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No. 39 — October 16, 1998

 

Feature Article

UNITED STATES, JAPAN FACE NEW CHALLENGES IN ARMAMENTS COOPERATION by Barbara Wanner

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Summary

The Japanese government's recent decision to enter the next stage in joint research on a U.S.-proposed theater missile defense system provided a much-needed lift to bilateral relations, which have been strained by the fallout from Japan's recession and banking industry problems. As part of a broader dialogue over the past five years on defense industrial cooperation, Washington has sought Tokyo's cooperation to develop and produce a missile defense system capable of detecting and destroying ballistic missiles targeted at Japan. North Korea's late August launch of a three-stage rocket that flew over Japan before falling into the Pacific Ocean sharpened Tokyo's focus on the need for an advanced antimissile system. In addition to addressing mutual security needs, some defense experts contend that joint work on a TMD system has the potential to break new ground in armaments cooperation as well as to generally strengthen alliance coordination.

TMD collaboration is far from a done deal, though. Tokyo has yet to decide formally to participate in the ambitious project. Policymakers there still must grapple with such issues as the project's exorbitant cost, its technical feasibility, its compliance with a 1969 Diet resolution concerning the peaceful use of space and opposition from the People's Republic of China, which argues that the system would destabilize Northeast Asia. In addition, the process of negotiating a memorandum of understanding to determine each side's contributions and gains could become quite protracted. These factors could push back actual TMD production and deployment by at least 10 years.

While not downplaying the significance of a U.S.-Japan missile defense system, industry insiders point to other joint programs either underway or being discussed that would move defense hardware cooperation well beyond simple licensed production or even coproduction. These experts tout in particular a bilateral effort to design and develop upgrade kits for ejection seats used in F-15 and F-16 fighter aircraft. This three-year project is the first time that the United States and Japan have collaborated fully on a military component from the research stage through to development and preproduction engineering and on to manufacturing.

The success of the ejection seat project as a model for future collaboration may hinge, however, on how Tokyo interprets its more than 30-year-old policy banning the export of weaponry and defense technologies. At present, the government would object to U.S. sales of the upgrade kits — or any other component or system with embedded Japanese technology — to third countries. In considering the outlook for transpacific armaments cooperation, experts say that progress will depend in part on Tokyo's willingness to adopt a more liberal approach to weapons-related export controls.

The desire of government and industry in Japan to maintain kokusanka, or autonomy in defense production, persists, as is evidenced by the outpouring of support across the political spectrum for domestic development of an intelligence satellite following the North Korean launch. Nonetheless, most experts question whether Tokyo ultimately will go through with the satellite project or develop other major new systems given their prohibitive costs and industry inefficiencies. Absent major internal or regional upsets, bilateral armaments cooperation probably will continue to expand incrementally, both in terms of the complexity of the projects undertaken and their number.

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Weekly Review

BANK-RESCUE LEGISLATION, RECAPITALIZATION PLAN MOVE QUICKLY THROUGH DIET by Jon Choy

To the relief of investors around the world, the upper house of the Diet approved eight bills October 12 to help get bad loans off the books of domestic banks and to deal with the failure of depository institutions. Besides speeding up the process of securitizing or selling off nonperforming loans and the underlying collateral, the legislation creates a Financial Resuscitation Committee that will have the power to nationalize, liquidate or convert into "bridge banks" banks that fail or that seek government protection.

 

TOKYO PLANS NEW ECONOMIC STIMULUS by Jon Choy

With the legislative framework mainly in place to resolve the banking industry's nonperforming-loan problems, Prime Minister Keizo Obuchi and the ruling Liberal Democratic Party are refocusing their attention on restoring economic growth. Even as the Economic Planning Agency broke precedent in early October and revised the government's outlook for FY 1998 from an expansion of real gross domestic product to a contraction, Mr. Obuchi and his cabinet were busy seeking anodynes for the economy's ills. The premier has ordered his administration to draw up plans to increase public works outlays and to cut taxes, but he and his party are considering less orthodox actions as well.

 

YEN'S SURGE SURPRISES ANALYSTS by Douglas Ostrom

Someone should have warned Japanese officials to be careful what they wished for. Within hours of public statements that a stronger yen would be desirable, the currency staged a historic rally, leading to fears that the surge was far too much of a good thing. In a single day, October 7, the yen's gains erased nearly a year's worth of losses against the dollar as the currency posted its biggest one-day jump in 25 years, closing in New York at ¥120.6=$1.00, up 7.9 percent against the dollar from only 24 hours earlier. This development left analysts shaking their heads, not so much over the shift itself as the extent of the turnabout.

 

OBUCHI ISSUES FORMAL APOLOGY TO SOUTH KOREA by Barbara Wanner

Anxious to usher in a new era of friendlier bilateral relations, Prime Minister Keizo Obuchi and South Korean President Kim Dae Jung signed a joint declaration in Tokyo October 8 that included Japan's strongest apology to date to the South Korean people for 35 years of often brutal colonial rule. Hailed by the Japanese media as a turning point in what often have been chilly postwar relations between Tokyo and Seoul, the communique said that Mr. Obuchi "humbly accepted the historical fact that [Japanese] colonial rule inflicted unbearable pain and damage on the Korean people." The prime minister then expressed "remorseful repentance and a heartfelt apology for the ordeal." The joint declaration noted that Mr. Kim, in turn, "sincerely recognized and appreciated the prime minister's perception of history."

 

OBUCHI, KIM PLEDGE ECONOMIC COOPERATION; JAPAN OFFERS $3 BILLION IN NEW LOANS by Eric Altbach

During his October 7-10 visit to Japan, South Korean President Kim Dae Jung called for an expansion of bilateral economic cooperation and asked his hosts to spur recovery in Asia. Mr. Kim reaffirmed his intention to open South Korea to Japanese culture and manufactured products and to create a favorable environment for foreign investment. In return, he pressed Tokyo to do more to reduce Japan's large trade surpluses with other Asian countries, including South Korea. In a meeting with business leaders, Mr. Kim also urged the private sector to increase investment and technology transfers to South Korea.

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