Japan and its neighbours

This is the text of a box within my latest Fund Strategy cover story on Japan.

Tensions between Japan and its regional neighbours represent one of the greatest threats to any positive scenario for the country’s recovery. Strains in Asia more generally represent one of the gravest threats to global stability.

The rows between Japan, on the one hand, and China and South Korea on the other, often take the form of disagreements over history. Both these neighbours of Japan were furious when Shinzo Abe, the Japanese prime minister, visited the Yasukuni shrine to Japan’s war dead in December.

The angry exchanges over the shrine show how differently the two sides perceive such affairs.

From the perspective of Japan’s leadership the prime minister’s visit was a straightforward matter of honouring all of its war dead. They saw it as in a way roughly akin to the ceremony at the Cenotaph on Remembrance Sunday in?the UK.

In contrast, China and Korea saw the Japanese leader’s visit to the shrine as a gross insult to their war dead. In their view, Abe was showing respect to, among others, Class A war criminals. In the eyes of Japan’s neighbours, Abe had failed to demonstrate remorse for the millions of people Japan killed during its occupation of their countries in the first half of the 20th century.

There is also an angry dispute over what Japan calls the Senkaku islands and China calls the Diaoyu. Japan took control of the islands in the Sino-Japanese war of 1894-5 but China is insisting increasingly loudly that it wants them back.

Although the details of the historical disputes are obscure, the contemporary consequences are all too real. Andrew Rose, a Japan fund manager at Schroders, acknowledges that such rows “could have an economic impact in the short term”.

He points back to 2011 and 2012 when Japanese exporters suffered as a result of Chinese boycotts of their goods over the island dispute. Consumer brands, such as Canon, were particularly hard hit,

There is even the prospect, although fortunately it does not appear to be an immediate one, of military skirmishes. Both sides are bolstering their already formidable military machines.

There are even reports, though some dispute them, of the Chinese planning a swift military operation to seize the islands.

To make matters worse, the row between Japan and its neighbours is only one of a complex set of tensions in the area. Many other Asian nations, particularly the Philippines and Vietnam, feel threatened by China’s growing power. Meanwhile, America is concerned that China will become the dominant military force in the region.

These tensions have a knock-on effect on Japan. The Japanese authorities are concerned that America may not be willing to protect it against external threats, particularly from China, under the terms of the US-Japan security treaty.