Rising yen, setting sun

Resurgent Japan needed for Asia's balanced rise

Worrying news about economic growth from the United States sent the Japanese yen up last week, raising new concerns about the prospects for Japan’s economic revival. Japan’s macroeconomic indicators have again become a source of concern just the week when a stand-off between Japan and China raised political temperatures in East Asia. Japan’s decision to release the arrested Chinese occupants of a fishing boat, coming days after China retaliated with several measures, including the delayed export of rare earths to Japan, and the visible power play involving Beijing, Tokyo and Washington DC once again draw attention to China’s new assertiveness and to increased concerns about China’s rise among most of its neighbours. The sooner China and Japan tone down their rhetoric and cool down temperatures the better for all concerned. India, which has itself been at the receiving end of China’s “new assertiveness”, has a huge stake in the evolving drama in East Asia. It would appear that China’s relatively robust recovery from the Great Recession, the new nervousness and lack of direction in Washington DC, and the continuing political impasse in Tokyo have emboldened Beijing to act tough with many of its East Asian neighbours.

For its part, Japan must get its act together. The mood of defeatism and decline that seems to have enveloped Japan’s intellectual and political leadership, and the growing nervousness of its business and financial leadership give the impression that Japan no longer thinks of itself as the Land of the Rising Sun, but is paralysed by the fear that it may be the Land of a Setting Sun. That would be a pity. China’s recent overtaking of Japan as the world’s second-largest economy may have rattled nerves in Tokyo, but Japan must re-energise itself and continue to be a source of stability in Asia. Asia needs an economically dynamic and politically engaged Japan. If the 21st century has to be an Asian century, then it is not just China and India that need to rise without hurting each other, but Japan too must become more dynamic. Perhaps the time has come for a China-India-Japan trilateral dialogue that can help ensure Asia’s balanced rise.

India, for its part, needs Japanese investment, Japanese markets and Japanese cooperation in the realm of high technology development, energy and defence technology development and maritime security. India and Japan, both aspirants for membership of the UN Security Council, have a mutual stake in each other’s economic prosperity. Japan has wasted far too much time “studying” India, lecturing and criticising India and has only recently chosen to partner India. While India is now the largest recipient of Japanese overseas development assistance, it should also become the major destination for Japanese investment. This will help Japan sustain its own growth. It will also help Japanese investors diversify their portfolio and reduce their dependence on China — a dependence with obvious disadvantages as last week’s events have shown. Prime Minister Manmohan Singh’s visit to Japan next month should help further strengthen an evolving economic and strategic partnership between the two Asian nations.