Japan's New Reform-Minded Leader: Implications for U.S.-JapanRelations

Report Asia

Japan's New Reform-Minded Leader: Implications for U.S.-JapanRelations

June 7, 2001 15 min read
Balbina Hwang
Balbina Hwang
Former Senior Policy Analyst
Balbina is a former Senior Policy Analyst

On April 26, maverick politician Junichiro Koizumi rode a wave of popular discontent to become Japan's new prime minister, initiating what may become a period of lasting economic and political reform of a sort not seen since the 1873 revolution known as the Meiji Restoration. That year, a group of young samurai embarked on the revolutionary reform of the ruling government, the Tokugawa Shogunate, which had ossified under a century of stagnation. The reformers succeeded in creating an economic revolution by enlivening the long-dormant economic spirit of the Japanese people, melding their traditional values of hard work, enterprise, and social cohesion with Western entrepreneurial institutions and practices.

Since the 1990s, Japan's economy has once again fallen into stagnation. However, the reforms the new prime minister advocates to purge Japan of years of misguided policies and inefficient business practices are likely to meet with strong opposition from vested economic and political interests. Nevertheless, as the popular support for Koizumi's leadership shows, the people of this important U.S. ally seem to want to be ready for reform. Because Japan is the basis of economic stability in the Asia-Pacific region and the key to future growth there, the United States should encourage this desire for economic and political restructuring.

Therefore, at the upcoming summit with Prime Minister Koizumi in Washington later this month, President George Bush should applaud the new Japanese administration's bold efforts to revitalize the struggling Japanese economy. The President should also direct his Administration to find ways to provide Koizumi with the political support necessary to implement the reforms he seeks, to stabilize Japan's economy, and to strengthen alliance cooperation with the United States.


For most of the past decade, the Japanese economy has suffered under the Keynesian economic policies of the ruling Liberal Democratic Party (LDP), which led to economic growth rates that hovered around 1 percent throughout this period.1 As a consequence of continued deficit spending, Japan's federal budget as a percentage of output is the largest in the industrialized world. Public debt at the beginning of 2001 reached 130 percent of gross domestic product (GDP), totaling more than $5.6 trillion a dangerous situation for a stagnant economy.2 Moreover, the economy is now experiencing a dangerous spiral of deflation.

As part of his reform agenda, Koizumi, who is also the political head of the LDP, has pledged to rein in spending and to perform a comprehensive review of expenditures, "leaving no sacred areas exempt from these reforms."3 During a speech before the Japanese Diet on May 7, 2001, the new prime minister indicated a desire to "actively promote decentralization" under the principle that anything that the private sector can accomplish should not be attempted by government, and anything that can be delegated to local government should be so delegated.4 He also announced plans both to restructure the corporate tax system in order to stimulate greater participation by individual investors and to overhaul capital markets, prioritizing the disposal of non-performing loans.5 Non-performing loans by banks and the private sector are perhaps the greatest threat to revival of the Japanese economy. Since 1997, these non-performing loans as a percentage of total loans have actually increased from 4 percent to 6 percent of all loans--roughly $530 billion.6

Koizumi's first step toward implementing his reform agenda was to choose cabinet members who support it. His Economic Minister, for example, is Heizo Takenaka, who has long preached the necessity of structural reforms. Takenaka further advocates policies that may increase deflationary pressure in the short run and lead to some negative growth, but these policies are necessary if Japan wants to avert continual economic stagnation and decline.

Achieving Political Support

Implementing such policies, however, will require political support. If Koizumi moves too fast or too slow with his reforms, he risks his very political survival. In the next parliamentary elections in July, the LDP--which controls 48 percent of the Japanese Diet7 --may fare poorly, and if the election results do not favor the LDP, its factions may seek Koizumi's ouster. Thus, Koizumi's greatest challenge is to find some way to work with the factional bosses of the LDP, many of whom see his reforms as threats to the party's longstanding reliance on support from unproductive industries like the postal service and the construction industry, as well as the "mom-and-pop" retail sector--politically potent forces that employ large numbers of people and make generous political contributions.

This means that to implement the much-needed economic reforms, Koizumi must break apart the political process itself, ending decades of faction-driven politics that allowed the LDP to enjoy near-total domination of domestic policy for more than 46 years and contributed to the nation's economic inertia. One way Koizumi could override the political objections of the factions and take advantage of the high level of public support for instituting dramatic reforms would be by promoting government dialogue with the people to educate them in the reasons why short-term sacrifices will reap long-term rewards.

The Issue of Constitutional Reform

In addition to reforming Japan's economic and political systems, Koizumi is focusing attention on the country's sacrosanct Constitution. Japan's self-defense force boasts one of the world's largest military budgets, but it is limited to defense activities by Article 9 of the Constitution, which states that "the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as a means of settling international disputes," and that "land, sea and air forces, as well as other war potential" to accomplish such aims "will never be maintained."8

While Japan's Constitution does not explicitly prohibit collective self-defense actions, non-involvement in such activities has been the accepted interpretation of Article 9 since its adoption in 1947. However, this interpretation poses obstacles to Japan's provision of logistical support for such activities as peacekeeping operations and maneuvers that involve joint exercises with the United States, Japan's only treaty ally. For example, if a U.S. warship conducting exercises in the Sea of Japan were attacked by enemy fire, the Japanese defense forces would be prohibited, under the current interpretation of Article 9, from coming to its aid; if the Japanese ship were attacked by enemy fire, however, the United States would be obligated under its bilateral treaty alliance to assist the Japanese. Thus, the so-called Armitage-Nye Report issued in October 2000 by the Institute for National Strategic Studies argues that "Japan's prohibition against collective self-defense is a constraint on alliance cooperation."9

Koizumi is intent on revising or at least reinterpreting Japan's limited role in international efforts under the Constitution. Indeed, many inside and outside Japan believe that for the nation to be a more responsible actor in the international community, it must do more than just send money from a safe distance. It must, for example, play a more active part in international peacekeeping operations.

Koizumi's cabinet selections also reflect his commitment to crafting a new role for Japan's armed forces. For example, Gen Nakatani, the Director General of Japan's Defense Agency (JDA), advocates reinforcing the country's defense capabilities, including participating in collective defense actions. He believes this will require a revision of the Constitution.10

Reconsideration of the role of Japan's armed forces could also include recategorization of the JDA as a Ministry of Defense. Such a recategorization would allow Japan to take a more active role in the security alliance with America, including making an explicit commitment to come to America's aid if U.S. forces in the region were attacked. Nakatani has stated that "an attack against the US Navy in areas around Japan would be tantamount to an attack on Japan, and we can defend ourselves."11

More concrete efforts to develop a cooperative missile defense system with the United States will also require at least a constitutional reinterpretation. Since 1999, Japan has been conducting a joint technological study with the United States on the effectiveness of the theater missile defense (TMD) system. A TMD system would be used in Japan's defense, while a cooperative missile defense system would entail capabilities that would also protect the U.S. mainland from intercontinental ballistic missiles (ICBMs) launched within interceptor range of Japan.12

The debate over constitutional revision, however, stirs uncomfortable memories among many of Japan's neighbors. Any attempt to change or even reinterpret Article 9, for example, will be viewed with concern by such countries as China and the two Koreas. Efforts to reform the Constitution will need to be handled with tact and humility, since coming to terms with their country's history--as the Germans have done with theirs--has been difficult for the Japanese. Japan still faces great criticism for its reluctance to accept full responsibility for its colonial and wartime atrocities and for not fully acknowledging and educating its youth about Japan's actions during World War II. Many Asian countries, victims of Japan's aggressive expansionism during the first half of the 20th century, have vigorously condemned any perceived movement toward the fielding of a national army, and they watch Japan closely for any signs of renewed nationalism.

Thus, Japan under Koizumi's leadership must renew efforts to convince its neighbors of its penance and, perhaps more important, its commitment to peace by never resorting to aggression. While mindful of the negative repercussions that revision of the Constitution would have among its neighbors, the Japanese government should carefully steer the discussion toward a healthy debate about Japan's future role in the region.


Koizumi is attracting criticism over two issues: the revision of Japan's history textbooks regarding World War II and his planned visit to the Yasukuni Shrine honoring Japan's dead veterans. Both issues threaten Japan's ability to resolve contentious disputes with its neighbors.

The Japanese Education Ministry recently approved a revisionist middle school history textbook that omits significant details of Japan's imperialistic activities in World War II while at the same time glorifying Japanese militarism.13 Japan's recent efforts to rehabilitate its relations with South Korea were greatly damaged when it refused to change these texts. China is among those nations voicing anger over this issue. These concerns fuel sentiment in South Korea that Japan is not a reliable partner, further complicating efforts to coordinate policy toward North Korea.

The Yasukuni Shrine.
Koizumi's planned visit to the Yasukuni Shrine on August 15, the 56th anniversary of Japan's surrender in World War II, angers both Asians and American veterans. The shrine, founded in 1869, is perhaps the country's most notorious symbol of its imperialistic nationalism. While the shrine pays tribute to some 2.5 million Japanese who died in the service of their country and is not necessarily a tribute to the Imperial Army alone, what many find objectionable is that seven people executed as Class A war criminals for war crimes committed during World War II are commemorated there.

Koizumi clearly wants to restore national pride, but Japan's far from clean break with its past and its altering of history textbooks raise the specter of increased nationalism and militarism. A symbolic visit to the shrine may placate some Japanese citizens, but it will also damage or seriously complicate Japan's relations with its neighbors and allies.

Koizumi is attempting to reform the way the country typically conducts foreign relations, but the road is not smooth. For example, even as Koizumi and President George Bush were pledging to strengthen the alliance--an important foreign policy objective for both nations--Koizumi's Minister of Foreign Affairs, Makiko Tanaka, abruptly canceled an appointment with U.S. Deputy Secretary of State Richard Armitage to discuss bilateral security strategies, including missile defense. Tanaka is a fiery reformer, famous for her forthright and blunt communication style, and the first woman to hold that post. Her appointment may have been a signal that the new prime minister was ready to shake up a ministry that had been rocked by scandal and that he was indeed serious about reform. But care must be taken by Koizumi to ensure that consensus exists within his administration on foreign policy stances such as missile defense.14

Kuril Islands Dispute.
Another foreign policy issue Koizumi faces is a dispute with Russia over the Kuril Islands. In a March meeting in Siberia, Russia and Japan agreed to continue negotiations on formally ending their World War II hostilities and resolving the status of the Kurils. If Koizumi successfully negotiates the return of these islands to Japan, perhaps in exchange for massive Japanese investments in Russia's northern maritime region of Vladivostok, he would boost national pride and set an impressive example of leadership in Asia.

Currently, numerous disputes exist in Asia over the sovereignty of minor territories, with no prospect for compromise or resolution. By settling one of the most contentious of these disputes, Koizumi would provide a substantive and symbolic model for how the other disputes could be resolved.


Prime Minister Koizumi faces the difficult task of stimulating an economy in need of massive restructuring while maintaining a tenuous hold on a government that is likely to fight the reforms he must implement. Regardless of the political obstacles, however, Koizumi is on the right track.

The Bush Administration should seize the opportunity presented by the election of a new leader in Japan and support Prime Minister Koizumi's efforts to institute political and economic reforms. A resurgent Japanese economy will greatly benefit both markets and regional stability. Successful implementation of reforms in such areas as collective self-defense and contributing to international peacekeeping missions and humanitarian relief, as well as economic reforms, will require the initiative and will of the Japanese people, but such reforms would provide the necessary underpinnings for a more mature partnership between Japan and the United States.

The priority for President Bush and his Administration should be to encourage reforms that strengthen the U.S.-Japan alliance by taking steps to:

  • Mend any ill will that Koizumi's visit to the Yasukuni Shrine may cause, President Bush should invite Koizumi to visit the Pearl Harbor memorial and lay a wreath at the Tomb of the Unknown Soldier in Arlington Cemetery when he visits the United States in June.
  • Schedule a presidential visit to Tokyo in October. Even if President Bush were to cancel his scheduled trip to Shanghai to attend the summit of the Asia-Pacific Economic Cooperation (APEC) forum, he should keep his commitment to visit Japan. While in Tokyo, the President should publicly recognize the critical role that Japan plays in ensuring peace and stability in the region and its contribution to the region's economic vitality.
  • Express support for Japan's initiatives to reexamine its Constitution in order to become a more durable alliance partner. Reforming the Constitution to strengthen Japan's ability to come to the aid of its ally and further democratize the political system would greatly enhance Japan's position in the region and as an international actor.
  • Support and encourage economic reforms. Treasury Secretary Paul O'Neill should be directed in his meetings with Finance Minister Shiokawa to encourage immediate reforms that will reverse Japan's economic slump. At the top of the agenda should be clean-up of Japan's banking system and improved governance on bad loans by its banks and corporations. At a time when the U.S. economy is slowing down, reviving the Japanese economy--the world's second largest--is imperative not just in terms of U.S. interests, but in terms of global economic interests as well.
  • Urge greater coordination of policy in areas, such as missile defense, that affect both partners. Secretary of State Colin Powell should be directed to seek a meeting with Foreign Minister Tanaka as soon as possible to discuss strengthening the alliance and identifying areas of potential cooperation, such as missile defense. The Administration should also encourage Japan to resolve its territorial dispute with Russia over the Kuril Islands, which would promote stability in the Northeast Asian region.
  • Encourage Members of Congress and the Japanese Parliament to meet often in bilateral exchanges. The goal should be to strengthen ties between two countries that support democracy, international law, human rights, and free trade. In particular, the dialogue should focus on ways to promote trade and on the benefits Japan will derive from liberalizing its economy.


The election of Prime Minister Koizumi provides not only a unique occasion for Japan to build a bold new future for its people, but also an opportunity for Washington to encourage Japan to institute reforms that would strengthen the bilateral alliance. Cultivating a mature and lasting partnership should be the long-term objective of U.S. foreign policy.

Balbina Y. Hwang is a Policy Analyst on Northeast Asia in the Asian Studies Center at The Heritage Foundation.

1. Paolo Pasicolan, ed., U.S. and Asia Statistical Handbook 2001-2002 (Washington, D.C.: The Heritage Foundation, 2001).

2. "Eyeing the Debt Mountain," The Economist, May 12-18, 2001, pp. 46-47.

3. Prime Minister Junichiro Koizumi, in a speech before the 151st Session of the Diet, May 7, 2001; available at http://www1.kantei.go.jp/foreign/koizumispeech/2001/0507policyspeech_e.html

4. Ibid.

5. Brian Bremmer and Ken Belson, "Will a New Leader Help?" Business Week, April 30, 2001, p. 52.

6. "Japan: Thou Shalt Buy Stocks," Newsweek International, March 6, 2001.

7. The LDP controls 49.8 percent of the Lower House and 44.8 percent of the Upper House, for a combined 48.1 percent control of the Japanese Diet.

8. The Constitution of Japan, 1947, available at www.ntt.com/japan/constitution/english-Constitution.html

9. "The United States and Japan: Advancing Toward a Mature Partnership," Special Report issued by the Institute for National Strategic Studies (INSS) and the National Defense University (NDU) on October 11, 2000, available at www.ndu.edu/ndu/SR_Japan.HTM. This report represents the consensus view of the members of a bipartisan study group on the U.S.-Japan partnership, chaired by former Assistant Secretaries of Defense Richard Armitage and Joseph Nye.

10. "Nakatani Says Collective Defense Only with Revised Charter," Japan Policy and Politics, April 30, 2001.

11. Ibid.

12. "Defense Agency Has Many Questions About NMD," The Yomiuri Shimbun, May 17, 2001.

13. Joji Sakurai, "Popular Cartoons, Textbook, New Premier Stoke Concern About Nationalism," Associated Press, April 28, 2001.

14. Doug Struck, "Japanese Aide Is Said to Question U.S. Missile Plan," The Washington Post, June 2, 2001, p. A13.


Balbina Hwang
Balbina Hwang

Former Senior Policy Analyst