A message from HE John McCarthy, Australian Ambassador to Japan

Australia and Japan enjoy a diverse relationship across a broad spectrum of shared interests and endeavours. In addition to the expanding strategic bilateral security and defence dialogue, Japan remains as Australia’s largest trading partner, receiving 19% of our total exports. The richness of Australia’s links with Japan are reflected by the 90 sister city ties, and the more than 40 Japan-Australia societies that underpin the relationship’s human and cultural interface. Some 100,000 Japanese have undertaken working holidays in Australia. In popular culture, nowhere are grass-roots ties more visible than in the world of sport – Rugby, life-saving, soccer, martial arts, swimming and horse racing to name just a few. Let me encourage you therefore, to tackle the opportunities for trade and friendship presented by Rugby World Cup 2003, and kick some goals together through expanding commercial ties! Website: www.australia.or.jp

Even as its economy sputters along, Japan remains one of Asia’s strongest powerhouses and an under-penetrated market. Its economy is a giant, the second largest in the world, comprising more than 60% of East Asian GDP, around double that of Germany and dwarfing that of China.

Japan continues to buy more new equipment, technology and facilities than any market other than the US. As well as regional agricultural products and cheap Chinese clothing, Japan’s stream of imports includes higher-value imports, including increasing numbers of components, as Japanese manufacturers make more use of outsourcing and offshore production.

Changing outlook
Japanese consumers are also shifting from brand-based purchases to value-based decisions, which encourages foreign goods – the market is more open to foreign products, services and investment than ever before.

“Rather than seeing foreign investment as a threat,” said Japan’s Prime Minister Junichiro Koizumi at a February 2003 meeting of the Japan Investment Council, “we will take measures to present Japan as an attractive destination for foreign firms in the aim of doubling the cumulative amount of investment in five years.”

Key market for Australia
Japan has been Australia’s largest export market since 1969. In 2001/2, Australia’s merchandise exports to Japan totalled A$22.8bn, while total imports from Japan were valued at A$15.5bn. It is also third largest source of foreign investment into Australia, with FDI valued at A$16.1bn at June 2001.

Australia has registered its interest in a comprehensive free trade agreement with Japan, and Prime Minister Howard and Japanese Prime Minister Koizumi launched consultations in May 2002. While Japan is not yet ready to enter full FTA negotiations, Koizumi has said that both countries should aim for a free trade agreement in the longer term. Meanwhile cooperative activities or enhanced dialogue has been proposed in the following areas:

• food, including food safety;
• energy;
• ICT and e-commerce;
• customs, and paperless trading;
• recognition of professional qualifications, beginning with engineers;
• competition policy;
• financial services; and
• investment promotion.

Don’t defer
As opportunities and the political environment have improved, many barriers to entry have lowered. The cost of entry into the Japanese market has fallen dramatically as equity values, rent, prices and the yen exchange rate have all declined. The availability of Japanese staff has dramatically improved. And as the notion of lifetime employment crumbles, many excellent Japanese employees are becoming open to joining foreign enterprises, attracted by the exotic and exciting environment they offer.

Economic pessimism
The background to such opportunity is the widely-reported and long-term structural inefficiency in much of Japan’s economy. Fourteen years on from Japan’s stockmarket crash of 1989, Japan’s economic slump still hasn’t ended. Weak corporations continue to survive in an atmosphere that still discourages bankruptcy; the resulting bad loans have left Japan’s banking sector with potentially crippling levels of debt. The government has also been running up debt, for many years pouring money into major public works, while deflation has kept a rein on Japan’s consumer and business spending.

The government’s most recent economic report remains pessimistic, despite such movements as a pick-up in production, an upswing in exports during the beginning of 2002, and visible signs of a partial economic recovery. In the latter half of the year, though, the direction of world economy and the impact of sluggish share prices continued to depress demand. Growth for 2002 was just positive, at 0.6%, and it is a sign of the country’s economic position that this was greeted with something like relief.

‘No growth without reform’
The slogan ‘no growth without reform’ is heading a series of hopefully positive policy impacts coming from the joint efforts of the government and the Bank of Japan.

“We will accelerate the four reforms”, Prime Minister Koizumi told the Diet recently, “namely government expenditure reform, tax system reform, financial system reform and regulatory reform.”

Strong fundamentals
Even the PM admits that results of any successful reforms will take time, and that an economic recovery will be slow. The International Monetary Fund has projected a modest rebound of 1.1% growth in 2003. Nevertheless the country’s economic fundamentals merit a fair evaluation: high quality human capital and technological capabilities; world-class infrastructure, education, welfare and medical care; a sophisticated consumer market with abundant personal assets; and – often neglected in coverage of Japan’s internal woes – the world’s highest levels of external net assets.

Despite the gloom of international media reports, Japan remains the essential bedrock of the Asia Pacific as an economic region.

Austrade Tokyo
Telephone: +81 3 5214 0750
Fax: +81 3 5214 0751

Austrade Osaka
Telephone: +81 6 6941 9409
Fax: +81 6 6920 4543

Email: info@austrade.gov.au
Website: www.austrade.gov.au
Austrade also has offices in Fukoka, Sendai and Sapporo.