Japan's Sex-Slave Controversy Has Economic Costs: William Pesek

Japan's Sex-Slave Controversy Has Economic Costs: William Pesek
By William Pesek

March 28 (Bloomberg) -- These should be sweet days indeed for officials in Tokyo.

A case in point: In 2006, Japan had its first gain in nationwide property prices in 16 years. Last week, that announcement was the icing on the cake for an economy that until recently has had little to celebrate. Stocks also posted the biggest weekly advance in more than a year.

And yet something is crashing Japan's party: the past. Absorbing much of the focus that would otherwise be on improvements in Asia's biggest economy is the brouhaha over its role in forcing women into sexual slavery during World War II.

It's a curious issue for Prime Minister Shinzo Abe to home in on, considering the huge economic to-do list he faces. Sure, Japan is growing again and it's shaking deflation. Yet to keep things moving Abe needs to reduce a massive public debt, increase productivity, boost entrepreneurship, attract more foreign capital, shore up the pension system, raise the national birthrate and better utilize the female workforce.

Abe, premier since September, also faces a challenge his predecessor, Junichiro Koizumi, didn't: keeping Japan growing without the crutch of ultra-low borrowing costs. While Koizumi put Japan on a path toward change, he did so amid zero interest rates. Abe is contending with a Bank of Japan set on raising its overnight lending rate well beyond today's 0.50 percent.

Wrong Focus

Unfortunately, Abe isn't focused on the economic outlook even as China grabs more and more of the spotlight. Instead, he's quibbling with long-accepted historical facts, such as Japan's culpability in setting up wartime brothels. He's also splitting semantic hairs at the expense of Japan's future role in the world's most vibrant region.

The crux of the debate is the word ``coercion.'' Abe is attempting, awkwardly, to argue it means something different to Japan in 2007 than it did in 1993 or 1945. He's playing down Japan's 1993 apology for being directly and indirectly involved in recruiting women against their will. It's raising eyebrows around the globe and causing embarrassment.

On March 26, for example, Abe said he is ``apologizing here and now as the prime minister'' for the sex-slave controversy. Yet he still refused to bow to international pressure to acknowledge that Japan forced as many as 200,000 women into sexual slavery. Bottom line, Abe's so-called apology isn't likely to defuse things in Asia.

Upsetting Asia

All this is enraging officials in China and South Korea, as have Japan's efforts to have things both ways in the region. Abe claims the abduction of 17 Japanese citizens by North Korea is a totally different issue from the contention that the Japanese military forced women into sexual slavery decades ago. Few outside Japan would agree.

Today's feuds are creating an unfortunate distraction from the cooperation Asia needs if it's going to compete with the West.

Japan, China and Korea should be joining forces to sustain rapid growth with free-trade zones, regional bond markets, linked stock markets and standardized accounting. They should be working to cool tensions with a nuclear-armed North Korea. They should be devising ways to bring home more of their nations' vast savings parked in U.S. Treasuries. Instead, Asia's past is imperiling its future.

Window of Opportunity

The prime minister's focus on the sex-slave issue speaks volumes about his dwindling power to accelerate the economic revival. Only after his disapproval rating trumped his support rate did Abe revisit Japan's World War II exploits. A proposed U.S. Congressional resolution demanding that Japan apologize offered an opportunity to do just that.

Today's growth offers Japan a rare window of opportunity to raise its economic game. At a minimum, Abe's government should be using these good times to trim debt. Sadly for investors -- and Japan's 127 million people -- Abe's attention isn't on making Japan more competitive. Nor is it on shaking Japan's addiction to exports.

Just as the U.S. has championed a strong-dollar policy, officials in Tokyo should be open to a rising yen. It would be a sign of confidence and might attract more foreign capital. The inflows would boost the Nikkei 225 Stock Average and enable bond yields to remain low even as the BOJ boosts rates.

By digging up the past, Abe is really signaling that his leadership is in trouble. Whenever Koizumi's poll numbers fell, he played the nationalism card, shifting attention to his visits to Yasukuni Shrine, which includes memorials to convicted war criminals. Abe now seems to be reading from Koizumi's nationalist playbook.

Wrong Playbook

Abe really should be looking more at Koizumi's economic plays. A reminder of that came last week from Heizo Takenaka, one of Koizumi's key reformers. Kyodo News quoted Takenaka as saying that ``the prime minister should demonstrate leadership in driving reforms.''

It always was up to Abe to accelerate the changes Koizumi championed in his five years as prime minister. Koizumi got things moving; Abe's mandate was to bring the process of modernizing Japan's rigid economy to the next level. So far, his government has done nothing of the sort.

More than 60 years after World War II and 15 years since Japan's asset bubble imploded, Abe is anxious to restore his nation's power globally. Quibbling over the past won't get Japan there. If Abe can heal old wounds in Asia and upgrade the economy, the clout Japan desires will follow.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Kuala Lumpur, or through the Tokyo newsroom at wpesek@bloomberg.net

Last Updated: March 27, 2007 16:35 EDT