Flag of Japan

Japan country brief

Introduction

The Australia-Japan relationship is underpinned by shared values, intersecting interests and common approaches to international security challenges. Japan has been Australia's closest and most consistent friend in Asia for decades, and the relationship is of fundamental importance to both countries' strategic and economic interests. 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, the Australian and Japanese governments are now negotiating a Free Trade Agreement.

Australia and Japan enjoy close strategic cooperation 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.

The Australia in the Asian Century White Paper, released in October 2012, recognises Japan as a top-tier country for engagement.

The White Paper's Japan country profile.

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.

Executive power is vested in the Cabinet which is comprised of the Prime Minister and ministers of state.  There is a House of Representatives (also known as the Lower House) and a House of Councillors (also known as the Upper House).  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.

Government structure

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 remain to a large extent fiscally dependent on the national government. 

At the lower prefectural and local levels of government, voters regularly vote in governments of different political leanings.  Many local municipalities have merged in recent years, 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.  On 16 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 brief 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 just 57 Lower House seats. 

In the Lower House, or House of Representatives, there are 480 seats.  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.

House of Representatives (Lower House) numbers (as at December 2012)
Political party Number of Members
Membership 480
Liberal Democratic Party 294
The Democratic Party of Japan 57
Japan Restoration Party 54
New Komeito 31
Your Party 18
Tomorrow Party 9
Japanese Communist Party 8
Independents 5
Social Democratic Party 2
The People’s New Party Nippon 1
New Party Daichi-Shinminshu 1

Source: www.shugiin.go.jp December 2012

The Upper House, or House of Councillors, has 242 members, who are elected for a six-year term. One hundred and forty-six 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. The most recent half-Upper House election was held in July 2010; the next must be held in June or July 2013.

House of Councillors (Upper House) numbers (as at May 2012)
Political party Number of Members
Membership 242 (44)
Membership 242
The Democratic Party and The Shin-Ryokufukai 90
Liberal Democratic Party, The Sunrise Party of Japan and a number of independents 87
New Komeito 19
Your Party 11
Japanese Communist Party 6
Social Democratic Party 4
Green Wind 4
New Renaissance Party 2
New Party Daichi-Shinminshu 2
Independents 5

Source: www.sangiin.go.jp October 2012

Economic overview

Analysis

Japan's highly industrialised market economy is the third-largest in the world in terms of GDP.  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 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 lower-cost manufacturing economies.  Japanese firms have countered this to a degree by transferring manufacturing production to those 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 2012, Japan's major export destinations were China (18.1 per cent), the United States (17.5 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, 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 2012, leading suppliers were China (21.3 per cent), the United States (8.6 per cent) and Australia (6.4 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. As an economy traditionally dependent on manufactured exports, Japan's economy is vulnerable to downturns in its principal markets 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 Japanese 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.

Outlook

Since the twin disasters of 2011, industrial production and trade have recovered quickly and Japan's economy has returned to positive growth in 2012 as supply chains were restored and output increased.

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. In November 2011, Australia welcomed Japan's interest in joining negotiations on the Trans-Pacific Partnership, which has the potential to form a building block 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 2014 and 10 per cent in 2015.

Key economic indicators

The following table shows the percentage change at constant prices in several key economic indicators.
Key economic indicators 2007 2008 2009 2010 2011 2012f
GDP 2.2 -1.0 -5.5 4.7 -0.6 2.0
Consumer price inflation 0.1 1.4 -1.3 -0.7 -0.3 0.0
Budget balance (% of GDP) -2.4 -2.2 -8.7 -7.8 -9.5 -9.5
Private consumption 1.6 -0.7 -2.0 2.6 -0.1 2.0
Gross fixed investment -1.1 -3.6 -12.1 0.2 0.9 3.2
Exports of goods and services 8.4 1.7 -24.2 29.5 -0.1 2.6
Imports of goods and services 1.6 0.4 - 15.4 11.2 6.3 5.4

Note: f denotes forecast. Source: IMF/EIU forecast/Economist Viewswire

Foreign Relations overview

As the world's third-largest economy whose prosperity has been traditionally dependent on manufactured exports, 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 a military role for Japan in international affairs is limited by its constitution and government policy, Japan is actively engaged in nuclear disarmament and non-proliferation efforts, including its co-development with Australia of the Non-Proliferation and Disarmament Initiative. Japan, through its Self-Defense Forces, also contributes positively to United Nations peacekeeping operations, disaster relief and support for other areas including as an active partner in international counter-piracy efforts of the Horn of Africa since 2009.

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. A trilateral summit process established in 2008 provides Japan, China and the Republic of Korea (ROK) with regular occasions for dialogue. However, territorial and other historical issues continue to complicate these relationships.

After the signing of a peace and friendship treaty with China in 1976, bilateral relations have developed rapidly. Japan supported China's membership of the World Trade Organization (WTO). However, Japan and China are yet to resolve long-running tensions and maritime boundary demarcation issues in the East China Sea.

Japan and the ROK have stepped up high-level diplomatic activity and coordination in recent years, including over the threat posed by the Democratic People’s Republic of Korea (DPRK). Despite growing economic and cultural ties with the ROK, territorial disputes continue to provide irritants in their political relationship.

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 and continue to develop other aspects of the overall relationship, including cooperation in oil and natural gas.

Japan is a member of the Six-Party Talks aimed at denuclearising 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 relationship

Short history of the post-war relationship

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

Australia and Japan now have a strong and broad-ranging partnership. In her April 2011 visit to Japan, Prime Minister Gillard described Japan as 'Australia's closest partner in Asia'. 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.

The cooperative relationship between Australia and Japan, for example on development assistance and disaster relief, has produced benefits for the wider region.

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 JDSC also established the regular '2+2' talks between foreign and defence ministers. At the fourth 2+2 talks in Sydney on 14 September 2012, ministers agreed on a joint statement setting out a common vision and objectives to enhance security and defence cooperation between Australia and Japan. The statement reflects a growing defence relationship, which has included regular bilateral and trilateral exercises with the United States. In February 2012, Australia participated in Exercise Cape North Guam, a trilateral air defence exercise. Australia and Japan held maritime security Exercise Nichi Go Trident in Japan in June 2012.

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 have a strong history of cooperation 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 is a supporter of Japan's aspiration to become a permanent member of the United Nations Security Council and Japan's efforts to reform the Security Council to improve its effectiveness and legitimacy.

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; the use of C17 aircraft in relief operations; and a donation of $10 million to the Australian Red Cross Japan and the Pacific Disaster Appeal. 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.

Whaling is an area of disagreement between Australia and Japan. Australia opposes all forms of commercial whaling, including Japan’s so-called ‘scientific’ whaling. On 31 May 2010, Australia initiated legal action against Japan in the International Court of Justice (ICJ). Oral hearings in the case will take place in June-July 2013. Australia and Japan have both, however, 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.

A list of key bilateral agreements and joint programs between Australia and Japan follows at the end of this brief.

Recent 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 23 prime-ministerial visits to Japan, the most recent being Prime Minister Gillard's visit in April 2011.  Since November 2007, the Prime Minister and Cabinet Ministers have made over 30 visits to Japan, including the following recent visits.

Australian high-level visits to Japan

Japanese high-level visits to Australia

Community presence in Australia

Early Japanese settlers started the pearling industry in Australia. Larger-scale migration began after the Second World War and continues today. According to the 2011 census, more than 50,000 residents claimed Japanese heritage. Data suggests that there are approximately 70,000 Japanese nationals living in Australia (for a period of 3 months or longer) (Japanese Statistics Bureau). In 2011, more than 11,300 Japanese students studied in Australia on a student visa, making Japan the eleventh-largest source country for international students in Australia. There are strong education and science linkages between Australia and Japan, which underpin wide academic and research collaboration at the university level, extensive school student exchanges (27,000 Japanese students travelled to Australia in 2010), and strong interest from young Japanese in working holidays in Australia where they usually undertake short-term English language study.

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).

A bilateral 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 fifth-largest inbound market in terms of both arrivals and value with 353,900 visitors from Japan in 2012 (Tourism Australia). Japan recorded 206,600 visitors from Australia in 2012, up 27 per cent on 2011 (Japan National Tourism Organization).

Bilateral economic and trade relationship

A high degree of complementarity underpins the important bilateral economic relationship.  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.  Japan is a reliable customer of Australian resources and Japanese investment 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 was held in May 2012 to discuss bilateral FTA negotiations, the World Trade Organization and joint efforts to strengthen regional economic architecture including the East Asia Summit and APEC.

Bilateral trade

Japan is Australia's second-largest export market, and will remain so for the foreseeable future. Japan was Australia's second-largest trading partner in 2011-12. Two-way goods and services trade between Australia and Japan was valued at $75.6 billion, an 11.7 per cent increase on 2010-11. Exports to Japan in 2011-12 increased by 8.6 per cent to $53.1 billion, representing approximately 16.8 per cent of Australia's total exports.

In 2012, Australia's major exports to Japan included coal ($14.9 billion), iron ore ($9 billion), copper ores and concentrates ($1.55 billion) and beef ($1.51 billion). Japan was Australia's largest export market for beef, fish, fruit juice, animal feed, copper ores and concentrates, coal, liquefied propane and butane, aluminium, transmission shafts, dairy products and natural gas.

On the other side of the trade ledger, in 2012, Japan was Australia's third-largest source of imports. Major imports from Japan included passenger vehicles ($7.3 billion), goods vehicles ($1.5 billion), refined petroleum ($1.49 billion) and civil engineering equipment and parts ($0.9 billion).

Total bilateral trade in services in 2012 was valued at about $4.2 billion, mostly in the tourism, transport and education sectors. Services exports were worth $2 billion and services imports were valued at $2.2 billion. Australia is seeking to remove official and regulatory barriers to trade and investment with Japan, notably through Free Trade Agreement (FTA) negotiations.

Bilateral investment

Japan is Australia's third-largest investor, with an investment stock of $123.4 billion at the end of 2011. Over 40 per cent ($52 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 investment in large-scale projects to meet Japanese demand for resources such as iron ore, coal and motor vehicles. Japan's major trading houses continue to make multi-billion dollar investments in Australian resources.

More recently, Japanese investment has extended beyond the traditional areas of natural resources to diverse sectors such as financial services, infrastructure, ICT, property, food and agribusiness. An FTA will boost Japan’s diverse and growing investment in Australia, generating further jobs 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 2011, Australia's stock of investment in Japan was $35 billion.

Bilateral and regional FTAs

Australia and Japan commenced negotiating a bilateral Free Trade Agreement (FTA) in April 2007.

When concluded, the FTA 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.

More information on the Australia-Japan Free Trade Agreement  

Bilateral market access issues

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 looking 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.

Key bilateral agreements and joint programs

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

Updated April 2013