Ambassador Foley's Speech on U.S.-Japan Relations

Tokyo Chamber of Commerce & Industry
Chino City, Nagano, Japan

Friday, July 31, 1998

12:30-1:30 p.m.


I would like to thank the members of the Tokyo Chamber of Commerce and Industry for hosting me here today. This is a wonderful opportunity to talk about the relationship between the United States and Japan. Our relationship is important bilaterally, regionally and globally. It is stronger than ever, as we confront new challenges that have arisen. My remarks will focus on the state of the relationship.

Let me say at the outset that the United States strongly supports Prime Minister Obuchi and his cabinet as they deal with a very serious economic situation. The Prime Minister is a skilled parliamentarian. He will bring that valuable strength to his work, as the Diet wrestles with important economic legislation over the next few months. President Clinton has said he would welcome a visit to the United States by Prime Minister Obuchi at a time determined by the Prime Minister. One of my priorities will be to secure an early opportunity for both leaders to meet.

The United States is standing by Japan in these troubled times because Japan is our partner, our friend and our ally. Senior Japanese officials share our substantial concerns about the continuing poor performance of Japan's economy. The need for economic, financial, and tax measures to stimulate a recovery in Japan, which can restore Asian growth, is clear. I have high expectations for the new Obuchi administration. I hope and believe that Japan will act boldly, commensurate with its position as the world's second largest economy.


Achieving sustained, domestic demand-led growth is the immediate priority. That requires decisive action on financial stabilization, fiscal stimulus and deregulation. Japan's leaders have made a strong commitment to those objectives and have taken some important concrete actions:

-- The Government is proceeding to implement the largest spending package in Japan's history, and is actively considering further measures;

-- Japanese leaders have reinforced the deposit insurance system, and are preparing changes to improve the legal infrastructure for bad loan disposal. We look forward to strong steps to improve transparency and supervision, speed-up the disposal of bad loans, and restructure the banking sector;

-- The Government is moving forward to deregulate a number of sectors - from telecom, to financial services, to housing. We expect that work will continue.

I believe Japanese leaders recognize that nothing short of a major restructuring of Japan's economy - namely, a shift to domestic demand-led growth - can guarantee Japan's future prosperity. The problem for Japan is finding sources of growth internally, in an economy that is already highly capital-intensive and has a shrinking labor force that must support a growing retired population.

As this group knows better than I, the solution here is higher overall productivity, where Japan still lags behind the U.S. and much of Europe. An important key to enhancing productivity will be foreign direct investment. By bringing in new ideas and the best technology and management available in other countries, foreign investment can increase efficiencies. It can also create new, high-wage jobs, and offer troubled financial institutions and other firms badly-needed capital, not to mention the revenues such investment can generate for Japan's tax agencies.

Unfortunately, levels of foreign investment in Japan are low compared to other industrial countries. Take the United States. Our total stock of foreign direct investment between 1952-1996 was valued at more than eight percent of our 1995 GDP, compared to less than one percent for Japan. An important vehicle for foreign direct investment is mergers and acquisitions, which is also underdeveloped in Japan. In 1996, two-thirds of foreign investment in the United States was in the form of mergers and acquisitions, compared to roughly a quarter in Japan.

The Japanese government understands how foreign direct investment, including mergers and acquisitions, can help address Japan's current problems. We had talks on this subject with the Japanese government this past week. The United States continues to benefit immensely from foreign direct investment. I am hopeful that Japan will too.

As both our governments recognize, Japan's recovery is vital to Asian recovery. Japan is the region's biggest market and largest source of capital. In 1996, the Japanese economy generated new wealth equal to the entire GNP of Malaysia. The following year Japan's economy shrank, leaving exports from its trading partners in the region stranded. It is clear that a strongly growing and open Japanese market would underpin East Asian recovery, providing a market of first resort for Asian exports and much-needed capital flows. A weak, struggling Japanese economy, on the other hand, would seriously dampen growth prospects for the region.

In pressing Japan to help with Asian recovery, the United States is acting as a loyal friend and ally. If we sometimes seem impatient, it is because we are eager to see Japan get back on its feet quickly. We want Japan to continue to play the constructive role in the region that has contributed to a half century of peace and stability. We fully appreciate the heavy responsibilities shouldered by Japan's leaders. They are making hard decisions that will positively influence Japan's future, as well as that of the Asian region.


While financial issues have assumed a larger place in our bilateral dialogue in recent months, we should not lose sight of the fact that we cooperate on an extraordinarily broad range of issues around the globe.

In the Asia-Pacific region, the United States and Japan coordinate closely on diplomatic initiatives. We have worked together on the Cambodian elections. On the Korean Peninsula we have made progress in promoting greater stability. This offers at least a chance for lasting peace and reconciliation. However, we must work energetically to ease food shortages in the North, to fund KEDO, and to promote dialogue.

We welcome the stronger relations we each have developed with China. The U.S.-Japan alliance is the springboard for our respective efforts to see China integrated into the global trading system, and to enlist China's help in halting the spread of weapons of mass destruction. We both wish to see the emergence of a democratic China, where freedom of expression contributes to the development of a stable society. The President's China visit and the parallel upgrading of Japan's relations with China are very important.

As important as the President's trip to China was, we must never forget that Japan is central to our engagement in Asia. There is no more important relationship than the one between the United States and Japan. The U.S.-Japan security alliance underpins our active involvement in the region. Since the historic revision of the Defense Guidelines and Secretary Albright's signing of the amendment to the Acquisition and Cross Servicing Agreement (ACSA) on April 28, our security alliance is stronger, deeper and broader than at any time in history.

To those who question its necessity, let me say that the U.S. forward deployed presence acts as a deterrent to conflict in a region still rife with potential for instability. Asia remains a concentration of states with the world's largest militaries, some of them nuclear-armed. Several nations have active programs for nuclear, chemical, or biological weapons - and the means to deliver them. Historic rivalries and ethnic tensions persist, and key nations are undergoing fundamental political, social and economic transitions. That is why our security presence remains as critical as ever. No one can predict what the region will look like a decade or two from now. However, it is difficult to imagine it will evolve economically and politically in the directions the U.S. and Japan would like to see without the stability secured by the presence of U.S. forces in Japan.


The U.S. and Japan are as vital to one another globally as we are regionally. We stood shoulder to shoulder during the most recent crisis in Iraq, we have each contributed much to the reconstruction of Bosnia, we are partners in peacekeeping operations in Rwanda, and we coordinate policy on the Middle East peace process. Our cooperation is growing under the U.S.-Japan Common Agenda, where we deal with issues ranging from protecting the environment to preventing the spread of disease.

Japan's ever-increasing engagement in these issues is important. As a consequence, the United States strongly supports a seat for Japan on the UN Security Council. By any measure, Japan stands at the very forefront of nations staking a claim to a seat on the Security Council. It is our strong desire to see Japan assume its rightful place at the UN, and we will continue working towards that goal.


I have covered much ground in my talk this afternoon. That is not surprising considering the importance and vastness of the topic. But I would like to leave you with a few thoughts before we move into the question and answer session.

The United States stands by Japan, as an old friend and ally, as Japan deals with a serious economic situation. President Clinton said recently that Japan is an enormously powerful, free country, full of brilliant people, successful businesses and staggering potential. That is the American image of Japan and the Japanese people. We have high expectations that Japan's leaders will act quickly to restore growth at home and in the region. Our wish is for Japan to resume its rightful place of influence and leadership, together with the United States, in the region and the world.

Our bilateral relationship makes a profound contribution to world peace and regional stability. Our two governments set-up the framework for achieving this peace, but it has been safeguarded by the Japanese and the American people. They have shared this burden because they understand the terrible price of war and instability. For the dividends of peace to continue, our forward deployed presence is as essential as ever.

We live in times of historic change in international relations. In this period of uncertainty and unpredictability, the lasting strength and vitality of the U.S.-Japan relationship is absolutely critical. It gives us the confidence to take on the challenges we face, in the region and around the world, with determination and a sense of optimism about the future.

Thank you.