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Monday, March 31, 2003

JAPANESE PERSPECTIVES

The economics of friendly fire


Friendly fire is a terrible thing to be a casualty of. But such things happen in the battlefield. As has indeed been happening in the Iraqi war zone.

It can also happen in the world of economics. Even between parties who are not presently engaged in warfare, economic or otherwise.

The United States and Japan are friendly nations. Indeed, in Junichiro Koizumi's terminology, international cooperation seems to be the same thing as endorsing whatever the American president says. Friendship cannot get much more loyal than this, even if those endorsements tend to come rather late in the day when all is fait accompli and the loyalty does not count for much anyway.

The dynamics of economic interdependence tie the United States and Japan together in a close interactive relationship. What is good for the one is good for the other. Generally. But not always. By no means necessarily. A seemingly friendly development in the American economy does not invariably bring Japan economic benefits.

If the war in Iraq is short, it will be good for the United States. U.S. stocks would go up, the dollar would go up, oil would be cheaper, and people would start spending again.

All of which looks very good for Japan, too. Japanese stocks would go up, the yen would go down, oil would be cheaper, and Japanese exports would benefit twofold -- from renewed U.S. demand and a competitive currency. Wonderful news.

But is it? There is nothing like the deus ex machina of externally generated exuberance to allow people to forget their own long-standing problems and the effort required to resolve them.

The Japanese public, if not Japanese policymakers, is now well-aware of the need for reforms. But if the immediate economic circumstances suddenly start looking rather good, Japan's willingness to bite the bullet will be blunted. A made-in-America victory boom that catches on here and acts as just the godsend it is praying for is more likely to turn out to be friendly fire in disguise.

What if the Iraq war begins to look more troublesome for the United States than originally assumed?

On the surface of it, even that does not look too bad for Japan. For there is nothing like an emergency to bring bickering politicians together and push foot-dragging bureaucracy into action.

So all at once, all kinds of policy initiatives, financial and otherwise, are being talked about to prevent turmoil from spreading through the Japanese economy as the U.S.-Iraqi hostilities unfold. Policy is at last moving forward! Wonderful news, yet again!

But is it? Solidarity in an emergency is all very well. Yet an emergency is the prime opportunity for everybody to get away with everything.

Anything goes in an emergency. Nothing is taboo in an emergency. All manners of interventionist policy and politics can be sanctioned in the name of an emergency. Market forces stand very little chance of working effectively where emergency reigns supreme, and action on much-needed developments is liable to be put on hold when emergencies are declared.

A made-in-America emergency that brings too much solidarity too easily could turn out to be yet another form of friendly fire that will shoot down Japan's struggling reforms.

War or no war, emergency or no emergency, whatever happens outside will not change issues of Japan's own domestic making. It was just the same at the time of the Gulf War. The best international contribution Japan can make in these turbulent times is to try its sincere, utmost and effective best to get its economic house in order.

That determination and sense of purpose are the best defense against friendly fire, in whatever economic guise it may come.

Noriko Hama is an economist and a professor at Doshisha University School of Management.


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The Japan Times

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