fundamental analysis
Te investment community and the blogosphere alike have raised questions over whether tensions were just those… tensions, or if there was any potential for armed conflict. Asian Second World War scars have not healed as smoothly as those in Europe, a fact that can be seen on the Seoul subway where full wall adverts in English are placed to educate visitors of the crimes committed by the Japanese Imperial Army during its occupation of mainland Asia.
Tere is little love lost across the water in Tokyo, where new Prime Minister Shinzo Abe has caused controversy by visiting the controversial Yasukuni war memorial. Te LDP has even hinted interest in re-writing an apology for its aggressive colonization of East Asia. However, despite the anti-Japanese sentiment in the region, there appears to be an understanding that the counterbalance to the growing tide of Chinese influence in the region needs to be strengthened, a point highlighted by the recent Philippine Government’s call for a comprehensive Japanese rearmament.
Te point however, raises an interesting observation on the nature of the tension between Japan and China. Japan is not fully armed and on its own, completely unable to take part in any form of sustained conflict against Chinese military forces. Any action would require direct American support and approval and be almost completely unthinkable at this juncture. Conversely, China has marched straight to the top of
Troubled waters between China and Japan over
the regional economic
tiny islands food chain via
development and in
rapid ever-
deepening trade relationships with its neighbours. China, Japan and South Korea are estimated to account for close to 20% of global GDP at recent estimates. So, with this being the case, why were Japanese and Chinese leaders being so brazen in stoking tensions over a small collection of islands?
THE HISTORY
Te Senkaku/Diaoyu Islands are seen as being strategically important. Tey are
tactically positioned between
Japan, China and Taiwan, have rich fishing waters and are believed to hold significant oil reserves. Tey have been administered by Japan since 1895, and owned by private Japanese owners over the period. At the point of nationalisation, Japan stated that they had observed the islands for ten years
the East China Sea
to ensure that they were uninhabited before taking action.
Aſter the end of the Second World War, Japan was forced to renounce a collection of territories and islands under the Treaty of San Francisco in 1951, which transferred the islands to under US trusteeship.
In 1971,
the islands were returned to Japan. A key foundation of Japan’s argument is that China had no objections to the Treaty of San Francisco, but only took interest in the islands when the prospect of oil reserves was revealed. Conversely, China claims that over the long stretch of pre-colonial history, the islands have historically been theirs. Further, China claims that under the “Cairo Declaration” of 1943 and the subsequent “Potsdam Declaration” of 1945, the Senkaku Islands, as islands appertaining to Taiwan, reverted to China along with Taiwan.
FX TRADER MAGAZINE April - June 2013 13
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