Figure 1. Administrative Divisions of Japan, 1990

JAPAN IS A MODERN, thriving democracy, yet it retained a long and esteemed imperial tradition. The Japanese take great pride in being "unique," yet much of Japanese civilization is composed of selective borrowings, from the Chinese written language in the sixth century A.D. to United States semiconductors in the latter half of the twentieth century. Although Japan lacks almost all raw materials, it is a highly urbanized and industrialized economic power supplying vast export markets. Yet farming interests still exert a strong influence on the political process and on party trade policies. Japan is a rich country, ranking first among major industrial nations in per capita gross national product (GNP--see Glossary), but many of its people are crowded into inadequate housing lacking such basic amenities as indoor plumbing. Although the bushido (way of the warrior) legacy of the feudal era still exerts a definite influence on modern society, the ultranationalism that it had spawned has been repudiated, and the military machine that earlier in the twentieth century had conquered much of the Asia-Pacific region had been replaced by the streamlined Self-Defense Forces (SDF), well trained but underequipped and barely able to defend the home islands.

Japan consists of the four main islands of Hokkaido, Honshu, Shikoku, and Kyushu, along with a plethora of smaller islands, and is separated from the Asian mainland by the Sea of Japan and bordered on the east by the Pacific Ocean (see fig. 1). Nearly 75 percent of the country's land surface is covered by mountains, and the climate, although generally humid, ranges from cool in the north to subtropical in the south. Historically, when Japan was a predominantly agricultural country, its varied climate made for regional diversity in economy and culture, and its insular geography and rugged terrain helped it limit and control foreign access. Since World War II, however, as Japanese society has become overwhelmingly urban, industrial, and internationalized, climatic and geographical effects have become much less significant.

The origins of Japanese civilization are buried in legend, with the country's first written records dating from the sixth to the eighth centuries A.D., after Japan had adopted the Chinese writing system. Early in the sixth century, Chinese Buddhism was introduced to Japan by way of Korea, and with it came many Chinese governmental and fiscal practices. A society of individual military rulers, each responsible for his own area, evolved into an imperial system codified in the Taiho-ryoritsu (Great Treasure Code) of 701. Imperial control was gradually spread throughout the main island of Honshu and eventually to all of Japan by military conquest. The leaders of these conquests were rewarded with large landholdings. By the tenth century, these military leaders had evolved into a warrior class--the bushi, or samurai--that supplanted the central authority of the emperor, and Japanese society evolved into a feudal economy in which the large landholdings of the samurai were supported by local peasants, artisans, and merchants. Beginning in the seventeenth century, the Tokugawa shoguns, like earlier military rulers under the same title, asserted control over a newly reunified Japan. They also closed the country to outside influences and developed the national premodern economy.

When Japan was reopened in the middle of the nineteenth century, the traditional political, military, and economic systems were no match for powerful foreign intruders, and the shogun's government failed. It was replaced by a new oligarchy of strong regional leaders who brought about the Meiji Restoration--the ostensible restoration of imperial power--in 1868. The Meiji rulers carried out wholesale radical reforms. The government hired thousands of foreigners to teach modern science, mathematics, and foreign languages and sent a multitude of students and envoys to Europe and North America to learn the lessons that had bypassed them during the years of exclusion. They returned to combine foreign ideology and modern methods with Japanese traditions, devising a governmental and economic system that was totally new yet uniquely Japanese. The government also built factories and shipyards to help private businesses get started. These businesses developed rapidly into large conglomerates, some of which dominated the world of business in the early 1990s. Transportation and industry were modernized; the military was reorganized and equipped with up-to-date weapons; and under the 1889 constitution, Japan took the first steps toward representative government.

For the remainder of the nineteenth century and into the twentieth century, the economy grew at a moderate rate, although it remained heavily dependent on agriculture. After the development of a strong economic and industrial base at home, successful wars annexing Taiwan and Korea, and the growth of spheres of influence over a large part of the Chinese mainland, Japan began to exert its influence throughout the Asia-Pacific region. In the late 1920s, industry outstripped agriculture, and in the 1930s industry, little affected by the Great Depression plaguing the rest of the industrialized world, continued to grow. Using the strong Japanese economy to support their imperialistic designs, ultranationalist military officers succeeded in stifling the young democracy and took control of the government in the name of the emperor. With their power unchecked, the militarist government led the nation into a series of military conflicts that culminated in the almost total destruction of the nation during World War II.

World War II destroyed nearly half of Japan's industry. Japan's economy was completely disrupted, and the country was forced to rely on United States assistance and imports of essential food and raw material. Large-scale procurements by United States armed forces during the Korean War (1950-53) revived Japanese industry, and the country invested heavily in replacing the destroyed factories with modern, well-equipped factories. By the mid-1950s, modern plants staffed by a well-educated, disciplined work force had brought the Japanese economy back to pre-World War II levels. For the remainder of the 1950s, however, Japan endured chronic trade deficits. Unhampered by large military expenditures, the Japanese economy continued to grow at a rapid pace into the next decade. Japanese trade relations improved dramatically during the 1960s, attaining a favorable balance, and Japanese industry felt confident enough to compete in the international market in such heavy industrial products as automobiles, ships, and machine tools.

The Ministry of International Trade and Industry (MITI), formed in 1949, played a major role in the 1950s and 1960s in formulating and implementing Japan's international trade policy, assisting the development of domestic industry and protecting it from foreign competition. MITI's authority gradually decreased as private industry and other ministries took more responsibility on themselves. By the late 1980s, MITI's control over international trade policy was greatly reduced. The Japan External Trade Organization (JETRO) was established by MITI in 1958 to promote Japan's external trade. Over the years, JETRO's role diversified; it went from promoting exports to fostering all aspects of Japan's trade relations and enhancing understanding with trading partners.

In the immediate postwar period, the operations of Japanese financial institutions were severely restricted. In the 1970s, controls began to loosen, and these institutions rapidly expanded their international activities. By the late 1980s, they were major international players, making Tokyo a world financial center and opening branches abroad to foster foreign investments. During the late 1980s, Japan became the world's largest creditor nation and was home to some of the world's largest banking and financial institutions. Japanese securities firms played a major role in international finances and were members of major world stock exchanges. In 1988 the Tokyo Securities and Stock Exchange became the world's largest, while the Osaka Stock Exchange ranked third behind Tokyo and the New York Stock Exchange. Beginning in 1986, the Tokyo exchange permitted foreign brokerage firms to be members. Japan also played an increasing role in international economic organizations and agreements, especially the Asian Development Bank and the General Agreement on Tariffs and Trade (GATT). Japan has a strong private enterprise economy, although public corporations played a very important role in the early postwar period. By the 1980s, however, their role was considerably decreased, and some of the largest were privatized. The thriving private enterprise sector was dominated by large corporations with affiliated smaller firms. Labor-management relations were generally harmonious, and labor productivity was high.

In 1993 Japan's population of more than 124 million people was squeezed into less than 400,000 square kilometers of land, much of which was uninhabitable. But population growth, rapid in the last half of the nineteenth century and the first half of the twentieth century, had slowed drastically by the 1980s. The low fertility rate, combined with high life expectancy, was making Japan a rapidly aging society, placing an increasing burden on the shrinking working-age population.

Women traditionally occupied an inferior position in Japanese society. Even though they were given the right to vote in 1946 and were accorded equal rights under the 1947 Constitution and the Civil Code of 1948, their general status did not significantly improve. As Japan faced a shrinking work force in the 1980s and 1990s, however, increasing numbers of women were brought into the labor market, resulting in improved educational, political, and economic opportunities. Nevertheless, women's status still remained far below that of men.

Japan promoted exports by developing world-class industries and providing incentives for firms to export. In the postwar period, export incentives mainly took the form of tax relief and government assistance to build export industries along with heavy import barriers. As Japanese industry regained its strength in the 1960s, the government gradually liberalized its trade policy, and tax incentives were eliminated. In the 1970s, a strong rise in the value of the yen (for value of the yen--see Glossary) under the new system of floating exchange rates and the oil price shocks of 1973 and 1979 brought large trade deficits. The situation spurred Japan to reduce its dependence on unreliable foreign petroleum by conservation and diversification of sources and to sharply increase its exports to offset the high cost of raw materials. In the 1980s, with the dramatic drop in the cost of raw materials, Japan developed a large trade surplus. Export policy shifted to export restraints on certain products that were causing the greatest tensions with trading partners, and Japan greatly increased its foreign investment. This trend continued through the 1980s. Japan continued to be the target of complaints from trading partners, however, especially for nontariff barriers such as standards, testing procedures, and restrictive distribution practices.

In the 1980s, manufactured imports still made up a share of GNP far below that of other developed countries, and in 1989 Japan was named an unfair trading partner by the United States government. Although certain Japanese industries, such as automobile manufacturing, were heavily export oriented, Japan exported a lower percentage of its GNP than most major industrialized nations. During the 1960s and 1970s import growth kept up with exports, but in the 1980s import growth fell off drastically, leading to large trade surpluses. The United States was the largest single destination of Japanese exports (34 percent in 1988) as well as its largest single source of imports (22.4 percent). Japan's major international industries in the late 1980s were motor vehicles, consumer electronics, computers, semiconductors and other electronic components, and iron and steel. The rapid increase in the value of the yen in the late 1980s made Japanese exports less price competitive and imports more price competitive, but it was unclear in 1991 what effect the increased value of the yen would have on the balance of trade in the long term.

Japan has traditionally run a deficit in services: transportation, insurance, travel expenditures, royalties, licensing fees, and income from investment. In the early 1980s, however, this deficit was somewhat offset by the rapid growth of Japanese foreign investment. In the late 1980s, increased travel expenses again produced a marked increase in the services deficit despite a rapid growth in foreign investments. Although most barriers to foreign investment were removed in the 1980s, Japan's heavy investment in other countries remained a major cause of tension with those countries.

Japan's foreign aid program, begun in the 1960s in the form of World War II reparations to other Asian countries, grew rapidly during the 1980s. In the late 1980s, Japanese assistance consisted of bilateral grants and loans as well as support to multilateral aid organizations.

With 99 percent literacy, Japan places great value on education. It provides children with compulsory free education from first grade through ninth grade. A high percentage of children also attend preschools and continue through upper-secondary and higher education. Educational standards are high, and Japanese students consistently finish at or near the top in international academic tests. Teachers are held in great esteem by Japanese society and are charged with imparting sound moral values to their students along with academic information. Any antisocial behavior on or off campus is considered to reflect on the teacher. Entrance to higher education is by examination and is extremely competitive, causing great stress to students trying to get into the "right" school. Education rarely ends with graduation from the formal school system. Japan also has extensive, well-attended adult education programs.

The Japanese have shown widespread interest in their traditional culture: the tea ritual, calligraphy, flower arranging, classical works of art, and No, Kabuki, and bunraku (puppet) theater. At the same time, educated Japanese are expected to have a good understanding of classical Western music and art, and modern Western music, drama, and art have been imported and adapted to develop distinctive new Japanese forms. In addition, extensive print and broadcast media provide information and entertainment.

The Japanese do not consider themselves a religious people. Their worldview, however, is guided by a basic philosophy deeply rooted in ancient Shinto beliefs on human origins and relations with the spirit world, modified by later adaptations of Confucian ideas on societal relationships and order and Buddhist concepts of karmic causation and an afterlife. The Japanese are very conscious of their position in society and the various roles that they are expected to play throughout their lives. They put a high premium on social harmony and will go to great pains to avoid bringing disgrace on their families and other groups with which they are associated by disrupting that harmony. For this reason, more than any other, the overall crime rate remains low in comparison with other major industrialized nations, and Japanese cities are among the safest in the world.

The 1947 constitution, with its stipulation of a symbolic role for the emperor, guarantees of civil and human rights, and renunciation of war, remains the operative basis for Japanese government. By pragmatic collaboration with big business, small business, agriculture, and professional groups, the Liberal Democratic Party (LDP) dominated Japanese politics from the time it was formed as a coalition of smaller conservative groups in 1955 until it lost majority power in July 1993. Although LDP fortunes have risen and ebbed over the years since its establishment, opposition parties were unable to oust it from power. However, in the early 1990s the LDP became so divided that enough factions split away to weaken the LDP majority. Despite maintaining a plurality in the House of Delegates, the LDP was forced to join a series of short-term coalitions in order to maintain a voice in government.

In the postwar period, Japan concentrated on rebuilding its economy, attempted to cultivate friendly ties with all nations, and relied on the United States for military security. By the 1970s, this foreign policy began to be called into question as Japan came into its own as a world economic power. In the 1980s, Japan became a leading industrial nation, the world's largest creditor nation and largest donor of foreign aid, and a major actor in international financial institutions such as the World Bank (see Glossary) and the International Monetary Fund (IMF--see Glossary). People at home and abroad expect Japan to play a diplomatic role proportionate to its economic power and its role in foreign assistance, trade, and investment. But popular sentiment in Japan and its Asian neighbors continues strongly to oppose Japan's assuming the military role expected of a world power.

Because of their tragic experience with a military-controlled government before and during World War II, the Japanese people readily accepted the military restrictions written into the 1947 constitution at the insistence of occupation forces and still generally interpret Article 9 of the constitution as forbidding the SDF from being deployed outside of the country or possessing nuclear weapons. Japan still depends on the 1960 Treaty of Mutual Cooperation and Security with the United States, which mandates that the United States will come to its aid in the event of a large-scale invasion and which allows for United States provision of a nuclear umbrella. There is little popular sentiment for change in this arrangement.

As Japan moves toward the twenty-first century, it is faced with a series of dilemmas. How can it continue to grow as a world economic leader without assuming a greater political role? And how can it be considered a political leader when it can not even provide for the security of its own territory without foreign assistance? Its trading partners complain that Japan enjoys an unfair advantage. Yet when Japanese firms invest in their economies, they raise the specter of Japanese domination. Each international crisis finds Western powers calling on Japan to "contribute its fair share" to the peacekeeping forces. At the same time, the Japanese people and their Asian neighbors, remembering the terrible lessons of World War II, demand that there be no extension of Japanese military power beyond its borders. With fewer than five years until the next century, Japan has yet to come to grips with these questions.

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As this revised edition of the book was being completed for posting on the Internet, the Japanese economy still had not emerged from two years of recession, its longest since World War II. Economic growth was only 1.5 percent in 1992 and 0.2 percent in 1993. In 1991 the Tokyo stock market index had plunged from nearly 39,000 to 20,000 and remained at that level until late 1992, when the index dipped further to approximately 16,000. By May 1994, however, the index had returned to the 20,000 level. Despite the continuing recession, the unemployment rate was kept below 3 percent, and the permanent employment system remained in place.

The Diet passed a law in June 1992 authorizing Japan's SDF to participate in UN peacekeeping operations. The noncombat participation of SDF personnel in conjunction with Japanese diplomatic efforts contributed in large part to the successful elections in Cambodia and to a peaceful resolution of the situation there. In May 1993, fifty-three members of the SDF were sent to Mozambique to participate in UN peacekeeping operations. Nevertheless, the dispatching of SDF personnel outside Japan's borders remained a controversial issue, and members of the Social Democratic Party of Japan (SDPJ) and other parties in the Diet continue to oppose the foreign mobilization of SDF personnel, even to rescue endangered Japanese citizens.

With the end of the Cold War and changing administrations in Japan and the United States, Japan's relations with the United States entered a period of uncertainty and friction. In late 1993, the successful conclusion of the Uruguay Round of the GATT negotiations and Japan's decision to allow some rice imports to make up for a reduced domestic crop provided a basis for further progress on trade issues, but the growing United States deficit in bilateral trade prompted Washington to demand that Tokyo set specific objectives for opening its markets to United States products. After fifteen months of sometimes contentious talks, on October 1, 1994, Japan and the United States concluded an agreement to open up three major Japanese markets to products from the United States. These were the Japanese insurance market and government purchases of telecommunications and medical equipment. The two sides failed to reach agreement on the import of American-made automobiles, automotive parts, and flat glass (used in automotive manufacturing and construction) to Japan but agreed to reach some resolution in thirty days.

In late May 1994, high-level negotiators from Japan and the United States, concerned that the trade frictions could jeopardize overall relations, reached an agreement to restart the framework talks at an early date. Despite the general failure of the framework talks, the two countries revealed in May that they would be engaging in joint high-technology research to develop ceramics used in high-density integrated circuits, composite carbon fiber materials used in manufacturing machinery, data collection using a crystal protein system, and technology to build environmentally friendly factories.

Close security ties were considered extremely important to both Japan and the United States. In March 1994, the first "two-plus- two" meeting of the Japanese foreign minister and the Defense Agency director with the United States secretary of state and secretary of defense was held in Tokyo to discuss a coordinated approach to post-Cold War regional and global security problems. Both sides indicated that they fully supported the United States- Japan Treaty of Mutual Cooperation and Security. Further, the United States thanked Japan for its strong host nation support for United States forces stationed in Japan, and the two nations agreed to begin consultations to renew the host nation support agreement when it expires in 1996.

Japan's relations with Russia showed some improvement. In October 1993, Russian president Boris Yeltsin, after two prior cancellations, arrived in Tokyo for a state visit. He made no further concessions on the Northern Territories dispute over the four islands northeast of Hokkaido, a major obstacle to Japanese- Russian relations, but did agree to abide by the 1956 Soviet pledge to return two areas (Shikotan and the Habomai Islands) of the Northern Territories to Japan. Yeltsin also apologized repeatedly for Soviet mistreatment of Japanese prisoners of war after World War II. In March 1994, then Japanese minister of foreign affairs Hata Tsutomu visited Moscow and met with Russian minister of foreign affairs Andrei Kozyrev and other senior officials. The two sides agreed to seek resolution of the longstanding Northern Territories dispute, but the dispute is not expected to be resolved in the near future. Despite the territorial dispute, Hata offered some financial support to Russian market-oriented economic reforms.

Although Japan has a few lingering doubts about Chinese political succession and high inflation in China, the growing economic disparity between coastal and inland regions of China, and China's military buildup, Japan's economic and political relations with China greatly increased in the early 1990s. China's imports from Japan grew by 64 percent from 1989 to 1993, and Japan's imports from China increased by 48 percent in the same period. Japan was China's top trading partner, and China was second only to the United States as a trading partner of Japan. In 1993 trade between China and Japan totaled US$39 billion, a 54 percent increase over 1992. The relationship was reinforced by a visit to Beijing by then Minister of Foreign Affairs Hata in early January 1994 and a reciprocal visit to Japan in late February and early March by Chinese vice premier Zhu Rongji. During his visit to China, Hata reiterated Japan's support for continuing modernization of China's economic infrastructure and further improvement in the private foreign direct investment environment and sought Beijing's help in dissuading North Korea from developing nuclear weapons, as well as China's support for a permanent seat on the UN Security Council for Japan. On his visit to Japan, Zhu sought further Japanese economic assistance and direct investment in a wide range of Chinese industries and economic zones, as well as Japan's support for China's membership in GATT. The Japanese government and private investors seemed favorably disposed to Zhu's requests.

In early May 1994, Japan's friendly relations with China and other Asian neighbors were briefly jeopardized by Minister of Justice Nagano Shigeto's remarks denying Japan's aggression during World War II and terming the 1937 Nanjing Incident a fabrication. Nagano was quickly required to retract his remarks and resign, and the Japanese government immediately and officially apologized to China, South Korea, and the members of ASEAN. The apology appears to have been accepted, and serious diplomatic repercussions were averted.

In January 1994, the minority coalition government of Prime Minister Hosokawa Morihiro succeeded in obtaining passage of a compromise political reform plan. This plan replaces the multiseat constituencies in the House of Representatives with a combination of 300 single-seat constituencies and 200 proportional- representation seats to be allotted based on the popular vote in eleven electoral units.

On April 8, a little over a month after this political success, Hosokawa was forced to resign as a result of a financial scandal. On April 22, the coalition chose Minister of Foreign Affairs Hata, and on April 25 he was elected prime minister. The next day, the SDPJ, the largest party in the coalition, isolated by the attempt by Hata political ally Ozawa Ichiro to form a right-leaning parliamentary group called Kaishin (Innovation), removed itself from the coalition. This left the coalition with only 130 members, far short of the number needed to get legislation through the House of Representatives. This fragile coalition lasted for only two months.

On June 25, 1994, faced with a no-confidence motion in the Diet, the Hata cabinet resigned en masse. The LDP and the SDPJ, which had been in strong opposition for thirty-nine years, formed a coalition with the Sakigake party and nominated SDPJ chairman Murayama Tomiichi as prime minister. Several members of the LPD and the SDPJ refused to support the coalition and defected from their parties. Among the LDP defectors were former prime ministers Nakasone Yasuhiro and Kaifu Toshiki. In the prime ministerial election at the June 29 Diet session, members of the former ruling coalition supported Kaifu. Murayama was elected prime minister on the second ballot.

Murayama is Japan's second socialist prime minister, the first since 1948. As leader of the socialist opposition, he rejected the SDF as unconstitutional and opposed some elements of Japanese foreign policy. Yet thirteen of the posts in his twenty-one-member cabinet, including the key foreign, trade, and defense portfolios, are filled by veteran LDP members, Murayama himself has indicated that he is willing to accept some LDP policies, including the constitutionality of the SDF. Observers at home and abroad are eagerly waiting to see how successfully Murayama will be able to resolve his differences with his coalition partners and govern the country.

October 1, 1994
Ronald E. Dolan
and Robert L. Worden

Data as of January 1994