NO. 37 -- October 3, 1997


Feature Article


One day in early September, a member of the famed Wallenda family of circus performers staged a high-wire act above Washington. Spectators held their breath as he negotiated the thin wire strung from the roof of the Kennedy Center for Performing Arts to a nearby circus tent &emdash; without a safety net.

Half a world away in another capital, an analogous spectacle is unfolding. Tokyo has stated its desire to deregulate Japan's economy significantly. These winds of change have the potential to force hundreds of thousands of workers to find new jobs and thousands of firms to go bankrupt. Not everyone is likely to prove as adept at tightrope walking as Tino Wallenda, who finished the crossing successfully. Government officials acknowledge the need for an economic safety net to catch those unable to make the transition. Nevertheless, few analysts within the bureaucracy or outside have focused on how adequate Japan's safety net might prove to be in the face of what could be an unprecedented challenge.

Japan's safety net of private and public programs to assist the unemployed or people without means of adequate financial support is substantially thinner than those of most other industrialized countries. Such minimal support mechanisms provide a strong incentive for people to cope with economic misfortune on their own. For this reason, foreign observers have praised Japan's system. Other experts note, however, that government actions elsewhere to reduce individual risk &emdash; to plug the holes in the safety net &emdash; have lessened political resistance to economic reform. Unless some of the gaps in Japan's safety net are plugged, there may be less public willingness to embrace economic reform than now appears to be the case.

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Weekly Review

United States, Japan Issue Final Report On Defense Guidelines by Barbara Wanner

The United States and Japan issued new guidelines for bilateral defense cooperation September 23. Designed to deal more effectively with the uncertainties of the post-Cold War security environment in Asia, the report calls for an expanded Japanese role in the transpacific security alliance. The much-anticipated document is the culmination of a 15-month review by American and Japanese defense planners of a 1978 blueprint for U.S.-Japan defense cooperation. It outlines the support that Japan will provide the American military during peacetime as well as during armed attacks against Japan and in military or other emergencies in "areas surrounding Japan."


China, Asean Give Mixed Review To New Defense Guidelines by Eric Altbach

The expanded U.S.-Japan defense cooperation guidelines announced in New York City September 23 (see previous article) drew a concerned response from the People's Republic of China and wary approval from most other countries in Asia. The new guidelines lay out a framework for enhanced security cooperation between Japan and the United States in the case of an armed attack on Japan or in the event of an emergency in "areas surrounding Japan" as well as during peacetime. Both Tokyo and Washington quickly reacted to Beijing's misgivings, calling for increased security consultations and dialogue. The White House proposed three-way talks on security issues that would include Japan and China. Chinese Foreign Minister Qian Qichen said that discussions at the government level would be premature, but he expressed support for a private-level security dialogue and suggested that academics and private citizens could begin the process.


Yaohan Goes Bankrupt by Douglas Ostrom

Retailer Yaohan Japan Corp.'s September 18 filing for bankruptcy, which involved debts of ¥161 billion ($1.6 billion at ¥100=$1.00), was a postwar landmark in several respects. Not only was it the largest involving a Japanese retailer, but it was the first for a retailer listed on the first section of the Tokyo Stock Exchange. The probability that Yaohan would default on its convertible bonds was equally unprecedented for such instruments issued in Japan. Moreover, the bankruptcy raised questions about management style and the role of corporate finance in a deregulated economic environment.


Aviation Talks End Without Agreement; Set To Resume In October by Arthur J. Alexander

In talks in Tokyo that ended September 26, American and Japanese negotiators failed to reach an agreement to expand aviation service between the United States and Japan. However, the two sides did agree to resume their discussions October 20, with working groups scheduled to hammer out the details of the complex issues in coming weeks.


White House Pulls Japan Punches In Super 301 Review by Susan MacKnight

At another time, Japan's surging global and bilateral trade surpluses and the prospect of more jumps to come would have provoked headline-making reactions from one end of Pennsylvania Avenue or the other. For reasons both political and substantive, however, neither the White House nor Capitol Hill has reverted to past form. The rhetoric admittedly is building and becoming more pointed. In recent months President Clinton's senior economic advisers have used an increasing variety of forums to press the government of Prime Minister Ryutaro Hashimoto to deliver on its much-ballyhooed commitment to broad and meaningful economic restructuring and market deregulation and to warn Japan against exporting its way out of the current slump. Nevertheless, the Clinton administration shows no signs of abandoning its generally nonconfrontational trade strategy of the last two years for a more activist approach to corporate America's real or perceived market access problems in Japan.

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