Friday, December 10, 2004

On Monday I suggested that there is an important military-defense aspect to the East Asian central banks' apparently infinite willingness to support the dollar. Japan, Taiwan and South Korea are the proud owners of the world's nos. 1, 3 and 4 largest foreign reserve holdings, and all three of them are highly dependent on US military aid and support.

News from Japan today reinforces the point.
Japan on Friday named China and North Korea as causes for security concern as it launched a sweeping overhaul of defence priorities in response to what it regards as the changing nature of global threats.

The five-year plan, the first to name specific countries as potential causes for concern, outlines a shift to a more flexible force able to deal swiftly with terrorism, missile attacks and rogue states. . . .

A senior defence policy official told the Financial Times: �There�s a growing mood in Japan that we ought to confront China. They keep coming into our zones and their activities are annoying us.�

He added, �We are keenly aware of the growth of China�s military capabilities.� Beijing�s defence spending was much higher than it admitted, he said.
Here is what is in my view the clincher:
Part of Japan�s response to China and North Korea is to develop a joint missile defence system with the US. Friday�s outline included funding for that programme, as well a partial lifting of a self-imposed arms-export ban to allow Tokyo to ship parts related to missile defence.
Japan is keen to develop a missle defense system with the US; it's naked enthusiasm over the re-election of the Boy King demonstrates as much. Cooperation with the US can't be a one-way street. If the US is to cut Japan in on missile defense, Japan has to help the US out and the easiest and most significant way to do that is not sending a handful of troops to Iraq or a billion dollars to reconstruct Afghanistan. It's to buy hundreds of billions of dollars in US treasuries.