America And The Rising Sun: Obama, Abe Join Forces To Jump-Start Two Economies

Japanese Prime Minister Shinzo Abe and U.S. President Barack Obama met for a bilateral summit at the White House on Friday, talking behind closed doors over lunch before addressing the media.

This meeting -- the first between the two leaders -- was a significant event for Obama given the administration’s so-called “pivot” to Asia, which seeks to strengthen partnerships in the region and curtail China’s growing hegemony there.

But it was even more important for Abe, who was just elected in December and whose vision for Japan marks a departure from administrations past. The conservative politician campaigned on promises of military strength and loose monetary policies meant to beat endemic deflation.

“As a result of our discussion, we were able to share our understanding on not just concrete policy but on the direction to which our alliance is headed. I think I can declare with confidence that the trust and the bond in our alliance is back,” Abe said at the press briefing that followed the talks.

The two leaders have much in common -- first and foremost are their ambitious plans to spur economic revitalizations after years of recession in their home countries. That made trade cooperation a key issue for both leaders as they laid a foundation for their new diplomatic partnership.

The Rising Sun

Abe enjoys an approval rating of 71 percent, according to a recent poll published by the Tokyo-based newspaper Yomiuri Shimbun. His Liberal Democratic Party, or LDP, has a comfortable plurality in the lower house of the Diet, Japan’s parliament.

But the prime minister can’t rest easy -- elections for the upper house of parliament will take place this summer, and they will be seen as a public referendum on the LDP’s performance up to that point. The upper house is currently dominated by the Democratic Party of Japan, or DPJ, which counts among its members Abe’s predecessor Yoshihiko Noda.

The situation is especially precarious because leaders in Japan have had trouble holding onto their posts: The country has had six different prime ministers in as many years. Abe himself held the office briefly from September 2006 to September 2007.

To keep up his own momentum, the prime minister will have to prove to the Japanese people that his aggressive fiscal policies, dubbed "Abenomics" by the international community, can spark a tangible turnaround for the country’s 128 million people.

Abe’s promises -- to jump-start the economy with a mix of stimulus packages and quantitative easing -- have already yielded results. The value of the yen has been falling, and Tokyo’s Nikkei Stock Average has been rising steadily since December, closing Friday at 11,385.94. According to a Reuters poll last week, economists expect growth in the fiscal year 2013-14 to reach 2.1 percent -- a marked improvement from the 1.8 percent increase predicted only one month earlier.

The Bank of Japan, or BoJ, has set a goal of 2 percent inflation during the five-year term of the next bank governor, although this may be more ambitious than realistic. The bank’s success will depend in part on who is chosen to lead the institution: Current Gov. Masaaki Shirakawa will step down in March, and Abe is expected to announce his new appointment to the post next week.

Abe’s reputation is dependent on the efficacy of his economic reforms, and support from the Obama administration will help him to convince the electorate that his policies are headed in the right direction -- and that the policies of the previous DPJ administration were not.

“Abe’s big push is to strengthen the alliance,” said James Schoff, a former adviser for East Asia policy at the U.S. Office of the Secretary of Defense who is now a senior associate with the Asia Program at the Carnegie Endowment for International Peace.

“He’s got this theme -- ‘Japan is back’ -- and that’s a little frustrating because our sense over the last two years of DPJ administration was that we [the U.S.] got a lot done and we had an excellent relationship. The idea that the LDP and Abe himself are the only ones who can manage the U.S.-Japan alliance is simply not true; it actually hurts the alliance to suggest that its health is dependent on who wins an election.”

In Our Defense

A strong U.S. alliance is beneficial to Japan in two main arenas: security and trade.

In terms of security, the two countries are clear partners. Both are strongly opposed to North Korea’s pursuit of nuclear technology, and both would seek to rein in China’s growing dominance in the region.

North Korean leader Kim Jong Un set off alarms in December with a successful rocket launch that propelled a satellite into orbit. This was the country’s third nuclear test, signifying defiance in the face of international condemnation and crippling UN sanctions. In response, both Japan and the U.S. have vowed to pursue even tighter sanctions on the hermit kingdom -- and that’s nothing new.

“We agreed that we would cooperate so that a resolution, including sanctions, would be adopted in the U.N.,” Abe said after the meeting. “We also discussed additional sanctions, for example, financial sanctions, and we agreed to continue cooperating in that regard as well.”

Tensions between China and Japan grew especially tense last year as the two countries asserted competing claims to a group of uninhabited islands in the East China Sea. China calls the archipelago Diaoyu; in Japan and the U.S., they are referred to as the Senkaku Islands. The U.S. does not have an official position on the islands’ sovereignty, but generally supports Japan’s right to administer the territory. The dispute has become a major symbol of the growing tensions between Asia’s biggest powers.

That issue was also addressed rather predictably in remarks after the summit on Friday.

“Concerning the South China Sea and the Senkaku Islands, we agree that the very existence of the Japan-U.S. alliance is a stabilizing factor, which contributes to peace and stability of the region,” said Abe, who added that he would continue to deal with the dispute “in a calm manner.”

Both he and Obama are walking a fine line with China, since the country is an important economic partner to both.

“There’s going to be a lot more diplomacy ahead, but I think China and Japan have been successful in turning down the heat on the Senkaku Islands dispute, and Obama has been careful not to be perceived as adding any fuel to that fire,” Schoff said. “And North Korea is a real problem and will get a lot of attention, but it also comes in handy in terms of diplomacy; the issue always provides the U.S. and Japan with a convenient reason for strengthening security cooperation.”

Sealing The Deal

It was trade -- not defense -- that presented the most opportunities for new developments between Japan and the U.S. Indeed, the joint statement released by the White House and Japan after the summit did not mention China or North Korea at all, focusing instead on a potential agreement regarding Japan’s participation in the Trans-Pacific Partnership, or TPP.

The TPP is a free-trade agreement that would cut tariffs and make it easier for business to operate across borders, often at the expense of domestic regulations. It would link Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Japan may also join the network, and some believed Abe would announce this officially following Friday’s summit.

That wasn’t the case. For political reasons, Abe is hesitant to appear enthusiastic about the agreement, since some of the eased trade restrictions that would be required to join the TPP could threaten the economic vitality of some of his core constituents.

“Abe wants exceptions -- or at least an acknowledgement that exceptions might be OK -- before he joins,” Schoff said. “It’s politically sensitive; he’s got the election in July, and rural voters are a big support base. They’re against the TPP unless they get guarantees of exceptions for rice and other agricultural products.”

Similarly, some U.S. automakers are resisting freer trade with Japan for fear it will damage their own competitiveness.

The post-summit joint statement by Japan and the U.S. was carefully worded to leave all options on the table.

“Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations,” it said.

In the end, TPP involvement could prove necessary for Abe -- even if it is delayed until after the composition of the Diet’s upper house has been decided. The prime minister’s ambitious plans for economic revitalization will get a kick-start from monetary easing and financial stimulus -- but to stay solvent over the long term, serious structural changes are in order. The deregulation that would accompany TPP membership would help to lay the foundation for long-term growth.

That’s something Obama is interested in as well, which he made clear in his remarks after the bilateral meeting.

“Prime Minister Abe and I both agree that our No. 1 priority has to be making sure that we are increasing growth and making sure that people have the opportunity to prosper if they're willing to work hard in both our countries,” Obama said. “And so we’ll be talking about a host of issues and steps that we can take in our respective countries to encourage the kind of trade, expanded commerce, and robust growth that will lead to greater opportunity for both the United States and Japan.”