TOKYO -- Japanese Prime Minister Shinzo Abe on Saturday called the notion of the U.S. and China controlling the Pacific as a so-called Group of Two "outdated." In an exclusive interview with The Nikkei and the Financial Times, he also expressed strong concern about Beijing's efforts to change the status quo in the South China Sea.
Abe sat down with Katsuyoshi Kondo, the editor-in-chief of The Nikkei, and Lionel Barber, the editor of the FT. It was the news organizations' first joint interview since they formed a global alliance in December.
Lionel Barber: We've had a very unhappy start to this year. We have seen acts of radical Islamic terrorism in Indonesia and Africa, civil war in Syria and a collapse in the stock market and the oil market. You will chair the Group of Seven in Ise Shima. What message will you send to the world? Will it be a message of hope?
Shinzo Abe: The G-7 is a gathering of champions of universal values such as freedom, democracy, basic human rights and the rule of law. This is a forum that should discuss and determine the direction in which the world should go. ... I would like to discuss issues such as the increasingly uncertain global economy, terrorism, North Korea, the events happening in the Middle East, climate change and poverty. I would also like to emphasize topics that Japan has been attaching great importance to: a society where women shine, quality infrastructure and global health care. Through these discussions, we can show the world the most appropriate way forward. It is important that the G-7 lead the world by showing a pathway.
Barber: I understand that you will be visiting European capitals in April. Do you intend to visit Moscow? Is it time to bring your fellow strongman Vladimir Putin in from the cold?
Abe: Regarding my overseas travel schedule, we have to bear in mind that the Diet is in session, and I need approval from them. Nothing has been decided. As to your question on Russia, there are mounting questions the world is facing, such as Syria, the tension between Iran and Saudi Arabia, and the Islamic State. These are issues that have to be resolved by the international community. In order to do that, we need the constructive involvement of Russia.
Even though 70 years have passed since the end of the war, Russia and Japan have still not signed a peace treaty, which is quite anomalous. President Putin agrees that this is an anomalous situation. I would like to have tenacious, persistent negotiations with him to solve territorial issues and to conclude the peace treaty.
As the chair of the G-7, I need to seek ways to achieve stability in the region and the world. Also, with respect to issues unique to Japan -- territorial issues and the conclusion of a peace treaty -- appropriate dialogue with President Putin is very important. At the appropriate time, I would like to consider visiting Russia or [arranging] his visit to Japan.
Barber: There are some people who believe that the U.S. and China will jointly manage order in the Pacific, but some people are worried about China building islands and runways in the South China Sea. Are you worried about this? Is this a threat to the region?
Abe: First of all, the notion of a G-2 controlling the entire region is something similar to what happened in the past, such as the division of Africa and the Middle East by Britain and France. This is an outdated way of thinking.
Japan harbors very strong concerns over China's unilateral attempt to change the status quo in the South China Sea, and also the unilateral development of resources in the East China Sea. Such a unilateral challenge against the international order cannot be tolerated, and the international community should raise its voice against this. With respect to China's activities in the South China Sea, the Association of Southeast Asian Nations countries as well as [other] countries in Asia are very much concerned.
At the East Asia Summit last November, I think the discussion took a sea change from previous meetings. In the presence of Chinese Premier Li Keqiang, the leaders expressed their view that there should not be coercion or the use of force in this situation. They talked about the importance of resolving the situation by peaceful means, following and observing international law. This was stated clearly in the presence of Premier Li and these points were included in the chairman's statement. This is an illustration of the concerns a lot of countries expressed.
Premier Li said those constructions will not be turned into military outposts. Of course we can take note of the premier's comments, but it is necessary to see that what he says turns into actual actions. So, before discussing any possibility of turning those constructions into military outposts, we must oppose the unilateral attempts to change the status quo.
Barber: On the Chinese economy, are you concerned about a hard landing? Do you believe that the Chinese authorities are allowing the yuan to depreciate?
Abe: Many Japanese companies are investing in China and creating profit. This is not only [true of] Japan. I think the situation is the same with Britain and the U.S. The Chinese economy is going to impact greatly those countries.
The range in which the yuan and Chinese stock prices fluctuate is rather big. However, the Chinese economy is growing at a very solid and firm pace. I shall refrain from making any comment on the yuan and Chinese stock prices. Nonetheless, I will say that since the reform and opening-up, China has achieved high economic growth, increasing its connectivity to the global economy. During this time China acceded to the World Trade Organization and it is making efforts to be integrated into the international economy.
We cannot separate the Chinese economy from the international economy. It is important that China develops its economy observing international economic rules. It is essential that China itself responds to such expectations from the world. It is important for China to act in a way that accepts the mounting expectations placed on her, so that the problems are not aggravated more than necessary.
Barber: So you are cautiously optimistic?
Abe: There were often times in the past when a Chinese economic crisis was talked about, but every time, China, in principle, avoided falling into such a crisis and overcame those difficulties. I would presume that in this context, China is making efforts to enhance the level of transparency and to act according to international economic rules. So in this situation, I would like to express my hope that they would continue to make efforts along those lines.
Katsuyoshi Kondo: North Korea conducted another nuclear test and shocked the world. Will the Japanese government try to solve the nuclear and missile issues through pressure, such as by strengthening economic sanctions, or through diplomatic efforts? If you were to strengthen economic sanctions, would that complicate Tokyo's discussions with Pyongyang regarding the abduction issue? And are you prepared to visit North Korea to negotiate directly with Kim Jong Un to solve the abduction issue?
Abe: Japan and the international community have approached the North Korean issue -- the nuclear issue, the missile issue and the abduction issue -- with [both] dialogue and pressure. If we do not exercise any pressure, North Korea will not try to respond to any request from the international community. On the other hand, if we do not talk to them, we cannot really resolve the problem.
This time around, the nuclear test unilaterally conducted by North Korea is a clear violation of United Nations resolutions. We must make North Korea explicitly aware that as long as they resort to such activities, [it will not be] business as usual. We must make North Korea recognize that if they repeat such activities, they will not be able to explore their own future or draw any picture of their future. In the new resolution of the Security Council, effective measures will be incorporated. Also, in regard to our own measures, we will be taking tougher measures. This is our country's response to the nuclear test, based on the principle of action for action.
As for the resolution of the abduction issue, at long last we were able to open the door for talks with North Korea. In order to seek a solution we are ready to explore all alternatives and all options.
On the other hand, we have just managed to pry open the heavy door of negotiations. Therefore, this is not the stage where there is an opportunity for me to have direct negotiations with Kim Jong Un. There are no plans whatsoever for me to visit North Korea.
Kondo: At the end of last year, the governments of Japan and South Korea came to an agreement over the wartime "comfort women" issue. This deserves high praise, but the challenge lies in the implementation. For instance, will Japan commit 1 billion yen ($8.39 million) to the foundation to be built by the South Korean government even if the statue of the young girl in front of the Japanese Embassy in Seoul is not removed?
Abe: The comfort women issue has been for many years a thorn between Japan and South Korea, and for many years we had not been able to remove that thorn. Last year was the 50th anniversary of the normalization of the relationship between Japan and South Korea, and ... through the summit discussions with President Park Geun-hye, we were able to resolve this issue finally and irreversibly, which was good.
What is important this time is that, unlike in the past, both countries recognized that this is a solution that is final and irreversible. Countries such as the U.S., the U.K., Australia, Singapore, Canada and Germany, and the U.N., issued welcoming statements rendering their broad support.
Of course, as in any country, in Japan and South Korea there are many different opinions and there may be some discontent. The important thing in this regard is that we have agreed to resolve this finally and irreversibly, and to that end both parties will act accordingly to implement what was agreed.
In the pathway toward opening up a new era for Japan and South Korea, the important thing is that both parties resort to appropriate actions and measures.
Kondo: Turning to the Japanese economy, you said recently that we are no longer in a state of deflation, but you have also said that we are still on the path to overcoming deflation. Can you at least say that deflation will be over by the time your term ends in 2018? What measures are lacking? Are you contemplating ways to avoid another drop in consumer spending when you raise the consumption tax next year? What are your views on the Bank of Japan's monetary policy, and whether additional easing is necessary?
Abe: Japan suffered greatly because of the deflation that continued for nearly 20 years. No developed country has exited from such long-lasting deflation. Therefore, in a way we were embarking upon the world's first attempt to come out of such long-lasting deflation and it was a major challenge. Since the creation of the Abe government, in a short amount of time, we have created a situation I call "not deflation." What I mean ... is that nominal growth is surpassing real growth. This was possible because of prices turning upward. In terms of nominal gross national income, [we have seen a] more than 40 trillion yen increase from the bottom level after the Lehman crisis.
Japanese people are at last regaining confidence that Japan can grow. Corporate earnings are at a record high and return on equity has improved by 1.5 times. But I hasten to recognize that 10 years ago, the government declared that the situation was not deflation, but in three years or so, it reverted to deflation. Two years ago, we created a situation where we said it was not deflation, and since then good numbers have continued. However, we cannot say that we have completely come out of deflation, to the extent that there are no risks, no worries of the Japanese economy turning back.
Since I took the helm of the government, corporate governance has been strengthened and in July, August and September of last year, capital expenditure grew more than 11% year on year. At long last, the business community is shifting to go on offense. Not only the business community, the government is also proceeding with further reform, such as front-loading the reduction of corporate income tax to the range above 20%.
In order to exit from deflation that has no precedent in developed countries, BOJ Gov. [Haruhiko] Kuroda has said he will do whatever it takes. The government will act in unison with the BOJ so that we can come out of deflation as soon as possible, and we will take all-out measures. The fundamental task is to implement the policies represented by the three arrows.
Barber: I am asking myself whether Prime Minister Abe sees 2016 as the "year of the statesman." You have made a historic move on the comfort women in South Korea, on top of the important declaration concerning World War II, and perhaps there is an opportunity to conclude or at least start talks toward an agreement with Russia. Will the prime minister who finally conquered deflation lay to rest the ghosts of WWII?
Abe: Regarding what happened 70 years ago, this experience is not something that you can remove. The important thing is that we learn lessons from what happened, capitalizing on them as Japan moves forward. What we did last year was take lessons from what happened in the past and contemplate the possible pathway for our country to go forward. We were able to show to the rest of the world what we can contribute to the cause of the international community. In this context, we resolved the issue with South Korea and are now working to solve remaining issues with Russia. In order for us to make further contributions to the international community, we have created peace and security legislation.
Barber: If the South Korean parliament does not support the deal on comfort women, will you implement it unilaterally?
Abe: I spoke over the telephone with President Park and we agreed to a final and irreversible way to solve this issue between us. This was a commitment and promise made between leaders. Both parties respectively will implement what we agreed to in the appropriate way, but to do this, you have to have a relationship of trust. There is such trust between President Park and myself. That is why we were able to come to an agreement. Based on mutual trust, each party will do what we promised to do. That is the most important thing.