Travel

Japan Country Brief

Introduction

The Australia-Japan partnership is supported by strong links at the political, business and community levels.   On 1 May 2009, at a joint press conference in Perth with Japanese Foreign Minister Hirofumi Nakasone, Foreign Minister Stephen Smith said that "Japan has been Australia's closest friend and strongest supporter in the region for many years." Mr Smith pointed to Australia's strong cooperation with Japan in resources development, trade, security, development assistance, nuclear non-proliferation, the G20 response to the global financial crisis and expanding links in people-to-people exchange.  Mr Nakasone also mentioned Japan's intention to continue cooperating with Australia to address regional and international issues, and to boost people-to-people exchange between the two countries. 

At the Australia-Japan Conference on 19 November 2008, Prime Minister Taro Aso said the relationship "is reaching the most productive time in its history." In June 2008, Prime Minister Rudd and former Prime Minister Fukuda also affirmed the importance of the relationship in the Joint Statement on the Comprehensive Strategic, Security and Economic Partnership.

Since the inauguration of the Rudd Government, in November 2007, there has been ongoing high-level contact with Japan.  Foreign Minister Nakasone visited Australia from 30 April to 1 May 2009 and met with Prime Minister Rudd and Minister Smith.  Mr Rudd has visited Japan twice, and Cabinet Ministers have made 21 official visits to the country.  Most recently, on 17 April, Minister Smith visited Tokyo to attend the Friends of Democratic Pakistan Ministerial Meeting and the Pakistan Donors' Conference.

For economic, political and strategic reasons, the relationship is of fundamental importance to both countries. Japan is expected to remain Australia's largest export market for many years, and is Australia largest merchandise trading partner. Australia's stable political, business and investment environment makes it a critical supplier to Japan of clean and safe food products and energy and mineral resources. Australia is also an important market for certain Japanese consumer and industrial products. To further strengthen the economic relationship, the Australian and Japanese governments are now negotiating a Free Trade Agreement or Economic Partnership Agreement, which has the potential to take the relationship to a new level. DFAT has published information about the progress made at the eighth negotiating round, which was held in March 2009.

Australia and Japan have a comprehensive strategic partnership built on shared democratic values, a commitment to human rights, freedom and the rule of law as well as common security interests, mutual respect, trust and deep friendship. Australia and Japan are together taking practical steps to address regional and global strategic challenges such as fighting terrorism, preventing the proliferation of weapons of mass destruction, and human security concerns such as disaster relief and the rapid and effective management of international pandemics. Both Australia and Japan share the United States as each country's most important strategic ally, and the three countries progress cooperation on strategic issues through the Trilateral Strategic Dialogue Ministerial Meeting, most recently held in Japan in June 2008. On 18 December 2008, Foreign Affairs Minister Smith and Defense Minister Fitzgibbon met in Tokyo with Japan's Foreign Affairs Minister Nakasone and Defence Minister Hamada at the second ‘2+2' Foreign and Defence Ministerial Consultations.

The cooperative relationship between Australia and Japan is producing benefits for the Asia Pacific region and elsewhere. In our region, we confer closely on issues such as the protection of intellectual property, development assistance, management of communicable diseases such as swine influenza and HIV/AIDS, as well as on humanitarian relief efforts. Australia and Japan also cooperate on peace-keeping and nation building, having worked closely together in Iraq and East Timor and elsewhere. In 2006, Australia completed its military support program for Japan's Ground Self Defense Force humanitarian assistance project in Iraq. The two countries consult regularly on regional security issues such as North Korea's nuclear activities. We jointly encourage international adherence to the nuclear Non-Proliferation Treaty and agreements with the International Atomic Energy Agency. Australia and Japan co-chair the International Commission on Nuclear Non-proliferation and Disarmament (ICNND), an initiative of the Rudd Government expected to deliver its major report by early 2010 to help build international consensus ahead of the May 2010 conference to review the operation of the Nuclear Non-proliferation Treaty (NPT).

Australia benefits from the consistent support of Japan, one of Asia's most successful democracies and its largest economy, in regional forums such as APEC and the East Asia Summit. The two countries share a strong interest in reform to make the United Nations more effective. Australia is a supporter of Japan's aspiration to become a permanent member of a reformed Security Council in the United Nations in addition to supporting Japan's bid to become a temporary member of the Security Council.

Recent high-level visits

Since the inauguration of the Rudd Government, in November 2007, the Prime Minister and Cabinet Ministers have made a total of 23 visits to Japan, including the following recent visits.

Japanese Foreign Minister Hirofumi Nakasone visited Australia from 30 April to 1 May 2009, when he met with Prime Minister Rudd in Melbourne and Foreign Minister Smith in Perth.  In November 2008, the Ministry of Finance's Vice Minister (International Affairs) Mr Naoyuki Shinohara attended the Australia Japan Economic Outlook Conference in Sydney.

Since 1957, when then Prime Minister Sir Robert Menzies visited Japan (the first Australian prime minister to do so) there have been 22 prime-ministerial visits to Japan, the most recent being in July 2008. The most recent visit by a Japanese Prime Minister to Australia was by then Prime Minister Abe who visited Sydney in September 2007 to attend the Sydney Asia-Pacific Economic Cooperation (APEC) Economic Leaders meeting (AELM). Since the first post-war visit to Australia by then Prime Minister Nobusuke Kishi in 1957, 11 Japanese prime ministers have visited Australia.

Australia Japan Conference

The Fifth Australia-Japan Conference (AJC5) was held in Tokyo on 19 November 2008. Established in 1999, Australia-Japan Conferences are significant events on the bilateral Australia-Japan calendar and have generated and promoted new ideas and initiatives in support of the bilateral relationship. This conference, hosted by Japan, was co-chaired by Sir Rod Eddington, Chairman of the Australia-Japan Business Cooperation Committee, and Mr Akio Mimura, Chairman of the Japan-Australia Business Cooperation Committee. Japanese Prime Minister Taro Aso and Australia's Minister for Resources, Energy and Tourism Martin Ferguson addressed the conference.

Discussion at the meeting comprised four main themes: political/security cooperation, trade/economic cooperation, the environment and climate change, and people to people links. Participants underscored that Australia and Japan are natural and indispensable partners, with a sixty-year history of close cooperation based on shared strategic interests and democratic values, economic complementarities and warm people-to-people links, and presented forward-looking recommendations for the future of the bilateral relationship. Following from Prime Minister Aso's keynote speech to the AJC5, on 1 May 2009, Foreign Minister Nakasone announced that Australia and Japan had agreed to launch a joint working group to examine ways of deepening people-to-people exchange between the two countries.

Multilateral and Bilateral Measures to Urge the Termination of Whaling

One of the few issues about which Australia and Japan disagree is whaling. The Australian Government strongly urges the termination of lethal 'scientific' whaling and commercial whaling conducted by any nation, including, for example, Japan, Norway and Iceland.

The Australian Government has initiated multilateral and bilateral measures to protect whales and to encourage the termination of whaling worldwide, including the Japanese whaling program.

Political Overview

System of Government

Japan is a democratic, constitutional monarchy which maintains an Imperial Family, headed by the Emperor, currently Emperor Akihito (known in Japan by his regal name, Heisei), and operates under a cabinet system headed by a Prime Minister. Executive power is vested in the Cabinet. The Prime Minister is selected from among members of parliament by a vote by both houses of the Diet (parliament). The Prime Minister submits bills to the Diet, reports to the Diet on domestic and foreign issues, and supervises and controls administration.

The Japanese Constitution specifies that the majority of Cabinet members must be elected members of parliament. In addition, however, the Prime Minister can appoint non-politicians to the Cabinet and as Special Ministers of State. There is no term limit for prime ministers, although under the rules of the Liberal Democratic Party (LDP), party presidents (who have also been the Prime Minister when the LDP has held government) are limited to two terms of three years each.

Government Structure

Japan's governmental structure has three tiers: national, prefectural and local. Beneath the Tokyo-based national government there are 47 prefectures and beneath these, 1,788 local municipalities. Each tier is governed by elected assemblies. The implementation of "Trinity Reforms" promoting decentralisation during the Koizumi era aimed to give prefectural and local governments more autonomy, particularly in terms of operational finances, but these still have some way to go. The two lower tiers of government remain to a large extent fiscally dependent on the national government.

At the national level, the conservative Liberal Democratic Party has been in power almost continuously since the mid-1950s. At the lower levels of government, however, voters have regularly voted in governments of different political leanings. Recent years have seen rapid progression in the merger of many local municipalities, primarily in pursuit of improved governance and greater economic efficiency.

Political Parties

The post-war history of political parties in Japan shows frequent splits and mergers, a trend which has continued until the present. But for most of the post-war period the Liberal Democratic Party (LDP), the New Komeito (formerly the Komeito), the Social Democratic Party (formerly the Japan Socialist Party), the Japan Communist Party and some other smaller groupings of politicians have consistently maintained themselves as political entities. The Democratic Party of Japan (DPJ), currently the largest opposition party, was formed through the merger of a number of smaller opposition parties in 1998, and strengthened by a further merger with the Liberal Party (led by current DPJ-leader Ozawa) in 2003.

Representation by female parliamentarians at the national level stands at about ten per cent. Although not common, naturalised foreigners and ethnic minority representatives have been elected as politicians, a notable recent example being the 2002 election of the Finnish-born naturalised Japanese citizen Mr Marutei Tsurunen who was elected to the House of Councillors as a member of the Democratic Party of Japan (and re-elected at the July 2007 Upper House election). Universal suffrage is limited to citizens of Japan aged 20 years or older; voting is voluntary and actual voting rates vary widely.

In the Lower House, or House of Representatives, there are 480 seats, of which 300 represent single-seat constituencies and 180 represent proportional seats in 11 regional bloc districts. In this system, voters vote once for a candidate in their local constituency, and once for a party. Local constituencies are decided by plurality, and the block seats are then handed out to the parties proportionally (by the D'Hondt method). The table below shows the relative strengths of the political parties in the Lower House. The electoral term for the

Lower House is four years, although political conditions frequently see the House dissolved earlier.

The most recent election for the House of Representative was held in September 2005, which means that the next election must be held by September 2009. In April 2009, in the Lower House, or House of Representatives (Shuugi-in), there were nine political parties and groupings:

House of Representatives (Lower House) Political Groups

Political Group

No. of MPs

Percentage (rounded)

Liberal Democratic Party (LDP)

303

63%

New Komeito

31

6.5%

Democratic Party of Japan (DPJ) and Club of Independents

112

23.5%

Japanese Communist Party

9

2%

Social Democratic Party

7

1.5%

People's New Party, Daiichi and Group of Independents

7

1.5%

Independents

9

2%

Vacancies

2

0.4%

Total Membership

480

100%

 (Source: House of Representatives, 7 April 2009)

The Upper House, or House of Councillors (Sangi-in), has 242 members, who are each elected for a six-year term. Of this number, 146 members are elected in prefecture-based constituencies, mostly multi-seat, and 96 by proportional representation at the national level. One half of the Upper House is automatically dissolved for election at regular three year intervals. Since the most recent half-Upper House election was held in July 2007, the next must be held in June or July 2010. The table below shows the relative strengths of the political parties in the Upper House.

House of Councillors (Upper House) Political Groups

Political Group

No. of MPs

Percentage (rounded)

Democratic Party of Japan (DPJ), Shin-Ryokufukai, People's New Party, The Nippon

118

49%

Social Democrat Party

5

2%

Liberal Democratic Party (LDP)

82

34%

New Komeito

21

9%

Japanese Communist Party

7

3%

Japan Renaissance Party

4

2%

Independents

5

2%

Total Membership

242

100%

 (Source: House of Councillors 15 October 2008)

Government Policy Making

In terms of government policy making Japan's bureaucracy takes a comparatively forward role and has a high degree of discretionary authority. The majority of government policy originates within government ministries which have jurisdiction over the area in question. Once policy proposals have been developed within the ministry, the ministry then further refines it through consultations with other concerned ministries and agencies.

From an early stage, ministries consult with the relevant policy committees of the ruling party. During this process, bureaucrats take into account the findings of deliberative councils and advisory councils, which consider the views of distinguished academics, experts and the leaders of major businesses and interest groups. On occasion, senior representatives of foreign companies based in Japan have been asked to give advice to these councils.

In the actual drafting of legislation, parliamentary committees typically play a more prominent role than do plenary sessions, where the Diet's entire Upper or Lower house will sit to debate a bill. The normal procedure is for Cabinet or private members to submit for debate bills to standing and specialist committees. The memberships of the committees are allotted according to the strength of each party in the chamber.

Once a committee has passed a bill, which it may have amended, it sends it to its respective chamber for voting. If it passes, the bill will then be passed to the other chamber for voting. A bill voted down in the Upper House, or debated in the Upper House for 60 days without vote, can be passed by reintroducing it to the Lower House and passing it again with a two-thirds majority of votes. This practice of "ramming through" legislation, however, is not common even when one party has the required majority of seats, largely because its use attracts strong public and media criticism. An exception to the general requirement that all legislation passes both houses is the national budget bill, where the decision of the House of Representatives becomes the decision of the Diet if the House of Councillors fails to take action on it within 30 days of receiving it.

As in other industrialised liberal democracies, there is a strong tradition of political activity by civil organisations and interest groups, including the business sector, which exert their power through lobby activities, participation on government deliberative councils, and the ballot box. Japan's media is frequently outspoken on political issues and it also exerts a significant influence on policy making.

The office of the Prime Minister has historically been relatively weak compared with that in other industrialised countries owing to the collective nature of Japanese politics, the strength of the bureaucracy, and the strong tradition of personality-based party factionalism, although the latter waned significantly over the period of the Koizumi government, during which policy-making power became much more focused on the Prime Minister's Office. Liberal Democratic Party politicians who have developed a special relationship with a particular sector, such as the construction lobby, also contribute to drafting policy (usually to promote the interests of that particular sector) through the Party's influential Policy Affairs Research Council.

Recent Political Developments

On 24 September 2008, Taro Aso was voted in as Prime Minister by the Lower House and announced his new cabinet.  Mr Aso replaced Mr Yasuo Fukuda, who announced his resignation as Prime Minister on 1 September.  Mr Aso has to call a general election by September 2009. 

On 12 May 2009, Mr Ichiro Ozawa, president of the major opposition party, the Democratic Party of Japan (DPJ), announced his resignation.  A new president is expected to be elected on about 16 May.  In July 2007 the DPJ won a landslide victory.  This means that legislation passed in the Lower House by the ruling coalition is no longer readily passed by the Upper House. This has resulted in a shift in the government's policy making process that formerly was solely an intra-ruling coalition process to seek to include negotiation with the Opposition.

Economic Overview

Analysis

In 2008, Japan was the world's second-largest economy measured in US dollars. Japan increased its prominence in the global economy during the post-war period. Historically, the primary drivers of Japan's strong economic growth have been high rates of investment in productive plant and equipment, the application of efficient industrial techniques, a high standard of education, good relations between labour and management, ready access to leading technologies and significant investment in research and development, an increasingly open world trade framework, and a large domestic market of discerning consumers, which has given Japanese businesses an advantage in scale of operations.

Manufacturing has been the most remarkable, and internationally renowned, feature of Japan's economic growth. Today, Japan is a world leader in the manufacture of electrical appliances and electronics, automobiles, ships, machine tools, optical and precision equipment, machinery, chemicals, and iron and steel. However, in recent years Japan has ceded some economic advantage in manufacturing to Korea, China and other lower-cost manufacturing economies. Japanese firms have countered this to a degree by transferring manufacturing production to those countries.  This has lead to significant regional production networks whereby Japanese manufacturing companies outsource the manufacture of simple components and final assembly to companies in other countries. Japan's services sector, including financial services, now plays a far more prominent role in the economy and accounts for about 75 per cent of GDP. The Tokyo stock exchange has become one of the world's foremost centres of finance.

International trade contributes significantly to the Japanese economy. Japan has consistently run trade surpluses since 1981. Exports contribute approximately a quarter of GDP. In 2008, key exports were transportation equipment, machinery and manufactured goods. In the same year, the major export destinations were the United States (17.5 per cent), China (16 per cent), South Korea (7.6 per cent) and Taiwan (5.9 per cent). Japan's imports in 2008 were dominated by mineral fuels, machinery and food. Its leading suppliers were China (18.8 per cent), the United States (10.2 per cent), Saudi Arabia (6.7 per cent), Australia (6.2 per cent) and the United Arab Emirates (6.2 per cent). Japan's mineral fuel imports (oil, LNG and coal) accounted for approximately one third of total imports. Recent trends in Japanese trade and foreign investment have reflected a much greater engagement with China – China overtook the United States as Japan's largest trading partner in early 2008.

Current Performance

According to the International Monetary Fund, Japan's GDP in 2007 was US$4.38 trillion, accounting for around 8.1 per cent of total world GDP, while per capita income was approximately US$34,300. In purchasing power parity (PPP) terms, these figures were US$4.29 trillion and US$33,600 respectively at current exchange rates.

On 17 November 2008, Japan's Cabinet Office announced that Japan was officially in recession.  Its economy contracted 0.7 per cent in 2008.  The contraction in the fourth quarter of 2008 was 3.3 per cent (compared to the previous quarter), mostly due to falls in net exports.  As of April 2009, the International Monetary Fund (IMF) predicted that the Japanese economy would contract by 6.2 per cent in 2009.  Unemployment is on the rise, and Japan faces deflation this year.  Japan's economy has relied on manufactured exports, which have been hit hard by downturns in its principal markets in the United States, Europe and East Asia, worsening terms of trade, and the strong yen.  Economists predict that Japan's economy will start to recover from 2010 onwards.

The Japanese Government is in the process of implementing three economic stimulus packages, and a fourth one has been announced, but is yet to pass the Diet.  These four packages together contain new spending worth over US$250 billion, or approximately five per cent of GDP.  They aim to assist the economy through infrastructure upgrades and support for green technologies; tax cuts, credits and loan guarantees for businesses; and cash handouts and increased welfare support for households.  In December 2007, the Bank of Japan cut interest rates to 0.1 per cent.

Despite volatility in its stock market and falls in the outputs and profits of most of its  leading companies, Japan's financial institutions have so far been less affected than their counterparts in other countries.  Many of Japan's world-class corporations have also performed well in recent years and have accumulated reserves, but an upsurge of bankruptcies has been reported among small and medium-sized businesses, particularly in the construction and real estate sectors.  Nonetheless, some Japanese firms have shown a willingness to take advantage of the strong yen to undertake overseas mergers and acquisitions in spite of the global financial crisis.

Future Outlook

Global economic developments, especially in Japan's largest trading partners, China and the United States, will have a significant impact on the Japanese economy's recovery.

The current recession will be a major challenge for Japan's policymakers.  With official interest rates already near zero and the highest level of gross public debt in the OECD (expected to reach 200 per cent of GDP by the end of 2009), the Japanese Government is limited in its ability to stimulate the economy with traditional fiscal and monetary policies.

Japan's ‘lost decade' of economic stagnation in 1990s led to a range of economic reforms that succeeded in stimulating its economy. Economic reform and trade liberalisation will again be important in helping Japan cope with this recession by making its economy more open and more flexible. The Government's ability to mobilise the significant savings of the Japanese population will be a key factor in increasing domestic demand.

In the longer term, and as the economy begins to recover, the Government is likely to focus on reducing its growing budget deficit through spending cuts and broadening the tax base. Japan's rapidly ageing population presents several policy challenges in that it is simultaneously reducing the size of the workforce and tax revenues, and increasing health and welfare expenditures. Labour market reforms that increase participation will be necessary to counter this.

Despite its economic problems, Japan has shown a strong willingness to contribute to the global effort to overcome the financial crisis.  At the G20 Meeting in October 2008, Japan pledged US$100 billion to the International Monetary Fund (IMF).  It has also announced an increase in its aid budget and has undertaken currency swaps with major economies in the region and ASEAN members.

Key Economic Indicators

The following table shows the percentage change in real terms in several key economic determinants.

 

2005

2006

2007

2008

2009f

2010f

GDP

1.9

2.1

2.4

-0.7

-6.3

0.8

Private consumption

1.3

1.5

0.7

0.5

-0.9

0.2

Business investment

9.2

2.4

5.5

-3.9

-16.2

-1.6

Total Exports

6.9

9.7

8.4

1.9

-24.2

-1.8

Total Imports

5.8

4.2

1.5

1.1

-11.2

-2.2

Inflation

-0.3

0.2

0.0

1.4

-1.3

-0.5

Note: f denotes forecast.
Source: Economist Viewswire, Consensus Economics

Bilateral relationship

Short history of the post-war relationship

There have been three major phases in the development of the post-war relationship: the establishment of a major trading relationship with Japan shortly after World War II, formalised and sustained by the 1957 Commerce Agreement; a process of broadening the relationship (particularly at the cultural level) reflected in the 1976 Basic Treaty of Friendship and Cooperation and Protocol (pdf), also known as the NARA Treaty (Nippon-Australia Relations Agreement); and, by 2002, the emergence of a fully rounded and diverse partnership, with the cooperative pursuit of various mutual interests, including important political and security objectives. See the list of key bilateral agreements and joint programs between Australia and Japan here.

Recently, this strengthening of bilateral ties culminated in the signing of the Australia-Japan Joint Declaration on Security Cooperation (JDSC) in March 2007. The JDSC paves the way for security cooperation between Australia and Japan in law enforcement; border security; counter-terrorism; disarmament and counter-proliferation of weapons of mass destruction; maritime and aviation security; peace operations and humanitarian relief operations. On 9 September 2007 an Action Plan to implement the JDSC was endorsed.

The JDSC also established the foreign and defence ministers ‘2+2' talks to enable Australia and Japan to cooperate more closely in the areas of cooperation identified in the Declaration. The inaugural Australia-Japan Foreign and Defence Ministerial Consultations (JAUSMIN) were held in June 2007. The talks focused on issues of common interest including North Korea, Iraq and Iran, cooperation on disaster relief, peacekeeping, peace-building, counter-proliferation and counter-terrorism, and increasing collaboration in the Pacific.

In September 2007 the two countries also issued a joint statement on climate change and energy security, and agreed to continue discussions on an Economic Partnership Agreement. In January 2008, Australia and Japan signed the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Friday, 1 February 2008) and in June 2008, Prime Minister Rudd and former Prime Minister Fukuda signed the Joint Statement on Comprehensive Strategic, Security and Economic Partnership.

Science & Technology Links

In mid-2008, Prime Minister Rudd and former Prime Minister Fukuda agreed that the two countries should take a fresh look at existing science and technology cooperation with a view to identifying new areas of mutual interest. They also encouraged closer collaboration between Australian and Japanese researchers, especially among young researchers. They welcomed the twentieth anniversary of Australia's National Science and Technology Museum, Questacon (Japanese businesses were co-contributors to Question's establishment funds in 1988). The two Prime Ministers also affirmed that Australia and Japan would cooperate in intellectual property rights issues.

Many of Australia's leading scientists and science organisations have extensive networks, and where appropriate, formal collaborations with Japan. In the public sector, between 2002 and 2006, the Australian Research Council funded 519 collaborative proposals with Japan, the Department of Education, Science & Training funded 5 projects, while between 1997/8 and 2005/6 CSIRO reported 415 instances of collaboration with Japan in Divisional research.   

Community presence in Australia

There are approximately 60,000 Japanese resident (3 months or longer) in Australia (Japanese Ministry of Foreign Affairs, 2007). Of these, 24,000 live in Sydney, 9,400 in Melbourne, 6,800 on the Gold Coast, 4,600 in Perth, and 2,700 in Cairns. About two-thirds of all Japanese residents are female, while about 28,000 Japanese are Australian permanent residents.

Japan represents the tenth largest source country for international students in Australia, and in July 2008 there were 11,666 Japanese students in Australia studying on a student visa.  Approximately 19,500 students undertake English language study (ELICOS) on a non-student visa (English Australia, 2006).  Australia was the most popular destination for Japanese school group excursions during the 2006-07 school year with 43,702 Japanese school students visiting on school excursions.  Approximately 3,040 Australian school students visit Japan each year under sister school exchange or other programs with over 200 school students spending more than three months studying in Japan.  According to Japan's Ministry of Education (MEXT), there are 542 agreements between Australian and Japanese universities and 414 sister school relationships (MEXT, 2006). 354 Australian students, including 83 on Japanese government scholarships, were studying at Japanese universities in 2006 (JASSO, 2007).

A bilateral Australia-Japan Social Security Agreement was signed in February 2007, and took effect from 1 January 2009, and in January 2008 Australian Foreign Minister Smith and Japanese Foreign Minister Koumura signed a basic agreement on a double taxation treaty which streamlined taxation for Australian and Japanese businesses; the agreement came into force on 3 November 2008.
Person-to-person links are enhanced by 16 Australia-Japan and 46 Japan-Australia societies which provide grass-roots community support to the relationship, as well as 99 sister-city relationships. Most Japanese who come to Australia, however, come on short-term visits as tourists and businesspeople. Japan is Australia's third largest source of tourists, and in 2007 approximately 572 900 Japanese visited Australia (Tourism Australia), while 220 500 Australians visited Japan.

Bilateral Economic and Trade Relationship

Bilateral Trade

Japan has been Australia's largest export market for the past forty years, and will remain so for the foreseeable future.  2008 was a record year for bilateral trade and Japan regained its position as Australia's largest merchandise trade partner.  Two-way merchandise trade between Australia and Japan was valued at approximately $70.8 billion, a 41 per cent increase on 2007.  Merchandise exports to Japan rose by 58 per cent to $50.6 billion, which represents over one fifth of Australia's total exports.  This is more than merchandise exports to China and the United States combined.  The large increases in 2008 were mostly due to significant rises in the prices of resources such as coal and iron ore.  Merchandise imports were valued at $20.2 billion.  Trade with Japan delivered Australia its largest merchandise trade surplus in history: $30.3 billion.

Australia-Japan trade is comparatively steady as the resource sector, where trade is conducted between large corporations through long-term contracts, accounts for a large share of the total.  However, Japan's recession – and falling manufacturing output – is expected to decrease demand for Australian exports, particularly of resources such as coal, iron ore and aluminium.  Falling commodity prices will also reduce the value of many of Australia's minerals exports.  However, the yen appreciated by approximately 40 per cent against the Australian dollar in the second half of 2008, making many of Australia's exports more competitive in the Japanese market.

In terms of Australia's major export sectors, coal exports grew by 125.6 per cent in 2008 to $20.3 billion.  Iron ore exports also increased by 64.4 per cent to $7.4 billion.  Rural exports increased by 10 per cent to $4.4 billion.  Beef exports increased by 8 per cent to $2.1 billion.  Japan remained Australia's largest export market for coal, LNG, beef, dairy products and seafood.

On the other side of the trade ledger, Australia's imports from Japan rose by 12.1 per cent in 2008 to $20.2 billion. Australia's largest import, passenger motor vehicles, increased by 9.2 per cent to $6.8 billion, while imports of transport vehicles rose by 9.1 per cent to $1.7 billion. These two categories account for 42 per cent of Australia's total merchandise imports from Japan.

Japan was Australia's sixth-largest services trade partner in 2007-08, with bilateral trade in services valued at $5.0 billion.  Services exports were worth $2.5 billion, a 14.6 per cent decline on the previous financial year.  This was mostly due to a decline in short-term visitor and tourist arrivals from Japan to Australia.  Services imports were also valued at $2.5 billion, a 23.8 per cent increase on 2006-07 figures.

Bilateral Investment

Japan is Australia's third-largest investor, with an investment stock of $57.5 billion at the end of 2007. Approximately 45 per cent of Japan's total investment in Australia is direct investment, 45 per cent is portfolio investment, and 10 per cent is categorised as other investment. Japanese direct investment has been essential in the development of many of the export industries that have driven Australia's export performance. In terms of indirect investment, Australia is now one of the largest recipients of offshore investment by Japanese mutual funds, receiving 12 per cent of all such funds being invested offshore.

Japanese investment has played a major role in the development of Australia's iron ore and coal sectors, including in large-scale projects to meet Japanese demand for those resources.  Japan's major trading houses – such as Mitsui, Marubeni, Mitsubishi, Itochu and Sumitomo – continue to make multi-billion dollar investments in all resource sectors in Australia.  Japanese investment has also been important for the development of Australia's export-oriented manufacturing sector. Toyota Motor Corporation Australia, for example, has invested more than $US1.5 billion in manufacturing and car design facilities since the mid 1990s. Japan has also made substantial investments in Australia's food sector. Recent examples include the acquisition by Asahi Breweries of beverage maker Schweppes Australia for $1.19 billion in April 2009.  Japan's largest brewing company Kirin purchased Dairy Farmers for $910 million in December 2008.  There has also been direct investment by the major dairy company Snow Brand in dairy ingredients in Victoria and Nippon Meat Packers in cattle-raising, feed-lotting and processing in Eastern Australia.

Australian companies and individuals also target Japanese businesses for investment, and Japan is Australia's sixth-largest destination for foreign investment. At the end of 2007, Australia's stock of investment in Japan was $35.1 billion. Indirect investments accounted for almost all of this amount while direct investments accounted for approximately 1 per cent, or $386 million.  

Bilateral and Regional FTAs

The eighth negotiating round of the Australia-Japan Free Trade Agreement took place in Tokyo 9-13 March 2009.  DFAT has published a summary of the results of this round.

In 2006, Australia and Japan agreed that the FTA should be comprehensive, World Trade Organization-consistent and concluded through a single-undertaking.

When concluded, the Free Trade Agreement will:

Based on the cost benefit analysis of the FTA in the Joint Study for Enhancing Economic Relations between Japan and Australia (December 2006), a conservative estimate of the net benefit of the FTA to the Australian economy would be an increase of 0.66 per cent of GDP by 2020, while the net benefit to Japan would be an addition of 0.03 per cent of Japan's GDP. The Joint Study equated these amounts to a net gain in present value terms over 20 years of $39 billion for Australia, and $27 billion for Japan.

Bilateral Market Access Issues

The Australian Trade Commission (Austrade) is the Commonwealth Government's agency which assists Australian companies to build and implement their export strategies. Austrade encourages Australian businesses not to be deterred by the dated image of the Japanese market as a closed, heavily regulated and difficult market to enter. According to Austrade, the main barriers to market access for merchandise and value-added goods are mainly informal hurdles which can be successfully navigated. They include different business practices, language issues, entrance to business networks, maintenance of market presences, and product quality assurance. With regard to official and regulatory barriers to trade and investment, Australia is seeking their removal, most notably through the FTA negotiations.

Japan-based Austrade officers encourage potential Australian exporters to gain an introductory understanding of Japanese business practices. They emphasise learning about methods of business networking, managing effective business meetings, and cost-effective and productive techniques for resolving conflicts.

On the administrative side, Australian exporters are advised to pay careful attention to Japanese practices and legal requirements. These include requirements regarding packing, marking and labelling; insurance; methods of quoting and payment; public health requirements including food import permits; precise and accurate documentation; certificates of origin; bills of lading; packing lists; special certificates and importantly patents and other clear legal coverage.

Formal regulatory restrictions and tariffs do exist, mostly on agricultural produce, and Australia is continuing to work with Japan on these market access issues. For most industrial products, however, Japan has very low or no tariffs.

Australian Trade and Investment Strategies

Australian companies are winning business for their products and services in Japan by applying sound trade and investment strategies which reduce the time, cost and risk involved in selecting, entering and developing the market. Austrade offers practical advice, market intelligence and ongoing support (including financial) to Australian businesses. Austrade has offices in Tokyo, Osaka, Fukuoka, Nagoya, and Sapporo.

Austrade's website includes profiles of Japanese market sectors as well as outlines of potential business opportunities. New entrants can also consider using Austrade's "Opportunities Online" website. Austrade publishes the Japan Exporters' Newsletter, which includes case studies of Australian business successes in Japan, tips for doing business there, and information on recent market and regulatory changes.

The Japan Exporters' Newsletter is available by registering on-line at the Austrade website.

More information on successful entry to the Japanese market can be found in the extensive business literature on this topic. The major business media firm Nikkei, the Economist Intelligence Unit, Bloomberg as well as the major Japanese and foreign securities companies and banks also provide high-quality reporting on markets, government regulations and industry conditions.

Australian businesspeople can also learn from the experiences of others through chambers of commerce and industry, such as the Australia-New Zealand Chamber of Commerce in Japan (ANZCCJ) and the American Chamber of Commerce in Japan (ACCJ). These organisations frequently hold talks on issues for the foreign entrant and they can arrange introductions to foreign and Japanese businesspeople.

Naturally, most information about the Japanese market is available in Japanese, and Australian businesses with Japanese speakers can access a wealth of private businesses databases, newspapers, industry publications, and reports by the Japanese chambers of commerce and industry and the Japanese Government. (The Japanese Government provides advice in English through the Japanese External Trade Organisation (JETRO), which has offices in Melbourne, Sydney and Tokyo.)

When in Japan, Australian business people can visit Japanese chambers of commerce and industry in the major cities and regional centres, as well as the Japanese industry associations and lobby groups, which may provide recent industry data and offer aspiring market entrants introductions to local experts, potential customers and business partners. In both Australia and Japan there is a wide range of experienced consultants and legal experts who, for a fee, will assist businesses devise trade and investment strategies and advise on contract arrangements.

Export Opportunities

Major changes to trade and investment conditions

Looking ahead, Japan-based Austrade officers predict that, in the future, the most promising growth and interaction between the Australian and Japanese economies will lie in higher value-added and knowledge intensive sectors such as the life sciences, information technology, nanotechnology, aerospace and environmental technologies.

Since services account for 75 to 80 per cent of both Australia's and Japan's domestic economies, Austrade's market experts reason that Australian service providers should be well placed to sell their services to Japanese customers. This is partly because, as Australia began de-regulating and reforming its service sector ahead of Japan, Australian service operators have become more efficient and developed a comparative advantage. Service sectors where Australian companies appear to be more competitive include government services, professional services such as legal and accounting, medical and aged care services, real-estate and property services, vocational training, recreational, music and performing arts and hospitality services.

Outlooks based on Japan's long-term social, cultural and demographic trends predict that Japanese consumers will spend more time on leisure and recreation. Austrade assesses there are potential opportunities in recreational sports, hobbies, pets, arts, entertainment and health and lifestyle related areas such as aromatherapy and nutrition.
Please also see the Economy Section regarding major changes to trade and investment conditions.

Trade and Investment Successes

Australian Investment in Japanese Tourism

In recent years Australian companies have responded to opportunities provided by Japan's economic reforms and deregulation to make notable direct investments. Tax accounting reforms which clarified land values led to significant Australian direct investment in Hokkaido, Japan's most northern major island.

Today, there is a concentration of approximately 30 Australian companies in the resort town of Niseko engaged in providing skiing, rafting and other leisure services; as well as in hospitality, real estate and construction. These companies have invested approximately $300 million, many in conjunction with Japanese joint venture partners, to create welcome growth and employment in the region. Niseko's success has also contributed to the fact that the number of Australian tourists visiting Hokkaido rose from 1,550 in 2001 to over 20,000 in 2007. 

This example demonstrates how creative business ideas can lead to new trade and investment opportunities. Austrade, the Australian Government's export development agency, administers programs that assist businesses achieve and develop export success. These include the New Exporter Development (NED) program and the Export Market Development Grants (EMDG) scheme.

Key bilateral agreements and joint programs

Australia-Japan cooperation is assisted by a number of key bilateral agreements and joint programs, including the following:

 

Updated 15 May 2009