Why Japan Still Matters

By James Schoff
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In addition, Japan boasts eleven Nobel Prize laureates since 2000, spanning chemistry, physics, physiology, and medicine. And basic research in areas such as advanced materials and stem cells could have dramatic economic and social impacts, provided Japan can keep making progress fostering entrepreneurship that capitalizes on this work.

Japan's economy is still the third largest in the world. It has a well-educated, productive population and an adaptive and globally connected corporate sector, despite the headwinds buffeting some of Japan's most famous brands such as Sharp and Panasonic. Less well known are small but highly profitable Japanese firms created in the past two decades such as Axell and Simplex. Japan is also an important investor overseas, becoming the world's second largest source of foreign direct investment outflows in 2011 and China's biggest investor.

Such interdependence in East Asia is one of the few positive factors helping to mitigate regional conflict over long-standing territorial and historical disputes.

Vital Partner in Asia

A key question is how this interdependence will evolve and how actively Japan, the United States, and others will try to shape it in a coordinated and inclusive fashion. Declining trade barriers and the diversification of economic growth in East Asia could help bolster the sense of community, but only if the politics of regionalism can be managed effectively.

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Regional networking and rulemaking strategies that smack of Chinese containment (or that dwell too much on military maneuvers) will be counterproductive, so a broader institutional approach that includes China will be necessary.

Japan can be helpful here as it continues to contribute significantly to global and regional institutions. It is the second largest contributor to the United Nations and the International Monetary Fund, and it contributes the most to the Asian Development Bank and other regional funds such as the Asian Bond Fund. Japan can also be an important U.S. ally for shaping and strengthening the emerging regional architecture that includes the ASEAN Regional Forum and the East Asia Summit.

Americans often underestimate how well respected Japan is in most parts of Asia, notwithstanding the territorial and historical disputes that are fueling regional tensions today. Many Southeast Asian nations in the 1970s, 1980s, and 1990s looked up to Japan as the "lead goose" in their flock of aspiring economies and they emulated Japanese industrial policies.

As the rest of Asia modernizes and grows wealthier, Japan might now be simply joining the flock, but it should maintain an influential voice given its democratic and free market traditions as well as its non-confrontational diplomatic approach. That is, of course, if Japan revives itself in a way that supports regionalism and continues to engender respect in the region.

Asia's Future

Competition will always be fierce in Asia, but if the region is able to build institutions and cooperative frameworks to tackle common economic, environmental, and even political and security challenges, it is a good bet that Japan and the United States will be key players in that process. Economic and demographic factors might prompt Japan over time to become a relatively low-growth and high-tax nation similar to many in northern Europe, but it should remain a stable and well-connected leader in East Asia.

This is a formative time in Asia's history, and now is not the time for Washington to overlook Japan's potential to reinvent itself. Japan's political and business leaders have a lot of work ahead of them to overcome the challenges facing the country, but Japan's future is still brighter than its recent past if it can strengthen relations with its neighbors and foster more openness and entrepreneurship in the country.

Working in concert with others in Asia, Japan will remain a valuable partner for the United States as it not only adjusts to new geopolitical dynamics in the region, but also tries to shape them.

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James L. Schoff is a senior associate in the Asia Program at the Carnegie Endowment.

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