 Re-Armed Japan Threatens The Dollar
Todd Stein & Steven McIntyre
The Texas Hedge Report
Sep 22, 2005
Snippet Courtesy of www.texashedge.com
September 11th was a historic
day for American foreign policy. We are, of course, talking about
9/11/05 when Japanese Prime Minister Junichiro Koizumi's Liberal
Democratic Party was overwhelmingly returned to power in an early
election. According to CNS News, the gutsy Koizumi "called
an election more than two years ahead of schedule after his plans
to privatize Japan's monolithic post office - effectively the
world's largest financial institution - ran into obstacles."
While this may be true, Koizumi's victory also validates Japan's
strengthening ties to the United States as some analysts estimate
US-Japanese relations at an all time high in terms of military
cooperation.
Japan has clearly shifted away
from its post-World War II pacifist stance, as Japanese so-called
"Self Defense Forces" have been playing a more aggressive
(albeit non-provocative) role in the region. Japanese troops
have even made their way to Iraq (at America's request) to help
in the reconstruction of that country's infrastructure. Additionally,
the Japanese military has worked with the United States on programs
ranging from missile defense to counterterrorism.
Up until the end of the Cold
War, Japan's post-War role in the world was vaguely defined as
an American ally against the Soviet Union. A $13 billion contribution
to help finance the 1991 Gulf War was noteworthy, but such "checkbook
diplomacy" was criticized and of course came without any
troops. Things really didn't start to change until August of
1998 when North Korea, without any advanced warning, test launched
its Taepo Dong missile (with a range of approximately 1,000 miles)
over Japan. This prompted a significant reaction from a stunned
Japanese defense community concerned about a new feeling of vulnerability
that had fallen on Japan.
Over the past several years,
there have been calls from both inside and outside of Japan to
revise the constitution and transform the Self Defense Forces
into a full-fledged military. The first major step towards this
goal was completed when, in October 2001, the Japanese Diet passed
a special anti-terrorism bill resulting in the deployment of
vessels to the Indian Ocean and Arabian Sea to provide logistical
support to coalition forces in Afghanistan. Fast forward to today
and we see that Japan has recently repositioned significant numbers
of its forces away from northern Japan towards the island of
Okinawa, which is on the East China Sea. This relocation to the
disputed waters of the East China Sea is important because it
gives credence to those who see China emerging as Japan's chief
rival.
While the most recent dispute
has been over drilling rights, we cannot ignore the bigger picture
when it comes to a Sino-Japanese rivalry. Under Koizumi, Sino-Japanese
relations have deteriorated to a point where thousands of Chinese
citizens have engaged in a number of anti-Japan public protests
regarding atrocities that occurred sixty years ago! Additionally,
Japan has become a leading defender of Taiwan, something that
Beijing sees as an internal issue and therefore has subsequently
warned Tokyo to mind its own business.
In addition to rivalries with
North Korea and China, Japanese relations with South Korea remain
strained. Even as U.S.-encouraged cooperation between South Korea
and Japan has made progress, Seoul is becoming increasingly weary
of a rearmed Japan. It is true that most of those Koreans who
suffered war crimes at the hands of Japanese invaders have passed,
but the memories remain. Japan is aware of this mistrust and
therefore is in no hurry to see a reunified nuclear Korea. For
a Japan surrounded by a nuclear China and a united nuclear Korea
would have no choice but to acquire the same capabilities themselves.
Fortunately, relations between
the Japanese, Chinese, Taiwanese and Korean business communities
paradoxically continue to warm. While North Korea is indeed a
threat to the region, it is the Taiwan Straits which have the
greatest chances of becoming flashpoints for armed conflict.
Whether ignited by a Taiwanese declaration of independence or
energy insecurity, subscribers should keep focused on Chinese,
Japanese and U.S. naval activities in the region. The U.S.-Japan
alliance has served the region well for a number of years, but
the times they are a changing.
Before we envision a scenario
where Japan continues along the path of rearmament, let's examine
what has already taken place according to the South Asia Analysis
Group.
- Japan is upgrading airbases
on islands in proximity of Senkakus and Taiwan e.g. Shimoji Shima
Island.
- Japan is doubling its air-refueling
capabilities for its extended Southern coverage.
- Japan is doubling its air
transport fleet.
- Upgrading and expansion of
AEGIS weapon systems equipped Japanese Navy ships.
- Increased air-transport lift
capabilities.
The next significant step in
rearmament will occur when Japan begins the development of long-range
precision missiles which can attack overseas targets including
enemy ballistic missile sites. Finally, Japan will acquire autonomous
capabilities that are not necessarily meant to complement U.S.
expeditionary warfare.
Since the U.S.-Japan alliance
is in excellent shape today, the majority of East Asia analysts
don't think about the long term consequences of a rearmed Japan.
Most of the preoccupation among this crowd lies with the Chinese
People's Liberation Army becoming a world class military power.
Japan has been a helpful partner in maintaining stability in
East Asia, so why worry about giving them offensive capabilities?
This line of thinking is short sighted given the samurai nation's
militaristic and xenophobic history. That being said, Japan may
already possess the one weapon needed to bring America to its
knees.
The Bank of Japan (BOJ) is
often referred to as "Federal Reserve East" as it regularly
coordinates its monetary policy with the American central bank.
Over the last few years, the BOJ has spent considerable resources
(trillions of Yen) to support the U.S. Dollar. In early 2003,
Japan publicly stated that its central bank would prop up the
dollar should it drop sharply following the then upcoming invasion
of Iraq. The reason most commonly cited for Japanese intervention
in the currency markets (i.e. buying dollars) is that Japan lives
and dies by its ability to export goods, and therefore the Yen
must be kept competitive with the Dollar and other currencies.
Another motive for BOJ intervention
lies with the old phrase: "If you owe the bank $100,000,
the bank owns you; but if you owe the bank $100 million, you
own the bank." Of course $100 million is just peanuts considering
that Japan holds $700 billion worth of United States Treasury
debt. Any hiccup in the U.S. economy and the market value of
those Treasury holdings will suffer. Japan's willingness to accept
U.S. treasuries is nothing more than a gigantic vendor finance
program!
The final and perhaps least-discussed
reason why the BOJ has historically said "How high?"
when asked to "jump" by the Fed is the geopolitical
situation. As discussed above, from the end of World War II up
until today, Japan has been 100% dependant
on the United States for its security. This arrangement served
both sides well for more than half a century but, as we have
shown you, things are beginning to change. A Japan that does
not rely on the United States for its security means that the
BOJ will no longer feel the need to cooperate with the Fed. As
a result, a rearmed Japan will realize that it has an even more
powerful Dollar weapon than China (the second largest holder
of U.S. Treasuries) does. Eventually, these two Asian central
banks will stop accumulating treasuries and possibly begin to
unload them, which could trigger a Dollar collapse. Even more
threatening to the Dollar is a possible alliance among Asian
countries with the desire to form their own regional currency
similar to the Euro. While all of these scenarios are just talk,
the common denominator among them is a Japan which no longer
relies on America for its protection. The bottom line is that
the more you hear about the changing role of Japan's military,
the closer we are to a major Dollar devaluation.
more follows for subscribers
. . .
Sep 21, 2005
Todd Stein & Steven McIntyre
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Todd Stein
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