Japan has an opportunity to become a stabilizing force in Asia and shape the regional order by joining the China-led Asian Infrastructure Investment Bank (AIIB). However, Japan has previously failed to "think big" and establish a strategic vision for Asia like China has. Many Asian countries now want Japan to join the AIIB to help shape its standards and governance. For Japan to effectively influence the region, it must develop a comprehensive strategy and act multilaterally, as it did during its economic rise in the 1980s and 1990s before withdrawing after the 1997 Asian financial crisis.

1. East Asia Forum
Economics, Politics and Public Policy in East Asia
and the Pacific
http://www.eastasiaforum.org
Japan needs to think big on Asian strategy
21st June, 2015
Authors: Yoichi Funabashi, RJIF; and Andrea Ryoko Ninomiya, RJIF
Japanese policymakers received a shock when they heard in late March that 57 countries,
including some of the United States’ closest allies, had applied to join the China-led Asian
Infrastructure Investment Bank (AIIB). While China has steadily been on the rise, since the 2008
global financial crisis, the United States has found itself less able to engage with Asia as it once
did. The resulting power vacuum has left the region more vulnerable to destabilisation. It is here
that Japan has the opportunity to become a stabilising force for regional order, based on its long
and diversified experience with the US and ASEAN countries. One channel through which it
could opt into a significant role in rulemaking would be joining the AIIB.
But Japan will miss this opportunity if it does not learn from the mistakes it made with its foreign
policy towards Asia during the so-called lost decades. The fundamental problem with Japan’s
foreign policy was its failure to ‘think big’ and establish a strategic vision for shaping the Asian
regional order. In contrast, China developed and implemented a focused strategy, which paved
the path to its dominance of the region today.
Over the past 20 years, Japan could have played a larger role in regional governance in Asia.
During the 1980s and early 1990s, Japan actively pursued regional multilateralism, such as in
the establishment of APEC with Australia, but it withdrew into bilateral preferentialism following
the 1997 Asian financial crisis. Why was Japan unable to achieve what China now has within its
reach, namely, establishing a large-scale regional architecture that has attracted so many
countries across the world?
One answer lies in China’s comprehensive strategy towards Asia. Crucial to China’s strength
in pursuing the leadership role in Asia has been its two-pronged strategy directed at
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2. East Asia Forum
Economics, Politics and Public Policy in East Asia
and the Pacific
http://www.eastasiaforum.org
establishing a multilateral economic institution and internationalising its currency, or spreading
the use of the renminbi (RMB) in international transactions. To kill two birds with one stone,
China is likely to set up the AIIB and utilise it to increase transactions conducted in RMB in Asia.
China has not only aimed for the internationalisation of the RMB but tactfully portrayed its
design as part of a gradual reform of the international system into one based on a multi-reserve
currency. China’s central bank governor Zhou Xiaochuan argued in an essay in 2009 that this
would lessen the world’s dependence on the US dollar, which was responsible for the 2008
global financial crisis. So far, this has proven a shrewd approach. Britain’s decision to join the
AIIB also provided both symbolic and substantial support, bolstering the credibility of the AIIB
and the RMB and allowing access to the financial capital and expertise of the city. David Lipton,
the First Deputy Managing Director of the IMF, stated in late May that the inclusion of the RMB
in the Special Drawing Rights basket ‘is not a matter of if but when’.
By contrast, policymaking in Japan has lacked such a big-picture, strategic perspective and has
become more inward-looking in the years since the Asian financial crisis. Japan was once in a
position similar to China today, as a leading economic power in Asia. After the crisis, Japan
attempted to create an Asian Monetary Fund, a multilateral regional mechanism designed to
provide liquidity to countries in the event of a currency crisis. But the proposal failed, partly due
to Japan’s lack of a convincing strategy for setting up a regional architecture in the face of
strong US opposition and China’s uncooperative stance.
In addition to falling short of setting up a multilateral mechanism at the height of its economic
power in the 1980s and 1990s, Japan refrained from undertaking the financial market reforms
necessary for the Japanese yen to be more widely used in global transactions. Policymakers’
fear of losing control of the yen due to further liberalisation of Japanese markets inhibited them
from pursuing greater global use of the yen.
Based on the lessons of the lost decades, Japan must now step up to the role of shaping the
future of Asian governance. The AIIB is just one arena [1]
in which Japan can provide
leadership. Some Asian leaders have shown concern [2]
about Chinese governance standards,
such as Philippine President Benigno Aquino, who stated during his visit to Tokyo this June: ‘It
behoves us to be very, very cautious whether or not to join the AIIB’. In these circumstances,
Japan is in a strong position: many Asian countries wish for it to join the AIIB in order to
participate in shaping standards. The Ambassador of Thailand to Japan, Sihasak
Phuangketkeow, recently expressed this wish in May: ‘ASEAN as a whole support this bank…
Japan and the United States, I hope, will follow suit’.
Asian countries seek Japan’s regional presence as a rule-maker and pillar of the liberal
international order. Rather than jumping on the bandwagon, joining the AIIB should be viewed
as one element of Japan’s broader foreign policy strategy. In this critical period of rapid
change, Japan along with the rest of Asia, must seize the opportunity [3]
to join in shaping the
future of the regional architecture. During the lost decades, the country’s Achilles heel was its
inability to see the bigger picture- Japan must now ‘think big’ and act multilaterally for the
Asian regional order.
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3. East Asia Forum
Economics, Politics and Public Policy in East Asia
and the Pacific
http://www.eastasiaforum.org
Dr Yoichi Funabashi is chairman of the Rebuild Japan Initiative Foundation and a former
editor-in-chief of the Asahi Shimbun. Andrea Ryoko Ninomiya is a research assistant at the
Rebuild Japan Initiative Foundation. Dr Funabashi’s book, Examining Japan’s Lost Decades [4]
,
will be launched in Australia this week.
Article from the East Asia Forum: http://www.eastasiaforum.org
URL to article: http://www.eastasiaforum.org/?p=46597
[1] AIIB is just one arena:
http://www.eastasiaforum.org/2015/03/18/japan-should-influence-the-asian-infrastructure-
investment-bank-from-within/
[2] have shown concern:
http://www.eastasiaforum.org/2013/08/21/japan-and-the-philippines-unite-against-china/
[3] seize the opportunity:
http://www.eastasiaforum.org/2014/02/11/the-potential-role-of-the-asian-infrastructure-inv
estment-bank/
[4] Examining Japan’s Lost Decades: http://rebuildjpn.org/en/project/japans-lost-decades/
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