The action of the Chinese government in sabotaging the supply of rare earth metals was taken in retaliation for the arrest of the captain of the Chinese fishing boat that deliberately rammed a Japanese Coast Guard patrol boat off the Senkaku Islands. This is a clear indication of China’s intent to use access to resources to enhance its diplomatic power. We must never forget that the embargo of oil exports to Japan lead to this country’s participation in World War II. When told, “We are stopping exports,” if Japan can take a “do as you wish” attitude instead of pleading against this, it can demonstrate its diplomatic power.

1. Strong Economic Power is the Source of National Power – Implement a Growth Strategy!

Strong economic power is the source of national power. Countries with strong economic power draw the interest of the international community. They are regarded as attractive, are better understood, and have high expectations placed upon them in the context of the global society. Their global presence is improved. The next step is how to invest, lend and return the foreign currency, net overseas assets, and technological prowess they have acquired through their economic power to other countries in a manner that will earn the gratitude of those countries and further enhance their own power. What is needed here is a diplomatic strategy that gives careful thought to this matter.

 

2. Promote Resource Diplomacy through United Efforts of the Government and Private Sector

In resource diplomacy, we would have to say that Japan has been left behind by South Korea and China. For example, since taking office in 2003, Chinese President Hu Jintao has visited Africa more than ten times as part of an active program of top-level diplomacy. Backed with an abundance of funding and investments in infrastructure projects, these visits have been instrumental in acquiring extensive mineral and petroleum concessions for China. In addition to its approach to African countries, China has recently adopted a more aggressive stance in its resource diplomacy vis-à-vis Central and South American countries and has been involved in more than 100 projects related to crude oil and natural gas in each region.

 

Japan should also promote resource diplomacy through the united efforts of the government and private sector, including 1) the creation of a “Strategic Council for Resource Diplomacy” as the command center to develop systematic resource strategies, 2) the pursuit of proactive resource diplomacy at the summit and ministerial levels, and 3) the implementation of comprehensive measures to support oil and natural gas development companies.

 

3. Enhance Resource Development to Become “Japan: A Marine Resources Power”!

For Japan, a maritime nation, the vast ocean provides a wealth of frontier possibilities. Japan’s exclusive economic zone (EEZ) is 12 times as large as its land territory and is the sixth biggest in the world. It has been confirmed that the zone is abundant in methane hydrates, rare earths and other energy and mineral resources. It is possible for Japan to become a resource and energy power, depending on the development of technology and its “actions,” just as the U.K. has become a resource power through the development of North Sea oil fields. More efforts should be focused on enhancing the development of ocean resources.

 

4. Use Foreign Currency Reserves Strategically With a Japanese-Version Sovereign Wealth Fund!

Japan has the world’s second largest foreign currency reserves. However, their use is basically limited to investments in U.S. government bonds. China, on the other hand, invests part of its foreign currency reserves, which exceed two trillion dollars, not only in U.S. government bonds but also in companies of good standing through the China Investment Corporation (CIC, established in September 2007, with an estimated 200 billion U.S. dollars of assets under management, making it No. 5 in the world).

 

Japan could establish a Japanese-version sovereign wealth fund (SWF), or at least consider multiple investment options for foreign currency reserves. The Government Pension Investment Fund  (GPIF), the largest pension fund in the world with 131 trillion yen in assets, appointed Mr. Hiromichi Mizuno, who served as a partner at a private equity firm in London, as its chief investment officer. It is undeniable that an increase in the influence of GPIF, with the largest investment holdings in the world, will enhance the power of Japan. Efforts should be made to further increase investment returns through more aggressive investment strategies.