Can Kan?

Japan’s Economy Towards 2013: Policy Drift in an Era of Opportunity

☹—〠—☺—〠—☹
Michael Smitka, Professor of Economics
Washington and Lee University, Lexington, VA 24450
September 28, 2010

Context
Japan is moving towards an important turning point in 2013. Not only will we see elections for both the
upper and lower houses of the Diet, we will see the baby boomers retiring en masse. This will usher in a
transformation of the Japan that we know – into what, we have only an inkling. No society in history has
faced a population going grey as quickly: Japan is in the vanguard of the new demographics. Youth may
find employment easier, or employment they desire easier to find. Retirees may downsize and renovate as
they move towards more time at home. And of course they will expect pensions and healthcare in
numbers qualitatively unprecedented relative to the remaining labor force.
Rural areas are in the vanguard. Most of the current agricultural work force, already old, will die out in
short order; it is not clear how many of their children will “retire” to work the land, but given the still-low
average farm size, the low market value of such land, and perceived disamenities of rural life, my guess
is “not many”. This will force a restructuring of the agricultural sector. Similarly, the countryside seems
destined to be dotted with ghost towns; the current census – forms are currently being distributed – will
find a marked redistribution of those under age 65 from many remote locations. If the courts continue to
exert pressure towards one-man, one-vote electoral districts, this will lead to a massive swing of voting
power to urban residents. We will likely have indications of this before the 2013 elections.
Change will however be evolutionary, not revolutionary. Over the next year–or the next 5 years–I foresee
no crisis, no lightning rod, neither high growth nor none. Through sheer size Japan will remain a vital
constituent of the Pacific Rim economy, which is larger and more dynamic than the Old World or the New
World. It will remain one of the largest trade partners of the US, intertwined with us through capital
flows. Japan will still be a key player in any future movement towards strengthening the global trade
framework, supporting the health of the world’s financial markets, moving towards policies to address
global warming or the deepening markets for agricultural products. Since all these are important to the
US, engaging Japan will remain important.
Japan however is likely to focus on deepening trade and commercial links within East Asia and Southeast
Asia. Some of this is by default, because global trade talks are stalled. Some of this will be because that
will become more and more important to the Japanese economy. Finally, as disparate as those economies
and polities may be, they are cognizant of interdependence and the need to manage that productively
across a range of issues. At present there is a proliferation of groups, ASEAN+3 and others. If successful,
the very diversity of the countries involved may be a strength: any evolving regional arrangements are
more likely to be built on a framework that can expanded to encompass other nations than NAFTA and
the EU, the more narrow groupings in North America or Europe. My own suspicion is that limited policy
resources mean than an emphasis on intra-Asian efforts will come at the cost of less attention by political
leaders and working level officials to the wider world. The challenge to the US will be to engage Japan.
To reiterate, this will be evolutionary: Japan faces no obvious near-term crisis that will force action. The
DPJ represents an amalgam of at least 5 political parties across the ideological spectrum. As Japan moves
towards a two-party system, the DPJ is still feeling its way across a variety of policy issues towards a
location on the political spectrum that will provide it with electoral advantage while being acceptable to
party members. Of course the DPJ’s landslide victory in 2009 meant that many of its members in the
current Diet are not wedded to one of the progenitor parties. Personal factions are also weaker than in the
days of yore: Ozawa failed to carry the support of all of the first-time Diet members he so masterfully
recruited to run in 2009. This points to the eclipse–however partial–of the old factional system based on
money politics (kinken seiji). Within the DPJ Kan’s hand may now be strengthened, but he will face

MSmitka@wlu.edu
 Smitka, 2

difficulty in garnering support for near-term initiatives within his own party, and might face even greater
hurdles in the Upper House.
In this political environment, the ideology of fiscal restraint appears likely to serve as a policy constraint.
New expenditure initiatives, such as for child allowances, have already been pared; stimulus of size
sufficient to have a macroeconomic impact is out. At the same time, an increase in the consumption tax an
fiscal restructuring is now also on hold, as it has been for almost a decade. My sense is that, unlike in the
US, there is a widespread public acceptance that at some point tax increases will be required to
accomplish this. Part of the increasing stridency of voices pushing for fiscal restraint is that the date at
which that component is implement keeps slipping; given large current budget imbalances on top of a
large stock of debt, at some point there has to be a decision to just do it. As an economist I see less need
for urgency.1 The recent yen intervention is a case in point: while it allows the government to claim that it
is working to stimulate the economy, doing so requires no legislation and has minimal fiscal impact. It
also happens to be totally ineffective.
So can Kan? – no, he can’t, whatever the issue might be. The opposition in the Upper House won’t dance,
and his own party is unsure of its footing. Stasis is what I expect. Rick Katz however addresses the short
run in more detail.

Japan’s Macroeconomy
I am a practitioner of the dismal science, and my predilection is to emphasize the dismal side of things. In
the short run, however, I believe that Japan’s economy will continue to grow (albeit slowly), and that it
will prove less subject to the political and structural pressures that may lead to a double-dip recession in
the US and parts of Europe. In Japan’s case, the recent Toyota Recession was clearly linked to an undue
dependence on durable goods exports, which plummeted with the onset of the Great Recession in major
markets. That drop in exports was amplified by inventory adjustments and exchange rate swings, and the
domestic production adjustment fed into retrenchment in corporate investment.2 While the US and EU
markets remain slow, the inventory adjustment component faded in the space of a few months. The rest of
Asia continues to grow, and so trade has partially recovered. Employment remains weak, fiscal
imbalances large, and investment low, but the direction is up. This underlying dynamic will be unchanged
by macroeconomic policy initiative, in part because I don’t think Kan can. Down the road, whatever
happens (or does not happen), 2013 will be key: the next Lower House election must be held by August
of that year, and an Upper House election will be held in July 2013. In the interim growth will remain
slow, deflation will continue – in other words, not much new. Indeed, even if the pro-productivity policies
that Rick Katz advocates were implemented, their impact would not show up in the short run of the
current 2009-2013 election cycle.
However, from 2013 the dynamics become more interesting, as economic and political forces converge.
Japan already has the highest share of population above age 65 of any OECD member, and the highest
share of the elderly, those above age 75. But in 2012 the first cohort of the large baby boom generation
will reach age 65 and under the personnel systems at most large employers will start retiring en masse and
will begin to collect public (and for those in large corporations, private) pensions. The 2013 election will
also provide a real-world demonstration of the force of Duverger’s Law, that electoral systems such as
Japan’s force a two-party system. In addition, having bested Ozawa’s challenge, Kan may last for the
duration. Japan certainly has not been served by its Andy Warhol politics, in which senior politicians each

1. The underlying logic for “what, me worry?” can be found in Broda and Weinstein (2005). They overstate
their case, by failing to consider the potential impact of a spike in interest rates by embedding their analysis
entirely inside a long-run model and by overemphasizing the magnitude of the net versus gross debt
distinction. Nevertheless, they are certainly correct in pointing out the leeway that Japan likely has for very
substantial fiscal stimulus.
2. Toyota is large enough to have a very small but potentially measurable impact on the economy; the recession
however was the sharpest since consistent data collection began 50-odd years ago. For a general discussion,
focused on the US and the automotive industry but extended to consumer durables more generally and to
Japan as a second example, see Alessandria et al. (2010).
 Smitka, 3

get their brief moment of fame as Prime Minister. Administrative stability will surely be beneficial, and of
course would make government-to-government interactions from the US end more predictable.
For the economy, the retirement wave will show up in narrow areas of consumption (more eating at home,
more rice consumption) and production (continued exit from agriculture and the mom-and-pop retail
sector). On net there may be relatively little change. It will also help ease the employment situation for
youth, as firms will need to increase their hiring. Companies historically made large lump-sum cash
payments to retirees; preparations vary, but it will lead to short-term swings in corporate borrowing and in
bank cash balances. It will also cause household savings to fall, as the newly retired tap into their bank
accounts. (With deposit rates of 0.05% or less, interest income is less than paltry: clipping coupons is not
an option.) Swings in both the corporate and household sector will feed through to lower national savings,
higher imports and a stronger yen.3 Retirement will not produce a surge in the economy, based on data for
other countries. It will however increase the pressure for a number of structural shifts, shifts that are
already visible. But from the US end Japan has been a major contributor to the pool of global savings.

Japan’s Microeconomy
Japan is held up by some for its inefficiency and economic stagnation. That is certainly true at the sectoral
level of agriculture and food processing. Overall however I see considerable dynamism, in the retail
sector with cheaper prices, round-the-clock hours and a vast increase in choices; in improvement in the
housing stock; and in shorter work hours and a more relaxed lifestyle. At least from my perspective as a
resident in a small town in rural Virginia, distant from urban US wholesale distribution centers and with
muted competition among food retailers, adapting to living in Japan is no longer such a shock. Indeed,
living in the suburbs of Tokyo during a 2006-7 sabbatical, I could find clothing that fit at lower prices
than in the US; most but not all food prices remained higher – and my consumption patterns adapted
accordingly. This is the ground-level counterpart of the average improvement in real incomes over the last
two decades, components of which – housing, the advent of new retailers, the advent of new goods, the
increasing role of services – are difficult to capture in statistics. My own suspicion is therefore that in fact
deflation has been greater than reported, which helps explain the muted reaction of average Japanese over
the past two post-bubble decades. One major qualification is that these improvements are offset for many
individual Japanese by un- and under-employment, and by very low incomes in retirement.
First, there is the positive side of restructuring since the collapse of Japan’s asset price bubble of the late
1980s. Department stores have lost ground since the 1980s. Daiei, once the largest retailer in Japan and an
innovator in large-format general merchandise discount retailing, went through de facto bankruptcy and is
now controlled by the Aeon group, which has also snapped up the bankrupt Mycal chain to add to its own
Jusco chain. Aeon is now gradually integrating these operations (and other acquisitions in the grocery
store segment), sharing IT systems, undertaking joint sourcing and developing group-wide private label
goods. Consolidation has also occurred in the convenience store sector and the electronics sector, where
the suburban-based Yamada Denki chain is the dominant player and is now entering urban centers,
throwing down the gauntlet by opening up a new outlet in Ikebukuro, a major commuter train nexus,
ironically at a site once occupied by a Mitsukoshi department store. Similar examples abound, including
the consolidation of wholesalers complementary to the retail revolution.4
However, the initial rush to set up suburban shopping malls and renovate existing space has peaked.
While 7-11 Japan, the dominant retailer, continues to add 500-600 stores a year, half now replace existing
stores. Likewise, early malls and large-format stores were located opportunistically, reflecting the higher
3. Given the continued expansion of healthcare and other services that accompanies population ageing, Japan
currently has too large a manufacturing sector. Lower national savings, a stronger yen and higher imports
are all sides of the same (oddly-shaped) coin that will buy the greater provision of services.
4. See Smitka (2010). A corresponding working paper will soon be available through the Center on Japanese
Economy and Business at Columbia University. Arthur Alexander (2010, 3: Table 2) contains a list
indicating the stability in ranking of top 10 retailers in Japan between 1983 and 1998, in contrast to the US.
In the subsequent decade, three of those firms went through bankruptcy or its equivalent followed by
mergers, another three were acquired by others while in less dire straits, and the four remaining firms all
expanded by acquisitions or went through major restructurings.
 Smitka, 4

real estate prices that prevailed in the late 1990s. As a consequence, they were off of main streets and
small in size. Subsequent entrants faced cheaper real estate and chose strategic locations with better
access and more parking, and built larger stores and malls with more tenants that generate better traffic. In
the Tokyo suburb where I lived the initial tenants of the old malls and large-format had exited by 2007.
Many of the malls and older structures were slightly seedy, occupied by low-rent retailers such as game
and karaoke centers or (in a strip mall) an urban hot spring (onsen). Similarly, the old shopping streets
extending out from train stations are narrow and lacked parking. The main streets leading out to suburban
housing developments are often quite different, store after store with parking.5
As with K-Mart in the US, failing retail operations can be slow to exit. On the mom-and-pop end, there
are still camera shops open, bereft of customers but providing their elderly proprietors an excuse to get
out of the house and a place where old friends can stop by to chat while running errands. Without an
expanding market–and henceforth the market perforce will shrink more rapidly–there is little opportunity
to lease old, narrow and inconvenient retail space. From 2013 the measured numbers will improve, when
many more small stores will pull down their shutters for the last time. The local camera store will then
change from a location that adds virtually no value to the economy to an empty space that if anything will
lower the value of the stores on each side. Meanwhile the Yamada Denki along an outlying street will fill
with cars on a weekend. But the increment to productivity that it represents is pulled down by the inability
to reutilize the space of its inefficient, small-scale shopping street competitors.
This story can be repeated for sector after sector. Mergers and acquisitions abound, from banks to steel to
paper to semiconductors to automobiles.6 Of course restructuring takes time. But making the case for new
investment is much more difficult in a slow-growth environment, while the costs of exit to stakeholders of
existing firms are amplified, given the lack of alternatives.
Going forward Rick Katz believes that Japan might be able to achieve 2½ percent per annum productivity
growth; Arthur Alexander has demonstrated that in the high-income economies productivity shows a
strong convergence at a lower 2%.7 Even if such rates are achieved, demographics–the shrinking of the
working-age population–will depress the rise of total output, leading to (in their scenarios to growth rates
of 1½%–2%).8 For the reasons I outlined above, I however believe that slow growth itself will impede the
ability to realize such productivity gains. So I foresee potential GDP at 1% over the next decade, and
potentially slower thereafter. Of course in the short run the economy can grow faster as it soaks up idle
workers and utilizes excess capacity.
From a global perspective, this will mean that Japan will occupy an ever-smaller share of global trade in
general and of Asian trade in particular. Slow growth will also amplify the fiscal pressures that stem from
the ongoing aging of the population, as slow growth will accentuate the political tensions of increasing
taxes to cover healthcare and pensions. Fiscal stringency is here to stay, in part because the need is now
the working assumption of so many.9 Indeed, I believe the focus on stringency will become stronger, in
part because the perception that it is necessary is so widely shared. However, slow growth is not
necessarily bad news for residents of Japan; Arthur Alexander likes to use the example of Switzerland,
5. One sushi shop near where I lived in Chiba was built on stilts, freeing another dozen parking spots; others had
small parking decks or ramps leading up to rooftop parking.
6. Toyota now owns or controls Daihatsu, Hino, Isuzu and FHI/Subaru and has increased its stake in numerous
suppliers. It is looking more and more like the old GM in size and scope of operations… For other
examples see Schaede (2008).
7. Alexander (2007).
8. Two common myths are that higher female labor force participation and higher immigration can offset this
decline. The participation rate for young women is however already high (see graphs at Smitka blog,
“Female Labor Force,” September 16, 2010), while the number of young women is falling. I expect (with
trend data and casual observation as support) that these women will remain in the labor force upon marriage
and childbearing. However, the net effect will be small. Similarly, immigrants bring dependents while
having lower productivity than the native-born; large numbers would be required. See Feldman (2004), who
forecast Japan would need 7 million immigrants to offset the labor force decline over 2002-2012.
9. See Imrohoroglu et al. (2010). They suggest that even an increase of the consumption tax to 15% may be
insufficient to assure fiscal sustainability, and that expenditure restraint must therefore remain a priority. Cf.
IMF (2010), the Article IV background study for Japan. This is reviewed in Alexander (August 2010).
 Smitka, 5

whose economy has stagnated for decades. Switzerland remains prosperous, just not as prosperous as if it
had grown. The same is true for Japan; slow growth is not a disaster

Policy Points
Policy Disjunction
Let me make explicit what is implicit in much economic analysis, that there is relatively little feedback
across policy areas. “Good” political ties (which I assume most of you define as “a quiet life”) have very
little impact on economic ties, trade, the exchange rate and so on. The bureaucracies are different, the
interest groups are different, the academic and think-tank specialists are different. That is true in both
Japan and in the US, as I argued over a dozen years ago in a paper for a US-Japan security conference;10
subsequent observations have done nothing to change my mind. Presidents and prime ministers may pay
each other state visits – though many working level officials dread them and probably hope they don’t! –
but to me that’s irrelevant, and not merely because I’m an academic. By and large the US-Japan security
relationship has likewise operated in its own world. And all politics is local; three of the four panels of the
conference are thus premised on the assumption that local behavior does spill over into wider arenas.
A second aspect of disjunction is specific to the DPJ. Over the past decade-plus Japanese prime ministers
have sought to enhance the authority of themselves and the Cabinet over and against the bureaucracy.
(Ironically, that is being done through building up a bureaucracy that is directly answerable to the Cabinet
Office.) This “presidential prime minister” is a work in progress that may be stalled by the current in-
fighting within the DPJ, and the impasse it faces in moving legislation through the Upper House of the
Diet. That is unfortunate, because one of the grave defects of Japan’s ministerial system is the relative
lack of horizontal coordinating mechanisms.11 Areas such as global warming initiatives, Basle III+,
improving resources for the IMF and World Bank, movement towards coordinating global tax and
investment rules, and preparations for sudden change in North Korea, all cut across ministerial
boundaries. In addition, a weaker cabinet will enhance the power of vested interests and their bureaucratic
symbionts. That would make addresses narrow issues of market access more challenging.

International Trade and Finance

FTAs
In Japan the talk a couple years ago was about “Japan-passing,” that in the eyes of the rest of the world
they would be ignored, overshadowed by the BRICs in general and China in particular. That cuts both
ways: China matters more and more to Japan and the US less and less. We used to be Japan’s principle
trade partner; now China is, in terms of both imports and exports. Furthermore, most (potential) trade
between the US and Japan is unhindered by formal protection; the main exception is agriculture. The
sheer volume and variety of interaction will be bound to generate friction that is idiosyncratic in nature.
Most trade issues are therefore multilateral.
The natural impetus for Japan will be however to focus on the near at hand. Asian Economic Cooperation,
bilateral free trade agreements with neighbors, ASEAN+3, the list is long. In this context, the challenge
will be to keep the Asian region from devolving into a spaghetti of inconsistent bilateral trade agreements
that will complicate the flow of business. Unfortunately the Doha Round talks remain moribund, and so
do not provide a diversion, but bureaucratic inertia, seen in a favorable light as the desire to maintain the
staffing to handle a revitalized Doha Round, make the negotiation of narrow FTAs meaning from the
standpoint of administrative and narrow political calculations. Since they are not a priority and since
kudos come only from success, the temptation is to sign a large number of agreements even if they are
devoid of content. As Kawasaki (2010) notes, outside of agriculture most “tradable” sectors of the

10. Smitka (1996).

11. I have not pursued the question since (?) the late 1990s, but at that time there appeared to be no counterpart
in Japan to the interagency clearing process of the US. The idea was largely foreign to the individuals to
whom I attempted to explain the system, though there is certainly communication at the Cabinet level.
 Smitka, 6

Japanese economy are relatively open–and agriculture is trivial in size.12 Specific Japanese exporters are
interested (and select industries watchful lest foreign goods be allowed in), but the real gains–if there are
any–are on the other side, and the lock-in effect for domestic reforms that FTAs can provide may be just
as important as the gains from lower import prices and the reallocation of production to higher-value uses.
Breaking out of this cycle, and in a way that incorporates the US, will be a major challenge. APEC is one
possible tool in that direction. Because it is large and diverse, pushing forward with initiatives inside
APEC will avoid, if not undo, the knot of bilateral deals while serving as a potential template for later,
global deals. However, that would require persistent high-level interest in US policy making circles. The
potential is there, though the agenda for November 2011 Yokohama meeting is probably locked in place.
It could however be used as a forum to announce new initiatives for the 2012 round, which the US will
organize in Honolulu, using the venue to try to engage Japan in the effort.
In the longer run Japan’s aging population may well change its stance on agriculture. Farm production
continues to fall, land under cultivation is decreasing, and there are no obvious heirs to the current
generation of farmers, who on average are in their 60s. While the shibboleth of food security is firmly
entrenched, the farm lobby itself may literally die out. In addition, redistricting will lessen the relative
weight of the rural electorate. The move to providing guaranteed incomes to farmers is from this
perspective an additional boost, because it will lessen the feared link of greater food imports to lower
prices and incomes. Rival bureaucracies would be happy to facilitate this, as it would enhance their own
authority over trade issues. The window may open more quickly than anyone would realize; it would be
useful for the US to keep knocking, as such outside impetus might move things along.

Currency and Global Capital Flows

Efforts to depreciate the yen are in my reading partly a palliative for the political inability of the DPJ in
general and the Kan cabinet to implement more forceful fiscal stimulus. The recent intervention (and
another 1-2 to follow?) was however widely anticipated, and did nothing to change expectations; whether
a surprise move would have done so is now moot.
At ¥85/US$1.00 the yen is not particularly overvalued, as Rick Katz has emphasized, looking at attempts
to calculate real effective exchange rates. Of course individual exporters will suffer, particularly those
such as Toyota that allowed themselves to become overly dependent on exports to sustain capacity
utilization (or even adding to domestic capacity). For a variety of reasons, I believe that over time the yen
must strengthen further. A higher yen would encourage resources to flow out of manufacturing and into
the output of services that the wave of baby boomer retirees will demand. In addition, net profit flows
from Japan’s cumulative foreign investments are greater than its trade surplus. That means that it can
finance a trade deficit without resort to global capital markets; profit remittances will push the yen higher.
Neither economists nor soothsayers however have any proven ability to point to the timing.
Parallel to this will be a decline in national savings. Household savings have already fallen to the 2%
level; to date this has been offset by a rise in corporate savings, as firms sought to rebuild their balance
sheets following the collapse of the asset side of their accounts in the early 1990s, particularly from 1997.
Japanese firms and banks avoided the recent financial excesses of the US and the UK, and have lowered
their liabilities. As a sign of that they are now engaging in a greater level of merger activity, while
dividend yields are approaching 2%. I expect corporate savings to fall.
The net effect is lower national savings, which of course is synonymous with a move towards smaller
trade balances or even deficits. It also means lower flows of savings into global financial markets. Since
there is yet no hint of the tax increases needed to lessen the US dependence on foreign capital inflows,
that should be a source of some concern. Fiscal restructuring in Japan would serve to raise their national

12. The largest narrow sector of manufacturing is food processing, not electronics or automobiles. The high
price of food is less a function of high farm-gate prices and more a function of retail structure and complex
distribution networks that provide niches for local, inefficient bakers and bento (box lunch) preparers.
 Smitka, 7

savings–and in the short run increase their trade surplus–allow us to better finance our savings deficit.
Asking Japan to stimulate its economy could have consequences that we would regret.13

Budgetary Initiatives
One topic of recent concern to the US is to enhance the Japanese contribution to global security
initiatives, and to increase support for bases Okinawa. The overall emphasis on budgetary stringency
makes me pessimistic that new appropriations would make it through the Diet. In the case of the proposed
move of Futenma to Henoko, the LDP was unable to muster such support even in better economic times
and when it had a stronger overall position in the Diet. It seems to me that Kan cannot afford to try to
push this through the Cabinet, if he cannot even maintain the proposed amount of the child support
subsidy. Over the medium run pressures to trim base support will increase; any resolution of issues on the
Korean peninsula would accelerate this, as it will be more difficult to make the case to the Japanese
public that the US presence would provide a credible or useful capability vis-à-vis China.
The same budgetary issues will hit international aid. A number of ministries can have their fingers in that
pot, sending agronomists and construction specialists and others. However, the effectiveness of each
ministry running its own show is low. A stronger Prime Minister’s office could help squash bureaucratic
particularism–assuming of course that the PM or more broadly the DPJ views that as a priority. A weak
government could impede efforts here, as with other specific policy topics.
Last, over the past 20 years the LDP used the off-budget Fiscal Investment and Loan Program (FILP),
drawing funds from what is now the Japan Postal Bank, to make “loans” to local government and for
infrastructure projects. Many of the latter generated no net income and so constituted de facto fiscal
expenditures; Koizumi’s post office reforms were intended to force this system to operate on a more
commercial basis. Gene Park (2010) claims that at both the institutional level and the funding level the
DPJ has partially reversed Koizumi’s policies. Indeed the FILP (2010) overview shows loans up 72.4% in
FY2009 (ending March 2010) but is down so far in 2010 at less than half the level of FY2000.

Conclusion
Overall, across an array of issues, I fear that in relative terms Kan now can’t. In some cases I have
suggested that the US could offset this by taking the initiative. Accurately or not, I perceive the attention
of our top policymakers focused on Europe (and European macroeconomic and financial sector issues)
and the Middle East, despite President Obama’s personal ties to Southeast Asia. In addition, our own
election cycle and divided Congress limit our ability to put forth initiatives or even pass routine
legislation on a timely basis. Political weakness and tight budgets are not limited to Japan, and likewise
are barriers to pursuing an range of political, economic and security policies. Perhaps we can’t, either.

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 Smitka, 8

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Acknowledgments
My thanks to Arthur Alexander, Hojat Ghandi, Bill Heinrich, Rick Katz, Robin Le Blanc, and Len Schoppa for
comments and discussions that fed into this paper. I think the Bureau of Intelligence and Research and the National
Intelligence Council for stimulating me to think through “The DPJ at One: What’s Changed and What’s Not” for the
conference they jointly organized September 30, 2010 at the System Planning Corporation, Arlington, VA.

Ranking of US Trade Partners, January-June 2010

$ millions
Exports Imports Total
Canada 142,179 China 193,918 Canada 302,097
Mexico 90,373 Canada 159,918 China 242,469
China 48,551 Mexico 128,833 Mexico 219,206
Japan 34,401 Japan 65,981 Japan 100,382
UK 28,336 Germany 45,727 Germany 72,723
Germany 26,996 UK 28,288 UK 56,624
Korea 22,679 Korea 26,806 Korea 49,485
Brazil 19,724 France 21,898 France 36,853

NAFTA 232,552 Pacific Rim 353,289 Pacific Rim 534,501

Pacific Rim 181,212 NAFTA 288,751 NAFTA 521,303
Europe 159,913 Europe 215,696 Europe 375,609
South/Central
77,841 OPEC 87,716 South/Central America 152,767
America
OPEC 30,927 South/Central America 74,926 OPEC 118,643
Africa 14,817 Africa 49,123 Africa 63,940

Notes: Pacific Rim consists of East and Southeast Asia, including Australia and New Zealand.
 Smitka, 9

Ranking of Japanese Trade Partners, January-July 2010

¥ millions
Exports Imports Total
China 7,414,979 China 7,542,254 China 14,957,233
US 5,933,304 US 3,496,632 US 9,429,936
Korea 3,227,344 Australia 2,162,222 Korea 4,631,608
Taiwan 2,726,717 Saudi Arabia 1,886,045 Taiwan 3,927,892
Hong Kong 2,156,743 Korea 1,404,264 Australia 2,996,720
Thailand 1,710,382 Taiwan 1,201,175 Thailand 2,755,956
Indonesia 1,275,380 Malaysia 1,130,000 Hong Kong 2,237,101
Germany 1,012,660 Thailand 1,045,574 Saudi Arabia 2,217,805

Northeast Asia 13,369,040 Northeast Asia 10,147,693 Northeast Asia 23,516,733

NAFTA 6,418,206 Middle East 6,192,756 ASEAN 10,786,959
ASEAN 5,709,892 ASEAN 5,077,067 NAFTA 10,466,502
Europe 4,570,564 NAFTA 4,048,296 Europe 8,329,135
South/Central
2,364,318 Europe 3,758,571 Middle East 7,526,667
America
Middle East 1,333,911 Oceania 2,382,723 South/Central America 3,701,948
Oceania 1,099,733 South/Central America 1,337,630 Oceania 3,482,456
Note: Northeast Asia is China, Korea and Taiwan
Smitka, 10