Toward a New Japanese Role at the G20 Leaders Summit

Yves Tiberghien
UBC – Political Science

Japan is the third largest economy in the world and holds the second largest foreign reserves (over $USD1.1 trillion). Japan remains the second largest creditor of the US after China, holding around 20% of US debt. And Japan is a key contributor to the UN and to most international organizations. Yet, there is a Japanese paradox with respect to the way it has managed its G20 Leaders Summit position. For all Japan’s power and economic might, Japan has not played a particularly visible role at the G20. It is not seen as active in crafting coalitions or defending specific interests at the G20. Moreover, Japan has even made it publicly known that it prefers the G8 to the G20.

Why this ambivalence with respect to the G20 Leaders Summit? The main reason could be found in domestic politics: fragmented bureaucratic interests related to the G20 and weak prime ministers with a divided parliament. In this context, how can we assess Japan’s role at the just completed Cannes G20? Did Japan play a role either in the efforts to solve the Euro crisis or in the elaboration of new global governance structures?

Against most expectations, the answer is a partial yes. Confidential conversations with officials indicate that Prime Minister Noda has shown more interest in the G20 than the two previous prime ministers and has started to show more openness to novel initiatives. The key difference is that Noda has decided to coordinate global economic policy more actively from the Prime Minister’s office and to make use of the Government Revitalization Commission and the National Strategy, Economic, and Fiscal Policy Commission for this purpose. The Prime Minister chairs both.

The most visible and unexpected Japanese action in Cannes is the strong international commitment made by the Noda government to raise the consumption tax from 5% to 10% before 2015 and to pass the related bill in the Diet before March 2011, even though there is no consensus for this within the Cabinet or the DPJ (Cannes Action Plan for Growth and Job).[1]This issue is one of the most hotly debated political questions in Japan, and debates have raged for years. Elections have been fought and lost over this question. Yet, it seems that the Prime Minister is seeking to use the international commitment made at the G20 Leaders Summit as Trojan horse that can act as a catalyst to get the measure adopted by the Diet in the coming budget. Should Japan fail to do so, it will lose face in front of G20 peers. From France, Noda actually announced that he was ready to call for a snap election but only after both houses of the Diet (including the Upper House controlled by the opposition LDP) passed the bill raising the consumption tax. Noda is thus staking his ‘political life’ over this issue and, for the first time, has linked the G20 with domestic politics.

On the question of saving the Euro-zone and investing into the European Financial Stability Facility (EFSF), Japan demands that Europe create a “sustainable and credible framework.” When this in place, Japan “will consider supporting” European efforts (press conference by Deputy Cabinet Secretary Shikata Noriyuki). In practice, this means that Japan might invest around $10-50 billion into the fund, when it is operational. Japan understands the systemic interdependence with Europe. “Japan will make a contribution to the process of EU revitalization” and “Japan-EU cooperation is essential.” This Japanese position could have a demonstration effect emerging markets considering investment into the EFSF.

However, Japan has also made it clear that it was not sure that the IMF should be used as platform for investment into the EFSF, as requested by China. Indeed, Japan is concerned about an increase in China’s voice at the IMF.

Japan also used its bilateral meetings with the UK, Germany, and the EU (MM Barroso and Van Rompuy) to advance the agenda of an Economic Partnership Agreement (EPA), partly as a tool to revitalize Japan and stimulate trade. As with the push for joining the Transpacific Partnership (TPP) within the APEC process, it seems that the current Noda government is ready to be more proactive on trade policy and ready to use FTA negotiations as tool for further reforms within Japan. The meeting with David Cameron seemed to lend support to that, with Cameron apparently stating that more deregulation was necessary in Japan.

The question of intervention into currency markets has arisen, due to the fact that Japan had strongly intervened to stop the rise of the Yen and bring it back to a level close to 80 Yen to a dollar. The deputy spokesman of the Prime Minister indicated that this was due to “disruptive currency markets” and that “excess volatility had adverse impact on stability.” It seems that Japan’s position did not face opposition in the G20 Leaders discussions and that Japan received some broad measure of understanding.

Interestingly, Japan has moved on the issue of the Tobin tax (international transaction tax) by shifting from a position of opposition aligned with that of the US, Canada, and the UK to a neutral position. Japan acknowledged that it is a good idea, but that much work remains to be done before it can be a workable idea. This is quite a shift in coalition pattern and could create an opening for discussions with the European Union.

With respect to the Cameron Report on global governance and the suggestion that a small secretariat be created for the G20, Japan takes a position similar to that of the US and Canada, namely one of strong opposition. Japan believes that such a secretariat would add red tape, cost, and stickiness to a process that should remains nimble, fluid and informal.

Finally, although there was a short Japan-China summit on the margins of the G20, the two countries did not even discuss G20 issues. So far, East Asian countries continue to play it alone at the G20. One fascinating innovation, however, is the G20 decision to let China, Japan, Korea, and Indonesia decide among the four of them which of them should host the G20 in 2016. This could be the beginning of a regional caucus within the G20.

In sum, despite some continuity on major positions, the Cannes G20 has seen a more active and more engaged Japan. Japan is still not caucusing with its Asian partners, but has used the Cannes G20 to foster closer relations with European countries and has shown more flexibility than before on some important positions. Most noticeable has also been Prime Minister Noda’s decision to use the G20 communiqué as a way to pressure his political opponents at home to agree to an increase in the consumption tax (VAT).

 

Sources

http://www.mofa.go.jp/policy/economy/g20_summit/2011/action_plan.html. Exact sentence in the communiqué reads: “Japan commits to implementing the “Definite Plan for the Comprehensive Reform of Social Security and Tax” which sets out policies including the gradual increase in the consumption tax to 10% by the middle of this decade and to submitting implementing legislation by the end of FY2011 to realize these policies, in order to meet its Toronto commitment.”

 
 

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