Oct. 31, 2005 issue - The Japanese tend to expect diplomatic bouquets from even the most insignificant of their foreign visitors. So imagine the audience reaction when German ex-chancellor Helmut Schmidt, invited to give a lecture in Tokyo last month, treated his hosts to an exercise in bluntness. He accused the Japanese of soft-pedaling their country's responsibility for its wartime past—and came to a devastating conclusion: "Sadly, the Japanese nation doesn't have too many genuine friends in the world outside." It was a syndrome he blamed on "the ambiguity of the Japanese public when it comes to acknowledging the conquests, the start of the Pacific war and the crimes of the past history." His listeners didn't appear to find much consolation in Schmidt's concession that his own country had committed "even worse crimes within Europe."

Small wonder, perhaps, that no Japanese media picked up on the content of the speech. But the Japanese had better get used to dire verdicts on their handling of history, because there's plenty more to come. After Japanese Prime Minister Junichiro Koizumi last week paid yet another visit to Yasukuni Shrine—the Tokyo war memorial that honors 2.47 million wartime dead, including 14 class-A war criminals—his country can look forward to a deepening of the remarkable diplomatic isolation that has enveloped it in recent years. China and South Korea expressed their anger in fiercely worded statements and canceled planned diplomatic meetings in protest. Even some of Japan's erstwhile allies in Asia, Malaysia and Singapore, also registered their disapproval.

Sixty years after the end of World War II, Japan's wartime past has never mattered so much. Last week's Yasukuni visit didn't prompt ferocious street protests as previous ones had, but each such incident further cements the widespread view that Japanese expressions of regret over the war are insincere. Beyond that, Japan has territorial disputes with almost all of its neighbors, a situation unique among the leading industrialized nations; a dispute with China over drilling in the East China Sea flared just last week. And perhaps most bitter of all for Tokyo's bureaucrats is the resounding failure of Japan's recent bid to win a permanent seat on the U.N. Security Council—an ambition that no significant Asian nation supported, despite the billions in investment and aid Tokyo has spread around the region in the last half century. "To be honest I was totally surprised," says leading diplomatic commentator Yoichi Funabashi. "It was a complete disaster."

Until recently, Japan could to a certain extent ignore the suspicion and resentment it inspired across Asia. The country was an economic powerhouse, bolstered by its alliance with the United States. But now that animosity threatens Japan's further progress, at a time when the country finds its claim to regional leadership increasingly challenged by the rising might of Beijing. In effect, the country that spent most of the 20th century aspiring to a leadership role in East Asia now finds itself virtually relegated to a corner for bad behavior. And that's the last thing the region needs at a time when there is already plenty of instability to go around, thanks to a rapidly modernizing Chinese military, a nuclear-armed North Korea and a variety of potentially explosive territorial disputes. "The wounds of war remain and haven't been healed in neighboring Asian countries," says Tomiichi Murayama, the former Japanese prime minister whose 1995 apology to the victims of Japanese wartime conquest set the gold standard for all future public expressions of remorse. "They still lack confidence in Japan."

Why is that? Hasn't the country's postwar pacifism become so deeply rooted that a resurgence of Japanese militarism is unthinkable? And hasn't Japan apologized for its wartime actions over and over again? True enough. Tokyo University scholar Sven Saaler points out that public-opinion surveys consistently show that most Japanese accept the description of their country's military campaigns from 1931 to 1945 as "wars of aggression." Meanwhile, a new museum devoted to the fate of foreign women recruited as sex slaves by the Japanese Army during the war opened in Tokyo at the beginning of August. And on the anniversary of the Pacific war's end this summer, the very same Koizumi who can't stay away from Yasukuni gave a much-noted speech reaffirming his country's readiness to acknowledge its responsibility for the war.

And yet a significant portion of the Japanese population does not agree on the precise parameters of Japan's war guilt. Koizumi's visit certainly destroys any good will occasioned by his Aug. 15 speech. For every Japanese bureaucrat or politician who expresses remorse for the war, there is another who will make an inflammatory remark. During the past year, Education Minister Nariaki Nakayama has several times lauded a revisionist history textbook that minimizes the Japanese military's role in forcible wartime prostitution. Notes Jeff Kingston, a professor at Temple University in Tokyo: "The bottom line is that there is no consensus in Japan on war responsibility. If there's no consensus on memory, you can't assume responsibility—and without responsibility, you can't move to reconciliation."

The question is why all this is flaring up now. That lack of consensus, after all, has held true for decades. But two things are different. First, a new generation of Japanese without personal memories of the war are revolting against what they see as the "masochism" of institutionalized self-reproach and U.S.-imposed pacifism. Young conservatives, including Koizumi, have vowed to transform Japan into a "normal country"—a pledge that includes pursuit of a more assertive international role for Tokyo and the revision of the pacifist Constitution to acknowledge the country's considerable armed forces. Koizumi's insistence on visiting Yasukuni reflects a growing refusal among ordinary Japanese to kowtow to foreign sensitivities.

The external environment has changed, too. Back when Japan was the region's sole economic dynamo, other countries often accepted economic aid from Tokyo in return for tacitly agreeing to avoid bringing up the war. Now that years of prosperity have bred substantial and increasingly assertive middle classes in both China and South Korea, history is returning to the agenda. In September, South Korean Prime Minister Lee Hae-chan said: "We're not asking for money from the Japanese government. We have enough money. What the Korean government wants from Japan is truth and sincerity, and [a commitment] to help develop healthy relations between the two countries." What's more, both Chinese and Korean leaders have powerful domestic reasons to bash Japan—it's a surefire tool for garnering popular support.

The past few months abound in evidence that disagreements over the past can have perceptible economic and political effects. The anti-Japanese riots in China in April of this year triggered sharp falls on the Tokyo stock market. Japanese companies have been reassessing their strategies for investment in China, and many are already relocating factories to countries viewed as less polit—ically sensitive. Japanese business leaders had lobbied Koizumi vigorously to stay away from Yasukuni, for the sake of good relations with China—a sign of how high the stakes are for them.

The continuing tensions also hobble Japan's diplomatic clout. The country's whole postwar diplomatic strategy has been about projecting soft power. Tokyo has focused much of its foreign-policy energy on issues like human rights or climate change, precisely as a way of soothing foreign qualms about Japan's economic might. And Tokyo has been a major supporter of the United Nations. Japan's campaign for a permanent spot on the U.N. Security Council was motivated partly by the fact that Tokyo contributes about 20 percent of the U.N.'s annual budget—more than four of the UNSC's five members. (Japan is second only to the United States.) Yet only three Asian countries—Afghanistan, Bhutan and the Maldives—proved willing to offer official support for the Japanese bid when a formal proposal was put forward in August. (The measure, which also envisioned seats for India, Brazil and Germany, never came to an actual vote.)

Japan's failed U.N. bid was partly due to intensive lobbying by Beijing, which happily used the history issue to blacken Japan's image. Notes Funabashi: "It all leaves China looking like it has moral superiority over Japan"—a powerful edge at a time when both countries are engaged in a struggle for political and economic superiority within Asia.

So how can Japan extricate itself from the mess? Some, predictably, are arguing that the fault lies entirely with Japan's critics. A prominent group of ex-government officials and military men, including Masahiro Sakamoto, vice president of the Japan Forum for Strategic Studies, assert that Japan should respond to China by being tougher diplomatically. They point out that the Chinese Communist Party suffers from much historical amnesia itself. The Japanese Foreign Ministry, for its part, has been shifting the emphasis to public diplomacy. It recently started a new Internet offensive designed to promote a positive Japanese image. The effort will include posting copies of original Japanese Foreign Ministry documents on the site as a way of explaining policy.

Neither of those approaches seems designed to foster what is most needed: a broader spirit of reconciliation and historical awareness. Andrew Horvat of the International Center for the Study of Historical Reconciliation at Tokyo Keizai University points out that one reason why Germans succeeded so well at reconciling with their neighbors after the war was because they made lots of nongovernmental contacts with other Europeans. The cross-border contacts ranged from church and civic groups to trade unions and academic institutions. In Japan, by contrast, restrictive legislation on nonprofit organizations (including tough rules on tax-exempt status) has stunted the growth of civil organizations that might bond with counterparts abroad. "Communication is crucial," says Wang Jin, a 30-year-old Chinese woman studying for her M.B.A. at Waseda University in Tokyo. "If Chinese people have a chance to come here [to Japan], they [might] change their opinions." Wang says she spends much of her time correcting misperceptions about Japan and China to angry friends in both countries. "It's very sad," she says. "I want to have Japan and China be like Germany and France. They have a good relationship. They became stronger even though they had a bad experience."

As Saaler of Tokyo University points out, one reason that Japan hasn't come to terms with Asian countries is that it's long been a staunch ally of the United States. With a superpower as a geopolitical partner, Japan didn't really feel the need to reach out. Back in the 1950s, '60s and '70s none of the other Asian countries mattered economically—now Japan has very intimate economic relations with all of them. China recently surpassed the United States as Japan's top trade partner.

A planned east Asian summit in Kuala Lumpur this December might help forge a new spirit of cooperation. The confab is aimed at laying the groundwork for a new East Asian Community loosely modeled on the European Union. Japan has been pushing the idea of stronger Asian integration for years, and with security anxieties growing apace, the time might be ripe for a new regional alignment. It would be unfortunate if Tokyo's desire to shape that future were to be derailed by its inability to come to grips with its past.

With Hideko Takayama and Kay Itoi in Tokyo

© 2005 Newsweek, Inc.