Saturday 11th September, 2010
Tense bilateral relations between Japan and China took another dive Friday as Japan expressed alarm over a sharp increase in Chinese purchases of Japanese Government Bonds (JGB).
China’s unwavering economic growth has pushed the country into a position whereby it holds the public debt of many countries including the USA and now, increasingly, Japan, a situation about which the island nation is unhappy.
In the first quarter of 2010 alone, China has purchased US$27 billion worth of government bonds from Japan, which feeds into anxiety in Japan over their rampantly strengthening Yen, which is driving deflation and damaging the economy due to uncompetitive exports.
Japan’s Minister of Finance went so far as to subtly suggest economic sabotage Friday.
“I do not know what their true objectives are, but we would like to clarify their objectives,” said Yoshihiko Noda, the finance chief in Tokyo. He was referring to a “huge” purchase of short-term JGBs in May by China.
Japan has also criticized China’s closed market, which restricts foreign purchase of Chinese government bonds. This allows China to hold foreign debt without being beholden to any foreign power itself.
China has significantly increased its purchase of foreign debt in recent years and owns vast amounts of US, Japanese, South Korean, Australian and Canadian debt, which has made economic analysts wary of the country’s intentions.
Japanese Prime Minister Yukio Hatoyama resigned on Wednesday after only eight months in office, adding to the country’s already sizable portfolio of short-lived premierships.
Although abrupt changes of government are not uncommon in Japan’s recent history, what makes the latest case different is that unlike many other flash-in-the-pan prime ministers, Hatoyama did not trip over domestic issues, but rather over diplomatic ones. Precisely speaking, he fell victim to a dilemma over an unpopular U.S. military base in Japan.
The outgoing leader owns a glaring record — leading his Democratic Party of Japan to a sweeping election victory last year, ending a five-decade conservative rule by the Liberal Democratic Party, and once boasting an over 70 percent popularity rating for his cabinet.
Amid high expectations of the Japanese public, the Hatoyama administration came to power. Yet unfortunately, together with its ascent, a time bomb also started ticking. That bomb was the much-hyped proposal to relocate the Futenma air base of the United States in Japan’s Okinawa Prefecture.
Pledging to pursue an equality-based relationship with the United States, the Hatoyama administration set out to conduct a reassessment over the U.S. military facilities in Okinawa, to amend previous deals with the United States, and to move the Futenma airbase out of the prefecture or even the country.
These ambitious policies raised the brows of the United States, sending waves of chill into the close alliance between the two countries.
On the one hand, Hatoyama’s gestures raised an expectation among Okinawa residents and even the whole Japanese public of a relocation of the U.S. airbase. Yet on the other hand, the United States’ uncompromising attitude prevented him from delivering his electoral campaign promise.
It did not take long before Hatoyama realized that he had been caught between a rock and a hard place. Not only did the United States voice dissatisfaction, the Japanese people and the opposition parties followed each other in saying “No.”
Attempting to force a way out, the stranded Hatoyama administration imposed upon itself a May deadline. Yet during the waning days of the timeframe, the premier backtracked, deciding to keep the U.S. base within Okinawa. Such a compromise infuriated the public and his coalition partners, and eventually cost Hatoyama his premiership.
Japanese analysts portrayed Hatoyama as a man kind in character and firm in political will. His pursuit of political reform and some of his reform measures gained wide support from the public, and he followed mounting calls for independence from the United States among an increasingly agitated Japanese public that aspires to reshape the Japan-U.S. relationship.
However, when Hatoyama made an explicit pledge during his electoral campaign to move the U.S. airbase out of Okinawa, he apparently underestimated the intricacy of the issue and failed to fully understand the reality on the diplomatic front, thus leaving him chasing an unrealistic fantasy.
For any future Japanese leaders committed to rebuilding the country’s diplomatic landscape, the fate of Hatoyama should serve as a practical lesson.....
Excellent explanation of the financial fix that we are in and why the W.H. is WRONG and CLUELESS - this cannot be fixed.... Period:
When Quantitative Easing Has Run Its Course and Fails
The Aware will prepare accordingly. For everyone else, load up on equities and T-bills...
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