A bullet train goes to Tokyo. Photo: VCG
Due to the sharp depreciation of the Japanese yen, Japan’s nominal GDP in US dollars is likely to contract sharply this year to below $4 trillion, falling to levels last seen 30 years ago, the Nikkei reported on Monday.
Major changes have taken place in the global economic landscape over the past three decades. In dollar terms, the Chinese economy has grown 20-fold, the US has grown three-fold, but the Japanese economy is falling back to where it was 30 years ago. The serious challenges and difficulties facing the Japanese economy are posing serious questions to Japan’s political elites as to how long they will allow an economic and trade agenda steeped in a “Cold War” mentality to sway the economy continues to be affected.
The Japanese economy in particular is facing challenges such as the devaluation of the yen, a record trade deficit and rising energy costs. Although Japan’s economy and financial markets are closely linked to the US, the Bank of Japan did not follow the US Federal Reserve’s rate hikes, leading to the continued depreciation of the yen against the dollar.
While the Bank of Japan’s intention to stimulate the economy and avoid a prolonged period of deflation is understandable, the fact that the ultra-loose monetary and fiscal policies implemented over the past eight years have failed to stimulate the economy is sufficient indication from the vulnerability of the Japanese economy.
At such a difficult time, increased economic and trade ties with China would help if Japan is to revitalize its economy. Still, amid so-called economic security concerns, the Japanese government seems more enthusiastic than ever to ally itself with the US on regional geopolitical and economic issues at the expense of its economic ties with China.
It’s no secret that Prime Minister Fumio Kishida’s government has aggressively pushed the so-called concept of economic security, with Japan’s parliament in May passing an economic security law aimed at protecting technology and strengthening critical supply chains.
Some in Japan believe that seizing every opportunity to strengthen cooperation with the US and other technologically advanced countries will bring further benefits to the country in the face of so-called “economic security threats” from China. A more likely outcome, however, may be that Japan’s misguided approach could end up hurting its own economy and that of the region.
For Japan, the chance of becoming one of the region’s economic regulators alongside the US may seem enticing, but Japan should not ignore the fact that anyone can be hurt by the predominance of rules that prioritize American interests.
This year marks the 50th anniversary of the normalization of diplomatic relations between China and Japan. After half a century of ups and downs, fruitful results have been achieved in bilateral economic and trade cooperation. China has been Japan’s largest trading partner for 15 consecutive years, with trade with China accounting for more than 20 percent of Japan’s foreign trade. Bilateral trade reached an all-time high of $371.4 billion in 2021.
Objectively, with such a strong complementary trade structure between the two countries, it is necessary for Japan to maintain its basic political rationality and strategic independence based on its own interests and those of the region. Rational boundaries should be set to hedge against potential economic risks, rather than politicizing economic cooperation to provoke confrontation.
If Japan blindly follows the US in “economic and technological decoupling” from China, it will not only seriously affect the stable development of Sino-Japanese relations, but also greatly derail Asia-Pacific economic integration, which will also deprive Japan further opportunities to benefit from the regional economic revaluation. The ailing Japanese economy cannot afford such dire consequences.
