`It is not the place of the Japanese Prime Minister to lecture the United States. But I cannot conclude this part of my address to you without one observation on racism. The Americans should admit that racial prejudice does not hold any solutions to the problems developing in the world today. It is important that they face the situation aware of the historical context, seeing that the reality is that the power in the world, including economic power, is shifting from West to East. It may not be as strong a shift as used to be expressed last century with talk about the "Pacific era", but at any rate it is in America's interest to rid itself of prejudice against Asia, including that against Japan, in order to maintain a position of leadership in the world.
`Our new position in the world will require us to make changes and sacrifices. Although your government seeks no more for Japan than that it should play a role commensurate with its economic position in the world, we will have to be sensitive to feelings of our neighbours as they adjust to the new realities. We cannot become overbearing, which will not be tolerated in the new era, but by the same token an inferiority complex is equally harmful. The Japanese must move out of their current mental stagnation. If you stay silent when you have a particular demand or an opposing position to express, the other party will take it for granted that you have no demand or opposition. When you close your mind to the outside, remaining in a uniquely Japanese mental framework, you will be isolated in this modern, interdependent world.
`Let me explain the new role for our nation which the government foresees. Japan should open its markets to the extent where there will be no room for complaints from foreign friends, and we should provide money to help developing countries where people are not being oppressed. Japan needs to become aware of its responsibilities. I realize there is a cost associated with this. Certainly the full opening of our markets, and the advancing of large sums of money to developing countries, will be very painful and costly. However, things will not get better in the world until the pain is shared more equitably. How much pain do you think was involved during the Meiji Restoration [1868] when the privileged class of samurai gave up their power, cut their special hairstyles, and tossed out their swords? It allowed a bloodless revolution to take place within Japan. We need such a peaceful revolution in Asia.
`In spite of the legacy of the past, Japan has the capability to take a lead in Asia. I offer two examples from opposite ends of the scale. Japanese popular songs are heard all over Asia today. Karaoke is the most popular form of home entertainment in our region. From Dalian to Sydney this quintessentially Japanese pastime is enjoyed. Then there are cultural treasures such as the Miroku Buddha, or the Horiyuji Temple. They attract interest and respect from all over the world, beyond national, racial, and cultural boundaries.
These are products of refinement from the Japanese people. The original image of Buddha came from India, by way of China and the Korean peninsula. The image of Buddha in Japan is the product of the refinement of Japanese art. The process has been constantly refined and it becomes a product of Japanese intellectual processes; it is clearly Japanese. Everything stops at Japan; the Japanese people refine what has come their way; Japan is the last stop in cultural transition. `These are noble aims for the future. Japan stands ready to offer assistance to our neighbours in Asia, near and far. At the moment, however, we face as serious a threat as we have ever faced. China's adventurism in the South China Sea cannot go unchecked. We have a responsibility to broker peace on the Korean peninsula. We have no desire for dominance in Asia. We seek only stability so that trade can flourish. Yet already one oil tanker bound for Japan has been hijacked. We have dispatched a naval group to the South China Sea. Initially it will conduct missile trials. It will also offer protection for Japanese and Japan-bound shipping.
`The Japanese government stands ready to discuss these matters with the Chinese government. A negotiated peaceful settlement to this crisis has always been and remains the top priority of the Japanese government.'
Hidei Kobayashi, the head of trading and strategy at Nomura Securities, switched the television set off. A hundred and one things were running through his mind at once as he tried to digest what the Prime Minister had said — shock at the nuclear test, fear at being cut adrift from the Americans, pride at hearing a Japanese speak so well — he'd tried to get all of that out of his mind and assess the investment decision. He did not take much time. He decided to buy selectively, especially in the defence area Mitsubishi Heavy Industries, Mitsui, Nippon Steel, and Sumitomo Steel which he calculated would benefit from bigger orders in the future. After all, Hyashi had said a `security system to meet Japan's needs can be built' implying that it had not yet been completed. Even the might of the Nomura could not turn the market. Foreign selling had become overwhelming. The Nikkei index, which had plunged 1,678 on Tuesday, fell precipitously again. By the end of the morning session it was 2,063 lower at 35,559.
The yen was under enormous pressure. The Bank of Japan virtually stood in the market and bought all the yen the market wanted to throw at it. From its New York close of.75 it fell to.75 in the first hour of trading. It was precisely at this moment that Phillips executed his winning deal. He gave instructions for the remainder of the yen position First China had accumulated for General Zhao to be unwound. First China was sitting on a billion position — the remainder of the position it had built up when the yen was trading around to the dollar. In the London market the previous day some billion had been reversed, netting General Zhao profits in excess of $200 million. In the Tokyo market, First China locked in the remaining gains. With the Japanese currency having fallen 36 per cent weaker, First China moved to cover its position, pocketing the best part of $256 million in the process.
In Hong Kong the market had opened sharply down. Hyashi's television appearance was seen throughout Asia on Star TV, the regional satellite broadcaster. Old memories die hard and the behaviour of the Imperial Japanese Army during the Second World War had been kept alive, partly because its deeds were so appalling and partly to use as a stick to beat Tokyo with whenever its compliance was needed. The market continued to slide all morning as Hong Kong Chinese investors liquidated their holdings of local stocks and switched their funds into US dollars. The Hong Kong dollar, pegged to the US dollar at a rate of HK$7.8 to $1 since September 1983, began to feel the strain of capital outflow. The Hong Kong Monetary Authority, which regulated banks and money markets, moved to support the local dollar by forcing a rise in interest rates. The authority was required by law to preserve exchange rate stability, so with the currency weakening it had to raise interest rates. This could not, however, have come at a worse time. The 0.5 per cent rise in short term interest rates to 11 per cent only served to weaken confidence in the stock market further.
With the subtitle `Breaking News' running at the bottom of the screen, CNN announced India's condemnation of Japan's nuclear threat. It was a `disgrace and an abomination for the future development of the world'. India also blamed China for initiating its attack on Vietnam. `That irresponsible act has been the catalyst for the creation of a new and unwelcome superpower. Just as the world was balanced, it has become tipped into a perilous adventure.'