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Back to Normal? The Promise and Pitfalls of Japan’s Economic Integration

Michael Mastanduno

This chapter examines the three significant challenges facing Japan: to restore sustained economic growth, to maintain the positive momentum that has developed in relations with the U.S., and to deepen economic interdependence while improving security relations in its region.

Main Argument:

  • Japan finally appears poised to return to sustained economic growth. Growth depends on an end to deflationary expectations, the stimulation of domestic demand, and continued progress in economic reform.
  • Though Japan has drawn closer to the U.S. in the past five years, even deeper relations with the U.S. may raise expectations unreasonably and may complicate Japan's regional relationships.
  • Over the past decade Japan has become more integrated economically into East Asia; at the same time, however, Japan's political and security relations with key neighbors have worsened.
  • Regional economic interdependence is, on balance, a positive factor in regional security but cannot be counted on to resolve regional conflicts or to forestall rivalry between Japan and China.

Policy Implications:

  • As Japanese economic growth is in the national security interest of the U.S., Washington would benefit from encouraging continued economic reform.
  • The maintenance of a healthy and stable U.S. economy has a significant positive impact on regional stability in East Asia.
  • The U.S. is a pivotal player in the China-Japan rivalry. A U.S.-Japanese alliance that is too aggressive alarms China, whereas one that is too weak raises abandonment anxieties in Japan.
  • Given the high economic and security stakes, remaining deeply engaged in East Asia is critical for the U.S., notwithstanding the formidable challenges the country faces elsewhere in the world.