Premier’s Visit at Critical Time for Japan, U.S.

When Prime Minister Keizo Obuchi of Japan meets with President Clinton in Washington on Monday, the two leaders will be trying to shore up the most important relationship in the world.

That may sound like overstatement when war in Kosovo and tensions with China top the news. But the immediate fate of the U.S. and world economies and the long-term fate of Asia--the unification of Korea, the emergence of China--depend on how America and Japan handle their changing relationship.

Right now, things are not going as well as diplomatic pleasantries during Obuchi’s state visit would have you believe. Japan last fall decided to proceed on its own with development and operation of five spy satellites. The U.S. Defense Department was not pleased and said so. But Japan is going ahead anyway, frightened by an incident last August in which North Korea fired a missile that landed in the ocean near northern Japan. The U.S., which has satellites watching North Korea, failed to warn Japan about the missile and was slow to respond to Japanese concerns.

There are other tensions in the relationship. Right now, Japan is altering its 50-year-old war-renouncing laws to allow its military to assist U.S. forces should conflicts break out in Japan’s vicinity. But Japanese leaders see the U.S. Congress hedging commitments to NATO and worry that U.S. help might be slow in coming if and when Japan needs its big ally.

At the same time, Japan has its own political isolationists. Shintaro Ishihara, recently elected mayor of Tokyo prefecture, is calling for closure of the U.S. air base at Yokota, near Tokyo.

The danger is that distrust and arguments will disrupt U.S.-Japan unity just when the two countries’ leadership is needed most. This is a critical time. The Asian region, home to 42% of the world’s population and 58% of the world’s economic output, is undergoing profound post-Cold War changes.

In the next two years or so, the Korean peninsula will either disintegrate into chaos or begin the process of reunifying the north and south, half a century after partition at the end of the Korean War.

China’s emergence as an Asian and world power will continue, with potential for flash points over Taiwan, Japan and the Koreas.

That’s why the U.S.-Japan relationship, formed in the aftermath of World War II, “is more important now than it was before the end of the Cold War,” says Richard Ellings, director of the National Bureau of Asian Research, a Seattle-based think tank set up by the late Sen. Henry M. “Scoop” Jackson to bring awareness of Asia to U.S. policy.

So it’s a good sign that U.S. and Japanese officials will talk over defense matters during Obuchi’s state visit.

But defense can’t be separated from discussions of Japan’s under-performing economy, because it is key to world stability and therefore to U.S. prosperity. The U.S. economy is doing wonderfully at the moment, thanks to vigorous consumer spending and a stock market that keeps hitting new highs.

But there are clouds. America is supporting the rest of the world by importing goods and services at an unprecedented pace. The trade deficit could pass $250 billion this year.

Meanwhile, the rest of the world’s economies are either sluggish or moribund. Asia’s economic recovery is fragile, and Japan’s economy, which accounts for 70% of the output of all Asian countries, may not be recovering at all.

Japan’s industrial production continues to decline. The minimal growth target of 0.5% cannot be met unless Obuchi’s government does more to stimulate the economy, say Japanese experts.

Fearing a global recession, U.S. Treasury Secretary Robert E. Rubin last week publicly demanded that Japan do something to get its economy moving.

But Japan is suffering a crisis of confidence. Years of mistaken policies have left pension funds severely underfunded in an aging society. Japan’s banks are now dealing with bad loans, but they are not making new ones.

Japan’s institutional investors, rather than finding opportunity in their own economy, are rushing to U.S. stocks and bonds. Japanese investors last year bought $73 billion worth of U.S. stocks, up 35% from 1997. Japanese investors now have $283 billion invested in U.S. Treasury bonds, an increase of 40% over the last three years.

Those investments help fuel U.S. prosperity but don’t help poorer Asian economies such as that of South Korea, which has been struggling to restructure its industries and renew economic growth. South Korean unemployment is more than 7%, a rate that is likely to persist for another year or more, says Lee Hong-koo, South Korea’s ambassador to the U.S.

Unemployment threatens social stability in South Korea just as North Korea’s economy is breaking down completely--with truck and rail transport s ceasing in many areas and farmers reverting to subsistence agriculture as hunger plagues the land.

China, like South Korea, needs the stimulus of investment from Japan’s industrial machine. Through the years of the Asian crisis, Japan has been generous, to be sure, pumping $80 billion in aid and investment to the countries of Asia. But if its own $4-trillion-a-year economy would only get moving, Japan’s demands for imports and production could lift all of Asia--and relieve the U.S. of the burden of being the world’s importer.

So why doesn’t Japan grow? Because to do so demands change--real restructuring of companies, layoffs and plant closings. The process is beginning. Major Japanese companies have announced mild restructurings to take place over five years or so.

In a significant move last month, all of Japan’s major corporations changed their accounting systems to adopt international standards that are more attuned to open markets and real returns on investment. The new accounting will show up losses in Japanese companies and force them to make hard decisions.

But that will take time. And time is a bone of contention in the U.S.-Japan relationship. Japanese officials resent the urgings of Rubin and others, and say their society cannot change as America’s has.

But U.S. officials fear that the economic difficulty is both stark and strategic: If Japan limits its economy to slow growth, the economies of Asia, and probably the rest of the world, will be doomed to recession.

They know, too, that renewed recession in an ominously unsettled Asia threatens Japan’s security.

Obuchi may well understand that. At a Los Angeles banquet welcoming him to the U.S. last week, he said he would talk with President Clinton about “peace and security.” These days that subject includes economic growth as much as missile defenses.

James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.