[Billy]

By the same token, China should recognise the importance of Japan as the only democratic and economically advanced nation in Asia. With its refined culture, advanced technology and peace-loving attitude, Japan should be regarded as a valuable resource for China and the rest of Aisa.

In this regard, China must stop its negative campaign, which focuses only on the Japanese invasion of 1937-1945. The younger generation in China should also be taught about the political, social and economic conditions in China and the rest of the world at the same time. The two countries need to recognise their respective values and bulid long-lasting relations based on shared roots in the East, just as the US and Britain have bulit relations in the West.

Japan has to revitalise its economy and society to compete - and co-operate - with China. Deregulation is essential to encourage new industry, which will offer new employment opportunities. It is vital, therefore, to reform Japan's low-productivity sectors, some of which may move into overseas markets, including China.

That should be seen as desirable, in the same way that Japanese car manufacturers, electronic industries and the like have moved into forrign capital and technology, and Japanese companies can take advantage of the situation. At the first sight, it might appear that Chinese companies are out of performing their Japanese conterparts, mainly due to low costs. But many Japanese companies are exporting from China to Southeast Asia and the rest of the world.

Both countries are probably most concerned about their domestic employment situation, Japan needs to sonsider not only short-tern employment opportunities, but long-term population declines and immigration trends. In this, China could also paly an role for Japan.

Finally, Japan needs more effective diplomacy to deal with rapidly changing international relations in Asia and the Pacific Rim.

Political and economic strategies need to be better co-ordinated to advance Japan's free-trade agreement initiative in relation to China's skilful manoeuvring towards its own agreement in Southeast Asia.

Japan has to openly discuss where its national interests lie. This has become ever more important with the emergence of China's economic and military influence in Aisa.

Although there is unlikely to be any consensus soon on the issue, given the political and intellectual climate in Japan, the nation needs to achieve at least a critical mass to formulate national strategies and polices among political and intellectual leaders.

Based on the discussions about national interests, Japan can then effectively pursue important global objectives, suck as world peace, justice and humanity.

Writer, Toyoo Gyohten, is president of the Institute for International Monetary Affairs