nakasone committed some US$7mn to clean-up projects in areas affected by cluster bombs.

For historical reasons, US military forces remain a commanding presence in Japan. In Q408, Japanese and US officials met with leaders from fourteen local government prefectures hosting US military services. The meeting encouraged the governments of both countries to work together to address the environmental issues that stem from base hosting. More meetings in a similar vein are slated to be held in the future, although they will not supplant the well-established Japan-US joint commission that oversees the Status of Forces Agreement (SFA). Meanwhile, in November 2008, US Ambassador Thomas Schieffer met Defence Minister Yasukazu Hamada to discuss the realignment of US military facilities in Japan scheduled for completion by 2014. Schieffer expressed his hope that Japan would bolster its budgetary contribution to ensure that the deadline will be met. The project involves the relocation of the US Marine Corps’ Futenma Air Station to the Okinawa Prefecture.

In a blow to the Japanese missile defence shield program, in November 2008 defence ministry officials announced that a Maritime Self-Defence Force destroyer had failed to shoot down a mock ballistic missile in space. Since the August 1998 launch of a ballistic missile by North Korea, Japan has been particularly keen to develop an effective missile defence shield with the assistance of the US.

The last year has seen Japan engage in a number of bilateral and multilateral forums with its Asia Pacific neighbours. Q408 saw Japan and South Korea hold talks in Fukuoka, Japan to discuss regional security issues and defence policies. The eighth such dialogue since 1998, the meeting was a prologue to a trilateral summit between Japan, South Korea and China held on December 13 2008. Meanwhile, Japan and India have signed a declaration on security co-operation to establish a partnership that will be ‘an essential pillar for the future architecture of the region,’ according to Indian Prime Minister Manmohan Singh. The partnership paves the way for joint exercises, disaster management and counter-terrorism, and is only the third such agreement to be signed by Japan – the others being with Australia and the US.

Turning to domestic politics, we note that Japan’s new prime minister, Taro Aso, will have limited powers to reform the economy. The key to reviving the economy over the long term ultimately rests in changing the political system. In the absence of a massive shakeup of the political scene, we see little reason to expect significant economic reform.

Japan’s economy entered Q408 in its weakest state in seven years, and this has already forced Prime Minister Aso to prioritise economic growth over structural reform. Real GDP shrank by a downwardly revised 3.0% annualised rate in Q208, compared with a preliminary reading of 2.4%. On a quarter-on- quarter (q-o-q) basis the economy contracted by 0.8%, with external demand down 0.1 percentage points (pps) and domestic demand 0.7pps. If this decline persists throughout Q408, then Japan will be in technical recession – at least by the most common acceptance of the term – for the first time since late 2001. Even if Japan avoids a technical recession, it is clear that the country will experience a period of below-trend growth in 2008-2009.