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Japan country brief

Overview

The Australia–Japan partnership is our closest and most mature in the region, and is fundamentally important to both countries' strategic and economic interests. The relationship is underpinned by a shared commitment to democracy, human rights and the rule of law, as well as common approaches to international security. Japan is Australia's second-largest export market and third-largest source of foreign investment. Australia's stable political, business and investment environment makes it a critical supplier to Japan of clean and safe food products as well as minerals and energy. To further strengthen the economic relationship, Australian Prime Minister Abbott and Japanese Prime Minister Abe formally announced on 7 April 2014, the conclusion of negotiations on the Japan Australia Economic Partnership Agreement. The two leaders signed the agreement on 8 July 2014 in Canberra.

Political overview

System of government

Japan is a democratic, constitutional monarchy with a parliamentary government headed by a Prime Minister. Japan maintains an Imperial Family, headed by the Emperor, currently Emperor Akihito. Universal suffrage is limited to citizens of Japan aged 20 years or older; voting is voluntary and actual voting rates vary widely.

Japan’s parliament is comprised of a House of Representatives (Lower House) and a House of Councillors (Upper House). The Lower House has 480 members who are elected for four-year terms, although political conditions frequently see the House dissolved earlier. The Upper House has 242 members who are elected for six-year terms. One hundred and forty-six Upper House members are elected in prefecture-based constituencies and 96 by proportional representation at the national level. One half of the Upper House is dissolved for election at regular three-year intervals.

Executive power is vested in the Cabinet, which is comprised of the Prime Minister and ministers of state. The Prime Minister is selected from among members of parliament through 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. 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 individual parties often have term limits in place under party rules.

Japan's governmental structure has three tiers: national, prefectural and local. There are 47 prefectures and 1788 local municipalities. Each tier is governed by elected assemblies. Japan does not have a federal system and the two lower tiers of government are to a large extent fiscally dependent on the national government.

Current parliament

On 26 December 2012, the Liberal Democratic Party (LDP) returned to power, winning a two-thirds majority of the Lower House with its coalition partner, the New Komeito Party. The LDP defeated the Democratic Party of Japan (DPJ), elected in August 2009, thereby ending a three-year hiatus from more than fifty years of almost unbroken LDP rule. The DPJ, formed in 1998 through a number of mergers, now holds 57 Lower House seats.

House of Representatives (Lower House) numbers (as at March 2014)
Political party Number of Members
Membership 480
Liberal Democratic Party 293
The Democratic Party of Japan 54
Japan Restoration Party 53
New Komeito 31
Your Party 9
Unity Party 9
Japanese Communist Party 8
People's Life Party 7
Independents 5
Social Democratic Party 2
Independents 12
Vacancies 1

Source: www.shugiin.go.jp March 2014

The most recent half-Upper House election was held in July 2013. Following the July 2013 half-Upper House election, the Liberal Democratic Party and its coalition partner New Komeito now have a majority in both houses of the Diet.

House of Councillors (Upper House) numbers (as at March 2014)
Political party Number of Members
Membership 242
Liberal Democratic Party 114
The Democratic Party and the Shin-Ryokufukai 58
New Komeito 20
Your Party 12
Japanese Communist Party 11
Japan Restoration Party 9
Unity Party 5
Social Democratic Party 3
New Renaissance Party and Group of Independents 3
People's Life Party 2
Independents 4
Vacancies 1

Source: www.sangiin.go.jp March 2014

Economic overview

Japan's highly industrialised market economy is the third-largest in the world (GDP at market exchange rates). Japan's economy was the second largest from 1968 until 2010, when it was overtaken by China. Japan has a well-educated, industrious work force and its large, affluent population makes it one of the world's largest consumer markets.

From the 1960s to the1980s, Japan achieved one of the highest economic growth rates in the world. This growth was led by 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 China, the Republic of Korea and other manufacturing economies. Japanese firms have countered this trend to a degree by transferring manufacturing production to other low-cost countries. Japan's services sector, including financial services, now plays a far more prominent role in the economy, accounting 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, with exports equivalent to approximately 16 per cent of GDP. Key exports include vehicles, machinery and manufactured goods. In 2013, Japan's major export destinations were the United States (18.8 per cent), China (18.1 per cent) and the Republic of Korea (7.7 per cent). In 2011, exports were disrupted by the Tohoku earthquake and tsunami, the Thai floods, and an appreciation of the yen. These factors, combined with weak global demand originating in the global financial crisis, led to Japan’s first trade deficit since 1980.

Japan has few natural resources and its agricultural sector is one of the most protected in the world. Japan's main imports include mineral fuels, machinery and food. In 2013, leading suppliers of these goods were China (21.7 per cent), the United States (8.6 per cent) and Australia (6.1 per cent). Recent trends in Japanese trade and foreign investment have reflected a much greater engagement with China, which overtook the United States as Japan's largest trading partner in early 2008.

The Japanese economy slowed dramatically in the early 1990s as stock and real estate prices fell sharply. Traditionally dependent on manufactured exports, Japan's economy is vulnerable to downturns in the United States, Europe and East Asia. Following the 'lost decade' of economic stagnation in the 1990s, Japan undertook a number of economic reforms that preceded a period of economic expansion from 2000 to 2007. However, the impacts of the global financial crisis saw Japan's economy go into recession in late 2008. The economy quickly recovered, achieving GDP growth of 4.7 per cent in 2010 on the back of a 29.5 per cent increase in exports (IMF). The immediate economic impacts of the March 2011 earthquake and tsunami were substantial. Many manufacturing firms faced disruptions to electricity, water, transport and supply chains. Japan's economy shrank for three consecutive quarters, placing Japan in a technical recession. Industrial production and trade have recovered quickly since the twin disasters of 2011, with Japan's economy returning to positive growth in 2012 and 2013 as supply chains were restored and output increased.

Outlook

In the medium term, the Japanese economy faces challenges over its energy policy, as well as external risks including weak economic conditions in Europe and the US. As a part of efforts to address these challenges, the Japanese government is encouraging firms to secure stable energy and commodity supplies through increased investment in overseas natural resources.

Economic reform and trade liberalisation will be important in helping Japan cope with these challenges by making its economy more open and flexible. Japan has made recent policy moves in this direction. Following his December 2012 election victory, Prime Minister Shinzo Abe has pursued a reformist economic agenda, dubbed ‘Abenomics’, which contains fiscal and monetary expansion as well as elements of structural reform that could liberalise the Japanese economy. In November 2012, Japan was a founding party to the launch of negotiations on the Regional Comprehensive Economic Partnership (RCEP). In April 2013, Japan entered negotiations on the Trans-Pacific Partnership (TPP). Both RCEP and the TPP have the potential to form building blocks for free trade across the Asia-Pacific region.

The rapid ageing of Japan's population will reduce the size of the workforce and tax revenues, while placing increasing demands on health and welfare expenditure. Labour-market reforms to increase participation will need to be among measures to counter this trend. In August 2012, the Japanese government took measures to increase tax revenues through legislation to raise the consumption tax from five per cent to eight per cent in April 2014, with plans to again raise the rate of this tax to 10 per cent in 2015.

Foreign Relations

With an economy highly dependent on international trade and investment, Japan's foreign policy has aimed to promote a peaceful and stable international community, while contributing to international solutions to shared challenges such as environmental protection, terrorism, poverty and infectious diseases. Japan has diplomatic relations with nearly all United Nations member states and has been an active member and supporter of the UN since 1956. Japan is the second-largest contributor to the UN budget and a large donor of official development assistance (ODA). Japanese ODA plays an important role in many countries, including in the Asia-Pacific region.

While Japan’s constitution and government policy limits its military role in international affairs, Japan, through its Self-Defense Forces, contributes actively to UN peacekeeping operations, disaster relief and other activities including in international counter-piracy efforts of the Horn of Africa since 2009. In July 2014, Prime Minister Abe made an announcement on Japan’s security policies, including that Japan could, under strict conditions, exercise its UN Charter right to collective self-defence. Japan is also actively engaged in nuclear disarmament and non-proliferation efforts, including its co-development with Australia of the Non-Proliferation and Disarmament Initiative.

The Japan-US alliance is the cornerstone of Japan's foreign policy and national security. Japanese cooperation with the US through the US-Japan Security Treaty has been important to maintaining stability in the region. The US military maintains a presence of approximately 38,000 personnel in Japan under the US-Japan Treaty of Mutual Cooperation and Security of 1960. The US Seventh Fleet is based in Yokosuka and the 3rd Marine Expeditionary Force (III MEF) is based in Okinawa. Plans for the relocation of the Futenma US marine air base in Okinawa have been a longstanding bilateral preoccupation.

Japan describes Australia as its second most important security partner. The Australia-Japan-United States Trilateral Strategic Dialogue is a key security policy mechanism for Japan.

Good relations with its neighbours are of vital interest to Japan. After the signing of a peace and friendship treaty with China in 1976, bilateral relations developed rapidly. Japan supported China's membership of the World Trade Organization (WTO). Cooperation between Japan and the Republic of Korea (ROK), including over the threat posed by the Democratic People's Republic of Korea (DPRK), is important in ensuring regional stability. A trilateral summit process established in 2008 provides Japan, China and the ROK with a forum for leaders-level dialogue – the fifth such meeting was held in May 2012. However, Japan's relationships with China and the ROK are complicated by competing territorial claims and historical issues.

A territorial dispute over a number of islands north of Hokkaido also complicates Japan's political relations with Russia. Both nations are seeking ways forward through diplomatic dialogue, while continuing to develop other aspects of their relationship, including cooperation in oil and natural gas.

Japan has been a member of the Six-Party Talks aimed at de-nuclearising the Korean peninsula, and continues to seek the return of and further information on Japanese citizens abducted by the DPRK.

Reflecting the importance Japan places on the Asia-Pacific region as a source of economic opportunities, its other priority relationships include those with ASEAN members, India and other regional countries. Japan also supports multilateral initiatives for enhanced dialogue and cooperation in the Asia-Pacific region, including Asia-Pacific Economic Cooperation (APEC), the East Asia Summit (EAS), the G20, the ASEAN Regional Forum (ARF) and ASEAN+3 (Japan, China and ROK). More broadly, Australia and Japan work closely in the United Nations.

Each year, Japan's Ministry of Foreign Affairs produces a 'Diplomatic Bluebook' that summarises its foreign policy over the past year.

Bilateral relations

Short history of the post-war relationship

There have been three major phases in the development of the post-war Australia-Japan relationship:

Political and security relationship

Australia and Japan now have a strong and broad-ranging partnership. Australia and Japan have taken practical steps to address regional and global strategic challenges of mutual concern. The United States is both Australia's and Japan's most important strategic ally, and the three countries progress cooperation on strategic issues through the Trilateral Strategic Dialogue Ministerial Meeting, most recently in October 2013 (statement).

The 2007 Joint Declaration on Security Cooperation (JDSC) provides a foundation for wide-ranging cooperation on security issues between Australia and Japan including 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 (the two countries have worked closely together in Iraq, East Timor, Pakistan and elsewhere). Australia and Japan consult regularly on regional security issues such as North Korea's nuclear activities. The growing Australia-Japan defence relationship includes regular bilateral and trilateral exercises with the United States, such as exercise Southern Jackaroo in Australia in March 2013.

The JDSC also established the regular '2+2' talks between foreign and defence ministers. At the fifth 2+2 talks in Tokyo on 11 June 2014, Ministers agreed on recommendations to enhance security and defence cooperation, including the conclusion of negotiations on a defence technology and equipment agreement. Previous outcomes of the 2+2 process include an Acquisition and Cross Servicing Agreement on defence logistics cooperation, which entered into force on 31 January 2013, and an Information Security Agreement on the sharing of classified information, which entered into force in March 2013.

Australian Prime Minister Abbott and Japanese Prime Minister Abe held a summit meeting on 7 April 2014, at which the two leaders decided to elevate the security and defence relationship to a new level. The two leaders also decided to establish a bilateral cyber-policy dialogue to address common cyber threats and discuss ways to strengthen regional and international cooperation.

Australia and Japan have a strong history of cooperation in United Nations peacekeeping missions, including in East Timor and Cambodia. In 2012, the Australian Defence Force and Japanese Self-Defense Force commenced enhanced peacekeeping cooperation between personnel deployed to the United Nations Mission in the Republic of South Sudan (UNMISS).

Australia and Japan closely cooperate on nuclear non-proliferation and disarmament issues. The two countries have jointly led efforts in support of the Nuclear Non-Proliferation Treaty, including International Commission on Nuclear Non-Proliferation and Disarmament (ICNND) established in 2008, and the cross-regional Non-Proliferation and Disarmament Initiative (NPDI) established in 2010.

Australia and Japan are close partners in regional forums such as APEC and the East Asia Summit. The two countries share a strong interest in reform of the United Nations to make it more effective. Australia supports Japan's aspiration to become a permanent member of the United Nations Security Council and Japan's efforts to reform the Security Council. Australia and Japan are consulting closely during Australia’s term as a non-permanent member of the Security Council in 2013-14.

In the aftermath of the earthquake and tsunami in March 2011, Australia provided extensive support to Japan, including a 72-person urban search and rescue team; a team of Defence operations-response officers; C17 aircraft for use in relief operations; and a donation of $10 million to the Australian Red Cross Japan and the Pacific Disaster Appeal. Then Prime Minister Gillard was the first head of government to conduct an official visit to Japan following the earthquake, announcing a program to help fund university students, academics and professionals from those areas most affected by disasters to spend time in Australia. There was also significant grass-roots support for Japan in Australia and from the Australian community in Japan.

Cooperation between Australia and Japan in other areas, for example development assistance and disaster relief, has produced benefits for the wider region.

Australia and Japan signed an MOU on development cooperation in Tokyo in December 2011. The MOU commits the respective parties  to work more closely together to increase aid effectiveness and help developing countries lift their people out of poverty and share the benefits of economic growth.

Through the partnership, the parties  have agreed to increase the exchange of information, and to enhance cooperation in sectors such as education, health, food security and infrastructure.

Australia and Japan have both consistently agreed not to let our differences over whaling affect the broader bilateral relationship. Our wide-ranging common interests include cooperation in Antarctica and safety-at-sea issues.

Trade and InvestmentThe important Australia-Japan economic relationship is underpinned by complementary strengths and needs. Australia is a safe, secure and reliable supplier to Japan of food, energy and mineral resources and a world-class centre for financial and other services. By 1924-25, Japan was Australia’s third-largest export market and after the signing of the landmark Commerce Agreement in 1957, Japan became Australia’s largest trading partner in the early 1960s—a position it maintained for 40 years. Japan is a reliable customer of Australian resources and Japanese investment has played a significant role in the development of the Australian economy.

The inaugural Australia-Japan Trade and Economic Ministerial Dialogue was held in October 2009. The third dialogue, in May 2012, covered bilateral EPA negotiations, the World Trade Organization and joint efforts to strengthen regional economic architecture including the East Asia Summit and APEC.

Trade

Japan was Australia's second-largest trading partner in 2013. Japan is Australia's second-largest export market, and should remain so for the foreseeable future. Two-way goods and services trade between Australia and Japan was valued at $70.8 billion, a 0.8 per cent decrease on 2012. Goods exports to Japan in 2013 decreased by 0.5 per cent to $47.5 billion, representing approximately 18.0 per cent of Australia's total goods exports.

In 2013, Australia's major exports to Japan included LNG (estimated at approximately $14 billion), coal ($13.7 billion), iron ore ($9.6 billion), beef ($1.4 billion), and copper ores and concentrates ($1.3 billion). Japan was Australia's largest export market for beef, fish, fruit and vegetable juices, animal feed, coal, liquefied propane and butane, aluminium, transmission shafts, dairy products and natural gas.

On the other side of the trade ledger, in 2013, Japan was Australia's third-largest source of imports. Major imports from Japan included passenger vehicles ($6.7 billion), refined petroleum ($3.4 billion), goods vehicles ($1.2 billion), and rubber tyres, treads and tubes ($0.7 billion).

Total bilateral trade in services in 2013 was valued at about $4.3 billion, mostly in the recreational travel, transport and education sectors. Services exports were worth $2.0 billion and services imports were valued at $2.3 billion.

Investment

Japan is Australia's third-largest investor, with an investment stock of $131.0 billion as at the end of 2013. Almost half ($63 billion) of Japan's total investment in Australia is direct investment. Japanese direct investment has been essential in the development of many of the export industries that have driven Australia's growth, including in large-scale projects to meet Japanese demand for resources such as iron ore, coal and motor vehicles. For example, Japanese investment has been important in the rapid expansion of Australia’s LNG capacity, which could see Australia become the world's biggest producer by around 2017. The $34 billion Ichthys project near Darwin, headed by Japan's INPEX and scheduled to start production in 2016, will be the first Japanese-operated LNG project anywhere in the world. Japan's major trading houses continue to make multi-billion dollar investments in Australian resources.

Japanese investment has recently extended beyond the traditional areas of natural resources to diverse sectors such as financial services, infrastructure, information and communications technology, property, food and agribusiness. The Japan-Australia EPA will boost Japan’s diverse and growing investment in Australia, generating employment growth including in regional 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 2013, Australia's stock of investment in Japan was $50 billion.

Bilateral and regional trade agreements

On 7 April 2014 Australian Prime Minister Abbott and Japanese Prime Minister Abe announced the conclusion of negotiations on the Japan Australia Economic Partnership Agreement. The two leaders signed the agreement on 8 July 2014 in Canberra.

Australia and Japan are natural partners with highly complementary economies. The agreement will bring our economies and societies even closer and underpin a strong relationship for many years to come. The agreement will deliver significant benefits to Australian farmers, manufacturers, exporters, service providers and consumers. More than 97 per cent of Australia’s exports to Japan will receive preferential access or enter duty-free when JAEPA is fully implemented. To date, JAEPA is by far the most liberalising trade agreement Japan has ever concluded. 

More information on the Japan-Australia Economic Partnership Agreement

Bilateral market access

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.

The Australian Trade Commission (Austrade) is the Commonwealth Government's agency which assists Australian companies to build and implement their export strategies. Austrade offers practical advice, market intelligence and ongoing support (including financial) to Australian companies seeking to grow their business in Japan. Austrade also works to promote the Australian education sector within Japan and attract productive foreign direct investment into Australia. Austrade has offices in Tokyo, Osaka, Fukuoka and Sapporo.

Information on doing business and opportunities in Japan

People to people linksEarly Japanese settlers started the pearling industry in Australia. Larger-scale migration began after the Second World War, and Japanese continue to settle in Australia today. According to the 2011 census, more than 50,000 residents claimed Japanese heritage. Data suggests that there are approximately 75,000 Japanese nationals living in Australia (for a period of 3 months or longer) (Japanese Statistics Bureau). To May 2014, there were 7,884 enrolments by students from Japan, ranking Japan as twelfth overall by volume of enrolments for student visa holders. The English Language Intensive Course for Overseas Student (ELICOS) sector was the most popular sector for these enrolments (44%). A further 26% of Japanese enrolments were in Vocational Education and Training (VET) and 18% in higher education. Students from Japan also travel to Australia on other visa types. A recent study found that in 2013, about 13,500 students from Japan on visitor and working holiday visas undertook ELICOS study in Australia. Approximately 30,000 Japanese school students visit Australia on study tours each year.

Japan has agreed to participate in the pilot phase of the New Colombo Plan, a signature initiative of the Australian Government which aims to lift knowledge of the Indo-Pacific in Australia and strengthen people-to-people and institutional relationships, through study and internships undertaken by Australian undergraduate students in the region. In the 2014 pilot phase, around 40 undergraduate scholarships and more than 700 student mobility grants will be funded across the four pilot locations of Hong Kong, Indonesia, Japan and Singapore.

Japanese remains the most widely studied language in Australian schools and universities, enhanced by 658 sister-school relationships. Around 275,000 students study Japanese from primary to tertiary level, which ranks Australia fourth in the world in terms of the number of Japanese learners (Japanese Ministry of Foreign Affairs). In 2014, Australian universities reported 473 formal partnership agreements with Japanese institutions – 70% include student exchange and 60% include research collaboration.

An Australia-Japan Social Security Agreement was signed in February 2007, and took effect from 1 January 2009.

People-to-people links are supported by 16 Australia-Japan and 47 Japan-Australia societies, which provide grass-roots community support to the relationship, as well as 100 sister city and 6 sister state-prefecture relationships. Most Japanese come to Australia on short-term visits as tourists and businesspeople. Japan is Australia's sixth-largest inbound market in terms of both arrivals and value, with 324,232 visitors from Japan in 2013 (Tourism Australia). Japan recorded 244,600 visitors from Australia in 2012, a record number (Japan National Tourism Organization).

High-level visits

Since 1957, when then Prime Minister Sir Robert Menzies visited Japan (the first Australian prime minister to do so) there have been 24 prime-ministerial visits to Japan, the most recent being Prime Minister Abbott's visit in April 2014. There have also been regular high-level visits of Cabinet Ministers, including the following visits since 2010.

Japanese high-level visits to Australia

Key bilateral agreements and joint programs

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