The Cost of the "Taiwan Contingency" and Japan's Preparedness

This commentary originally appeared in Shukan Toyokeizai.

Military tensions between China and Taiwan rise, and the U.S. government informs the Japanese government that it wants to deploy U.S. forces in Japan to defend Taiwan. At the same time, China sends a message through various channels that it will not touch Japan at all if it does not cooperate with the U.S. military and remains neutral.

In the event of a Taiwan contingency, It is highly likely that military conflict between China and Taiwan will lead to a decision by the U.S. military to intervene, followed by the deployment of fighter jets and naval vessels from U.S. military bases in Japan. In the process, Japan will be forced to make a major choice. 

If U.S. forces are deployed to the area around Taiwan, U.S. bases located in Japan, including Okinawa, will serve as bases. Under the so-called “Far East Clause” of Article 6 of the Japan-U.S. Security Treaty, U.S. forces can use Japanese facilities and areas “to contribute to the maintenance of international peace and security in the Far East.” However, the deployment of U.S. forces under the Far East Clause requires prior consultation with the Japanese side. Nevertheless, there is little chance that the Japanese government will turn the US down for fear of a confrontation with China. If Japan were to refuse at the last minute, the trust between Japan and the U.S. would be damaged, and the Japan-U.S. Security Treaty regime would effectively collapse. As a result, Japan would have no choice but to confront China alone. This would be a bad move that would only be a temporary fix. 

However, some officials from the Ministry of Defense and the Self-Defense Forces are concerned about how the public would react. From China's point of view, this is a point to take advantage of, and by communicating that "Japan will be safe if it declares its neutrality," it may be able to divide Japan, the U.S., and Taiwan. 

The phrase "a Taiwan contingency is a Japan contingency" was introduced by former Prime Minister Shinzo Abe at a symposium sponsored by a Taiwanese think tank in 2006. This comment was followed by the statement, "It is also a contingency for the Japan-U.S. alliance." How will Japanese public opinion react to the "ultimate choice" in the face of a Taiwan contingency? 

An interesting study, part of the Stanford Japan Barometer, conducted by Stanford University sociologist Kiyoteru Tsutsui and his colleagues examined this issue using a method called conjoint experiments. 

The subjects were presented with two scenarios: "In the event of an emergency in Taiwan, under what circumstances would you be more likely to support military involvement by the Self-Defense Forces?" The subjects were presented with two scenarios and asked to choose the one in which they would be more likely to support Japan's military involvement. 

In the event of a Taiwan contingency, the researchers presented three options in each of five categories: "Chinese actions," "U.S. actions," "Chinese actions toward Japan," "U.S. actions toward Japan," and "international community reaction. In an experiment in which each of more than 7,000 subjects was asked to answer which of two scenarios in which they were randomly combined would support Japan's military involvement in the event of an emergency in Taiwan. The series of scenarios reflect the opinions of security experts who participated in simulations of a Taiwan contingency conducted by various agencies in the United States. The results show whether support for Japan's military involvement strengthened or weakened when each scenario was presented.

One of these scenarios is precisely related to the aforementioned issue. When China promised Japan that it would not touch Japanese territory, including the Senkaku Islands, support for Japan's military involvement weakened. On the other hand, if China landed on and occupied the Senkaku Islands at the same time as its invasion of Taiwan, support for Japan's military involvement increased. The result is clear: "Japanese people place the highest priority on the impact on Japanese territory," said Professor Tsutsui. 

The survey results indicate that Japan is hesitant to fight China but would respond to a request from the U.S. military for logistical support. How will Japan be involved in a Taiwan contingency? Public opinion is not yet settled. 

In reality, many experts believe that if U.S. forces deployed from bases in Japan clash with Chinese forces, the next request will be for cover by the Self-Defense Forces. It is quite a narrow pass to say that they will not participate in combat and only provide logistical support. 

As for why Japan should get involved in a Taiwan contingency, the debate tends to settle on supply chain issues, particularly in the area of semiconductors, or geopolitical importance. Many Japanese, however, may feel that such reasons alone are not sufficient to make a decision to put the lives of Self-Defense Force personnel on the line and the residents of the Nansei Islands at risk. 
The supply chains that Japanese firms have built in East Asia, including China, would also be severely damaged. In addition, Chinese nationalism would flare up violently if it were to fight Japan again. The cost of fighting China as a neighbor is extremely high for Japan. 

Where Did You Get the Money To Pay for the Succession?
 

The issue of money is also unavoidable. In order to prepare for contingencies, we must also consider financing the cost of war. 

If the armed conflict with China is prolonged, huge fiscal outlays will be required not only for the continuation of the war but also for the repair of domestic infrastructure. In addition to supplementary budgets, it will be necessary to issue government bonds. 

However, Japanese financial institutions alone may not be able to digest the Japanese Government Bonds. For this reason, a simulation by the Japan Strategy Research Forum this year called for the direct underwriting of Japanese Government Bonds by the Bank of Japan. 

Junichi Kanda, a Bank of Japan alumnus in the House of Representatives who served as finance minister, opposed this proposal, saying, "It would cause a sudden loss of confidence in Japan's finances and the yen, leading to a significant depreciation of the yen to over 300 yen to the dollar and an increase in interest rates to over 10%. Such an extreme depreciation of the yen would also hinder the purchase of equipment and materials in foreign currency. 

Instead, Kanda suggested issuing foreign currency-denominated government bonds for foreigners. However, since there has been no such issuance since 1988, it is necessary to gradually issue these bonds from normal times to develop investors, he said. 

The prerequisite is that confidence in Japan's finances is secured. Japan needs to maintain fiscal discipline on a regular basis in case of emergency," said Kanda. Even in peacetime, there is a strong argument in Japan for using government bonds as a source of funds for increased defense spending. If the government cannot even raise taxes, China will question its seriousness. More open and substantive discussions are needed if the Japanese people are to be convinced to accept the costs of a Taiwan contingency.