The new cabinet of Japanese Prime Minister Takaichi Sanae recently overturned a longstanding national ban on exports of the category of military equipment that the government defines as ‘lethal’. The lifting of the ban only applies at present to a list of 17 allies including Australia, the United Kingdom and the United States though there is a mechanism for further countries to be added in the future at the government’s discretion.
The policy change is another blow to the legal pacifism central to Japan’s post-war constitutional order and represents a significant loss for the liberal political parties that performed so poorly in the general election held earlier this year. However, this political novelty has distracted from the deeply conventional economic logic that underpins this policy change. Since its post-war revival Japan has been an export-oriented economy centered on the high value-added secondary manufacturing sector. Central to this economic model from the 1950s to the 1980s was a generous peg between the US dollar and the Japanese yen, which made the US an ideal final destination for Japanese commodities. As the Cold War wound down, the US became less tolerant of trade deficits with its allies and in the 1985 Plaza Accords it renegotiated its pegs to the German, French and Japanese currencies. The subsequent appreciation of the Yen led to a speculative real estate bubble and, in 1992, a deep recession from which Japan has never fully recovered.
