Japan's Cold War Diplomacy and its Return to Southeast Asia

With Japan viewing Southeast Asia as its natural sphere of influence and a region of immense economic complementarities and potential, it was no surprise that Japan moved quickly in the post-war period to shore up and rebuild its influence in this strategically vital region as the European colonial powers departed from Southeast Asia. Using reparations, followed by aid and trade, Japan soon became a key economic and strategic state actor in Southeast Asia.

Providing a valid counterpoint to communism, Japan proved an attractive economic model that enabled it to grow its influence in the region substantially. Using deft and low-profile diplomacy Japan became an economic leader and driver of economic growth and prosperity in Southeast Asia, supplementing and supporting US Cold War regional objectives. During times of conflict, Japan worked to reduce tensions and restore order using its unique brand of Asian diplomacy, not losing sight of its long-term goal of integrating the region economically and fostering regional peace and stability.     

The Financial Crisis and America's Capital Dependence on Japan and China

In the Post-Bretton Woods financial system (1972–2009), the United States has been able to borrow heavily from savings-rich countries like Japan and China. Its access to international capital has allowed the US to cover years of extravagant spending and to enjoy unmatched levels of power and plenty. For lenders, like Japan and China, access to the huge US export market has stimulated aggregate demand, which, in turn, has facilitated economic growth, high rates of employment, infrastructure expansion, and technological development.

Notwithstanding the mutual benefits, the massive scale of Post-Bretton Woods imbalances has placed the financial system under stress. Such macro-economic imbalances usually require a major rebalancing—either immediately through a financial crash or gradually through a “soft” landing.

The financial implosion in 2008 constituted a crash landing. To arrest the steep slide into a possible world depression, most of the leading economies, including especially the United States, have taken bold monetary and fiscal measures. However, these expansionary measures will deepen deficits and generate strong inflationary headwinds while placing pressures on currency exchange rates.

Following the 2008 financial earthquake and its wave of after-shocks, America's access to foreign capital is apt to become more restricted and increasingly expensive. This will erode one of the central structural sources of US power—its extraordinary fiscal flexibility, monetary autonomy, and global economic clout. With a weakened financial superpower, the world may become less prosperous, less stable, less predictable, and considerably more dangerous.     

POLITICS WITHOUT PARTIES: AFGHANISTAN’S LONG ROAD TO DEMOCRACY

Democracy has not brought stability to Afghanistan in the almost two decades since the fall of the Taliban. But it would be wrong to conclude that the soil of Afghanistan is not conducive to the tree of democracy, when in reality it was never planted with any skill. Democracy did not fail in Afghanistan; it was never even tried.

A series of connected mistakes began with the introduction of a flawed electoral system, no insistence on a transparent register of voters, lack of proper scrutiny of polling, and a lack of support for the development of reformist political parties and other functioning civil society institutions. From the start the US did not see this as a ‘nation-building’ project, but nevertheless US officials made far-reaching decisions about the nature of Afghan democracy. These were seriously unsound, and the electoral system introduced itself operated against the development of strong democratic institutions.

This article outlines the problems inherent in the Single Non-Transferable Vote system, examines the history of Afghan political parties through the twentieth century and asks whether alternative and traditional forms of Afghan government provide any real obstacles to the development of modern politics. The 2004 constitution was the seventh since 1923: this was not a green field site in terms of institution-building as it was seen by many of the international officials who flooded in after the fall of the Taliban.     

GULF STATES' POLICY TOWARDS SYRIAN REFUGEES: CHARITY BEFORE HOSPITALITY

The regional turmoil in the Middle East since December 2010 has provided researchers with many topics for research. Despite a relatively large number of studies in recent years, none of them deal with one of the central questions – namely, the attitude of the Gulf States toward the misery of the Syrian refugees. While more than six million Syrians fled their homeland and became refugees, 1.5 million in Europe, few, if any, succeeded in relocating to the Gulf States.

This paper endeavors to explore the Gulf States' policy toward Arab (mostly Syrian) refugees. The major finding is that GCC members prefer to grant financial support to refugees outside of the Gulf region (this is justified as charity – Zakat) instead of hosting refugees. The combination of a fragile demographic structure, fear of political and social instability, and constant concern about infiltration by terrorists under the guise of refugees are the main reasons for the policy of closing the gates entirely to the refugees. These concerns also indicate that the idea of the nation state prevails over pan-Arab nationalism.     

Anticorruption Commissions: The “Hong Kong Model” Revisited

The international donor community has, in the last few years, discouraged the use of specialised anticorruption bodies as the spearhead of the attack on corruption, for reasons that have never been sufficiently explained or critically examined.

The academic objections to replicating the Hong Kong solution in other countries are first, that the context in which corruption occurs in Hong Kong is unique and for that reason the solution cannot be exported; second, that the remedy is too strong, too dangerous to be applied elsewhere. The risk of an anticorruption body like the Independent Commission Against Corruption (ICAC) becoming an instrument of political oppression is simply too great to warrant its use; third, establishing and maintaining an anticorruption body at the strength required to deal with corruption is said to be inordinately costly. The fourth objection is a frontal assault on the very concept of an anticorruption body as a means of tackling corruption. The answer, according to this view, lies in governance and policy reform.

These objections have been adopted by the international donor institutions, apparently for reasons that have little to do with any in-depth analysis of the effectiveness of successful anticorruption bodies.

Over the past decade numerous alternative methods of tackling corruption have been proposed and attempted. The results have been disappointing.

By contrast, Hong Kong remains firmly on top of its corruption problem, the ICAC continues to enjoy a public support of 98–99% and this special administrative region of China continues to improve its standing in Transparency International's Corruption Perceptions Index (CPI), one of the few places in the world to do so. In Botswana where the Directorate on Corruption and Economic Crime (DCEC) was modelled on the ICAC with modifications, the country is rated the least corrupt in Africa by a considerable margin and is in the top 25% of countries worldwide. Madagascar which modelled its Bureau Indépendant Anti-Corruption (BIANCO) even more closely on the HK ICAC has made good progress in the short time it has been operational.

Is it not time to reconsider the rejection by the donor community of the “Hong Kong model?” Should we not be examining more profoundly than previously how Hong Kong managed to get and stay on top of corruption? Should the donor community not be helping those countries that have decided they want a separate anticorruption body get the design and the operational policies and practices right?     

The Baha’i minority in the State of Israel, 1948–1957

This article examines the virtually unexplored topic of the Baha'i religious minority in Israel's early statehood period based mainly on primary source documentation. It will be argued that while the number of Persian Baha'is in Israel after 1948 was minuscule — even smaller than the similarly minuscule Circassian and Armenian populations — the non-Arab and non-Muslim identity of the Baha'is, the lack of any historical antagonism between the Baha'is and the Jews, a shared history of marginalization in the modern Middle East, the Baha'is' principled commitment to non-violence as a basic tenet of their religious faith, their complete neutrality leading up to and including the 1948 War, (and their support for Jewish statehood after it), their lack of proselytizing in the state of Israel, and the fact that nearly all of their high-ranking administrators in post-independence Israel hailed from the United States — whose support Israel sought — led the state to cultivate this minority to a degree few other minorities experienced in post 1948 Israel.

A study of the flight and return of most (excommunicated) Baha'i adherents during and after the 1948 War, respectively, will form part of a separate, forthcoming article.     

Regional transport challenges within the Southern African Development Community and their implications for economic integration and development

The Southern African Development Community (SADC) seeks to deepen economic integration among its members through the SADC free trade area that came into effect in January 2008. The thrust for a progressive reduction of tariff and no-tariff barriers, which the market integration model emphasises, has serious implications for the impact of transport and communication systems on economic integration and development within SADC.

Transport and communications systems have an important bearing on economic integration and development because they can be significant non-tariff barriers. The SADC Protocol on Transport, Communications and Meteorology is the instrument through which transport and communications constraints are to be addressed. Through this protocol, some institutions have been established and others proposed to ensure that projects designed to deepen economic integration and development are implemented effectively.

The neo-functional integration approach is a relevant theoretical framework for analysing transport and communications issues and for implementing joint sectoral projects in areas that impact on overcoming development-related deficiencies in production and infrastructure. Transport and communications fall in this category of projects and the SADC region has benefited from functional co-operation in this sector.

As integration proceeds, polarisation of industries could occur, raising concerns about the distributional effects of economic integration as this affects development. However, polarisation is not inevitable: it depends on transport costs. This might seriously address transport and communications constraints because, if these are greatly reduced and eventually removed, weaker SADC countries need not lose industries to the core with the SADC Free Trade Area in place.     

Military Change in Asia

Asia's growing share of the global economy provides one of the strongest themes in contemporary analysis of international affairs. The remarkable economic achievements of Japan, Korea, and Taiwan over the past 50 years have been compounded more recently by the rise of the Chinese and Indian economies. While the significance of this change in the way international wealth is shared was beyond doubt before the onset of the current global financial crisis, many commentators expect that when the world eventually emerges from the crisis Asia's share of the global economy will have grown even further.

This shift clearly has strategic importance: economic decisions made in Asia, whether by governments or business, are now more important for the rest of the world than they have been for centuries. If military power were moving in the same direction, and at the same pace, the strategic consequences would be even greater.

This paper examines trends in Asian military spending and modernisation. It begins with a summary of defence spending among Asian countries.1 In this paper the term “Asia” is used to include the 22 countries from Pakistan to Japan. It does not include Afghanistan or any of the countries of central Asia, or Russia, Australia, New Zealand, or the Pacific Island countries. As explained above, data is not equally available for all 22 countries. View all notes It next considers the nature of the capabilities and equipment they are acquiring, and comments on the way in which forces are being structured, commanded, and managed. It then comments on the range of different factors that are driving military spending and modernisation in Asia, and offers particular comment on China in this regard. The paper then concludes with brief comments on United States and Australian military spending and development.     

Malaysia's Role in Asian Regional Cooperation: A Look at Foreign Policy Themes

Blessed with a vastly diverse multiracial population comprising a plethora of divergent political views and religious aspirations, Malaysia's nation-building efforts have been a unique experiment. Since the colonial period, the country had to contend with three large and distinct ethnic groups, which largely, due to history, could be identified most closely by their role and place in Malaysia's society and economy. Upon gaining independence, this nascent polity was confronted with a colossal task—to unite the various ethnic groups in the country under a single national vision and a cohesive economic development strategy.

Today, despite several shortcomings, Malaysia has hitherto been relatively successful in building a competent economic model based on a complex formula of multiracial unity in the country. Malaysia can be said to be one of the few countries that has been successful in balancing national imperatives with ethnic and religious realities.

It is this understanding of and response to a uniquely pluralistic demographic landscape that has served as the underlying philosophy of Malaysia's foreign policy. The country's approach to building relationships in the region starts from a deep appreciation of the diverse ethnic, religious and cultural nature of Asian societies. Her many policies over the past fifty years aimed at strengthening ties with her Asian neighbors based on enlightened self-interest and mutual political, social and economic benefit. Her domestic experience in dealing with a multitude of Asian races and cultures enabled Malaysia to empathize with the challenges that Asian nations face. This allowed her to forge close cooperation with many Asian countries over the years. Overall, it would appear that Malaysia not only was able to achieve her national motto “Unity is Strength” within its borders but was able to work with her neighbors to attempt to achieve it internationally.

This paper therefore seeks to analyze how Malaysia's outlook came about, how it manifested in her foreign policies and in the approach of her partners.     

President Museveni and the politics of presidential tenure in Uganda

There are various reasons why President Museveni is so determined to hold on to power in Uganda. These are similar to the ones motivating other African presidents seeking to entrench themselves in office. Museveni believes he is indispensable for Uganda's stability and prosperity, especially in a country devastated by bad leadership in earlier post-independence decades. Moreover, Museveni and his close allies are fearful of being prosecuted under a new president for alleged wrongdoings.

Opposition to Museveni's continued stay in power has come from within the ruling party, as well as other parties and the Buganda kingdom. But, as elsewhere in Africa, the opposition is too weakly developed to challenge Museveni effectively. Also, presidential manipulations, election rigging, and coercive measures have helped to secure Museveni's grip on power. In particular, Museveni has used the military to entrench himself in office.

Moreover, as in some African countries, international pressures to force Museveni to relinquish power are limited. In fact, donors have propped up a quasi-authoritarian regime with large amounts of resources. Museveni has overseen a prolonged period of economic and political stability and donors argue he deserves their support, even when his record on democracy and good governance is tainted.

In Africa, presidential incumbents who have stepped down have done so because of the strength of domestic and international pressures. Where political opposition is organised and united or where international donors use their aid to promote greater democratisation, then leaders are more likely to abandon plans to stay in power. It is the absence of such conditions and pressures that are leading to the creation of a life presidency in Uganda.     

Memory and taste in the collections and households of the Spanish nobility (nineteenth and early twentieth centuries): an introduction to the topic with some notes on the house of Osuna and the origins of the period room

“Albeit democratic, their coat of arms has pride of place”. Thus Romualdo Nogués defined, in 1890, Spanish collectors of bourgeois origin who had joined the ranks of the aristocracy. A few years later, in 1924, the Duke of Alba’s maiden speech at the Academia de Bellas Artes de San Fernando justified his personal artistic worthiness on the basis of his ancestors’ collecting activities and the artworks they had amassed.

These two examples set the scene for the research questions studied in this monographic issue. The present introduction offers a bird’s eye view of the phenomenon and continues with a few remarks about the House of Osuna which, as is well known, occupied a pivotal position in Spanish nobility during the whole of the second half of the nineteenth century.     

INDIA'S MYANMAR POLICY AND THE ‘SINO-INDIAN GREAT GAME’

Recent literature has aimed to “deconstruct” the notion of a “Sino-Indian rivalry” in Myanmar. The argument is that China's leverage in Myanmar far outweighs India's, and that the Tatmadaw nevertheless prevents either country's manipulation of Myanmar. In contrast this article argues that the idea of a “Sino-Indian Great Game” still marks the Indian debate, thinking and policy on Myanmar. China's continued rise will remain a main driver behind India's Myanmar policy, and Myanmar will remain geostrategic relevant to India.

The article describes the historical legacy of India's relationship with Myanmar, discusses the role of China in Indian Myanmar policies, and examines the effects of Myanmar's democratization process. While the Myanmar playing field has changed, Indian perceptions of a “Sino-Indian Great Game” are lasting.     

The Trump Administration and Japan: Challenges and Visions for Japan’s Foreign and Security Policy in the New Era

It is possible that Donald Trump’s success in the US presidential election of November 2016 will touch off the greatest transformation in world politics since World War Two. This is because, for the first time, the presidency of the United States—a country that since World War Two has consistently upheld the liberal world order—has been won by a man who asserts that the US national interests will take precedence over international cooperation.

If so, Japan could be one of the most profoundly affected countries. Japan has thus far accepted its status as a junior partner within the US security framework and—without any significant military power of its own—has devoted itself to economic development.

Although it is difficult to predict what Mr. Trump’s policies will be, there is a possibility, based on the statements he has made to date, that he will be calling for Japan to become more self-reliant. Although his comprehension of the Japan-US security arrangements is fraught with misconceptions, there is ample possibility that he will ultimately opt to maintain the current Japan-US security framework. However, given that the average defense expenditure of NATO countries is 2% of their GDPs, and that the average expenditure of OECD countries on official development assistance (ODA) is 0.7% of their GDPs, it is highly questionable whether Mr. Trump will approve of Japan’s level of defense spending (less than 1% of its GDP) or of its level of spending on ODA (approximately 0.2% of its GDP).

It would not be such a bad thing for Japan to become more self-reliant in terms of security. It is almost unnatural for Japan to maintain this relationship as it is, in the form that it has taken since before Japan’s postwar reconstruction. However, in the context of international relations in East Asia, it has long been taken for granted that this is Japan’s basic stance. Changing this will be no easy task—either domestically or in terms of Japan’s relations with neighboring countries.

In these respects, the authors of this paper decided to consider the question of how Japan should develop its foreign and security policy, and to offer some proposals in this regard.     

The Rhythms of the Yards: Urbanism,Backyards and Housing Policy in South Africa

Modernist planners became thieves of memory. Faustian in their eagerness to erase all traces of the past in the interest of forward momentum, of growth in the name of progress, their drive-by-windscreen surveys of neighbourhoods that they have already decided to condemn to the bulldozer, have been, in their own way, as deadly as the recent drive by gang shootings in Los Angeles. Modernist planners embracing the ideology of development as progress, have killed whole communities, by evicting them, demolishing their houses, and dispersing them to edge suburbs or leaving them homeless. They have killed whole communities by not understanding the loss and grieving that go along with losing one's home and neighbourhood and friends and memories. (Sandercock 1998:208)

When watching the news, you find that the government is only concerned with shack dwellers. What about us? We are sitting with big expectations that they will build us houses. We have grown so old sitting in the backyards.

Backyard shack-dweller, Johannesburg, 1999     

The Second-Term Obama Administration and Japan

The controversy in the Unites States on how to deal with the “fiscal cliff” revealed not just a deep ideological difference between the Democratic Party and the Republican Party but also a new sign of a possible crack of the conservative Republican ranks between those Republicans close to the Tea Party and those who favored the tax hike for the wealthy in order to save the tax cut for the rest of the people.

The planned deep cuts in the defense expenditure will have important implications for national security of Japan, which recently experiences increasing tension with China over the Senkaku Islands. The Obama Administration adopted a tough stance with China over the territorial issues in the South China Sea in July 2010. Rebalance to Asia could be understood, at least in part, to be a response to the rise of China, in a financial situation with fewer resources available for the national defense in the US.

The logical conclusion for Japan and the US would be for both of them to deepen security cooperation. Shinzo Abe, the new Prime Minister of Japan, should further clarify his foreign and national security policy priority and concentrate his efforts on strengthening the alliance with the US and building up the capabilities to defend Japan's territory, while exerting caution in jumping into “history” issues with China and South Korea so that Japan's message on the Senkaku Islands issue is crystal clear and focused: that it is against the established international norm to try to change the status quo by force or intimidation; this message should have universal appeal to a wider international community.     

Book reviews

’Basmatschi’, Nationaler Kampf Turkestans in den Jahren 1917 bis 1934, Baymirza Hayit, Koln: Dreisam Verlag, 1992, 464 pp

The Green Crescent Under the Red Star. Enver Pasha in Soviet Russia 1919–1922, Masayuki Yamauchi, Tokyo: Institute for Study of Languages and Cultures of Asia and Africa 1992, 395 pp, documents, biblio

Policing Soviet Society. The evolution of state control, Louise I. Shelley, London: Routledge, 1996, 269 pp, biblio, index, £15.99 paperback

Muslim Eurasia: Conflicting legacies, Yaacov Ro'i (editor), London: Frank Cass, 330 pp, index, 1995, £37.50

After Empire: The emerging geopolitics of Central Asia, Jed C. Snyder (editor), Washington DC: National Defense University Press, 1995, 233 pp

Central Asia. Emerging New Order by K. Warikoo (editor), New Delhi: Har‐Anand Publications, 1995, 352 pp, Rs395

The Transcaucasus in Transition: Nation‐Building and Conflict, Shireen T. Hunter, Washington DC: Center for Strategic and International Studies, 1994, Significant Issues Series, XVI, No. 7, xiv, 223 pp, $12.95

Islam and Politics in Central Asia, Mehrdad Haghayeghi, London: Macmillan Press, 1995, 264 pp, biblio, index, £30 hardback

The Politics of Religion in Russia and the New States of Eurasia, Armonk, Michael Bourdeaux (editor), New York: M.E. Sharpe & Co., Inc., 1995, xvi, 336 pp, $49.95 hardback, $19.95 paperback

Onlar Germaniyada Okugan Ediler [They Studied in Germany] Shirali Turdiev, Tashkent: Ozbekistan Respublikasi Fanlar Akademiyasi [Ozbek Republic Academy of Sciences], 1992) Fan Neshriyati, 70 p

Turkey: The Challenge of a New Role, Andrew Mango, Washington DC: Center for Strategic and International Studies, The Washington Papers, No. 163, Washington DC; and Westport, CT: Praeger Publishers, 1994, 152 pp, $45.00 hardback, $12.95 paperback

Islam in Modern Turkey, Religion, Politics and Literature in a Secular State, Richard Tapper (editor), London: I. B. Tauris, 1994, 314 pp, £12.95

Islamic Desk Reference. Compiled from The Encyclopaedia of Islam, E. van Donzel (editor), Leiden: E. J. Brill, 1994, 492 pp, illus, £35     

B. reviews and notes of recent bibliographies

i. Islam in sub‐Saharan Africa; a Partially Annotated Guide. Compiled by M. Zoghby. Washington D.C., Library of Congress, 1978. pp.viii + 318. Price: $8.50

ii. The United States and Africa: Guide to U.S. Official Documents and Government‐Sponsored Publications on Africa, 1785–1975. Compiled by Julian W. Witherell. Washington D.C., Library of Congress, 1978. pp.xix + 949. Price $14.75 (including 25 per cent additional for overseas postage).     

ASEAN at 40: Prospects for Community Building in Southeast Asia

In 2007, the Association of Southeast Asian Nations attempted to celebrate its 40^th founding anniversary with a bang as it was about to set another milestone, which is the signing of the ASEAN Charter. However, the celebration was overshadowed by the political crisis in Myanmar following the military's crackdown on protesting monks and their democratic supporters. The inability of ASEAN to influence events in that country became the focus of public attention in the region and the international community. Even the much-vaunted milestone of finally having an ASEAN Charter was a major disappointment for many in Southeast Asia as the final document signed by ASEAN leaders was everything but bold, forward-looking, and transformative. It became an object of criticism mainly by some think tanks and civil society groups in the region because it paled in comparison to the recommendations of the Eminent Persons Group that drafted the blueprint of what the ASEAN Charter should look like.

This article describes the major milestones and turning points of ASEAN's regionalism project over the last forty years. It also attempts to identify the major issues and challenges to ASEAN's community building efforts in the future. The main argument of this article is that ASEAN's continuing relevance to the people of the region can be ensured only if it seriously opens up to greater participatory regionalism. Only then can ASEAN be transformed into a truly people-centered organization.     

The fate of the Assyrian minority in early independent Iraq: a test case of political violence based on rational primordialism

Analyzing ethno-national conflicts is usually not easy in that not all quantitative scientific tools are useful to the student of a conflict based on primordial elements. The burden of studying the outcome of a conflict is all the more complex given that the two conflicting groups might be at two different stages of their political development at any given time during the course of the conflict. In the case of the fate of the [Eastern Christian] Assyrian community in early independent Iraq, the political rationale for decisions taken by each party was drawn from different sociological, historical and political realms. Decisions in times of conflict and their political and historical ramifications are not always rational, since they draw upon primordial/communal considerations rather than the accurate reading of the overall true strategic scene.

The violence was an outcome of a combination of primordial differences and rational choice. The Iraqis sought to establish a new sovereign state with minimal disturbances from its Christian minority that they perceived as not belonging to the new nation. As for the Assyrians, they chose violence believing that at least some superpowers would support them. Historically, this rational decision based upon a primordial dispute turned out to be a mistake primarily because of lack of external support, weak internal cohesion of the group, and feeble leadership.     

The Bank of Japan’s Monetary Policy Lacks a Strong Driving Force for Building Inflation Expectations

The Bank of Japan has been failing to create the 2% inflation expectations. This article presents the author’s views about why the Bank of Japan’s monetary easing measures have not led to achievement of the inflation target of 2%, as well as on measures required to achieve the 2% inflation (and base wage increases of over 3% which is the flip side of a 2% inflation). The major points of this article are outlined below.

First, while many Japanese economists pay little attention to importance of mild inflation, the achievement of mild inflation of 2% is vital in ensuring a stable macroeconomic environment. Its achievement would enable lowering of real interest rates (i.e., reducing the real interest rate to minus 2% as against the 0% nominal interest rate) in the situation where the nominal interest rates are drifting at the lower limit against a backdrop of various economic shocks. It would also facilitate reduction in real wages against the downwardly rigid nominal wages, thereby helping companies revive their businesses, and also facilitating adjustments in the overall economy.

Second, the reasons why the current Bank of Japan’s monetary easing measures have been unsuccessful in attaining the inflation target of 2% are as follows: 1) most of the Japanese do not understand the importance of mild inflation and so the specific content of the inflation target (achieving 2% inflation and base wage increases of over 3%) is not clearly shared; 2) on top of the fact that deflation/zero inflation has become rooted in Japan’s economy over the past two decades, Japan has never adopted a monetary policy that would anchor a mild inflation expectation of 2% (until 1990, the Bank of Japan’s primary task was to be mindful of curbing the accelerating cost-push inflation associated with wage growth); and 3) the current Bank of Japan’s monetary policy lacks a strong driving force for building inflation expectations to induce a change in people’s behavior.

Third, in order to build mild inflation expectations of 2% under such circumstances, it is important that the parties concerned with employer’s associations and labor unions become fully aware of this target so that the 2% inflation and base wage increases of over 3% becomes a code of conduct. On that basis, the government and Bank of Japan need to clearly demand substantial base wage increases with concrete numerical targets combined with the achievement of mild inflation towards the goal of building inflation expectations.

Fourth, I propose as the first step that, along with the economic measures recently taken, the government and the central bank either mediate or participate in a specific attempt to build a consensus between the employer’s associations and labor unions on achieving, in a neutral manner, inflation of 2% and base wage increases of (at least) 2%. The aim is to establish an inflation of 2% and base wage increases of over 3% as a new code of conduct shared by employer’s associations and labor unions through continued labor-management agreement.

It is desirable that mild inflation is attained gradually by stimulating aggregate demand continuously, if time and cost permit and if the international environment tolerates weak yen. However, the current economic environment would not allow it and the leeway to ease monetary policy has also been limited. It is also difficult to continue to boost aggregate demand through fiscal policy in a sustained manner against a backdrop of a low birthrate and aging population. Although successful achievement of mild inflation is not a panacea for all economic problems, unless we first achieve mild inflation and restore the function of monetary policy, we will not be able to implement the subsequent structural reforms of the labor markets, etc. or fiscal consolidation, which are both painful. And thus, the long-term economic outlook of Japan is dismal. The author strongly hopes that the Abe Cabinet and Bank of Japan under the leadership of Governor Kuroda implements a drastic regime change similar to the one launched by the Roosevelt administration, overcome deflation and achieve mild inflation, restore the function of monetary policy at the earliest possible time, and get on the path to a true revitalization of the Japanese economy.