Most of us entered the new year with renewed hopes of a return to more normal activity, albeit trying to gauge the outlook for the ongoing supply chain disruptions from COVID policies. Now we find ourselves facing new challenges from the military crisis between the US/NATO and Russia that is being fought out in Ukraine. The level of disinformation from all sides makes it impossible to make any early assessments but the economic sanctions on Russia and potential retaliatory economic measures will certainly exacerbate preexisting inflationary pressures on energy, raw materials and food.

Furthermore, lockdowns in Shenzen and Shanghai add to the disruptions in supply chains. Russia and Ukraine are major suppliers of critical minerals such as neon gas and palladium (critical for semiconductors), as well as wheat and fertilizer. Finally, the whole energy usage and distribution system in the EU is being recast, which will have flow-on affects around the world. Even if the conflict can hopefully cease soon, the economic consequences will be long term. Inflationary corrosion of income will be widespread but energy and commodity suppliers such as Australia will be relative beneficiaries of the redistribution of income.

The Australian and Japanese Governments have been coordinating closely to respond to the invasion of Ukraine, with similar sanctions and close communications bilaterally and through the QUAD leaders’ meeting. Earlier this year Prime Ministers Morrison and Kishida signed the Reciprocal Access Agreement for close collaboration between our Armed Services, another concrete sign of our strong relationship. This strength will be a key asset in what is emerging as a possible bifurcation in the global economic trade and financial networks.

The partnership between Australia and Japan in the sphere of security is complemented by the evolving character of collaboration in the business sector. An excellent update to the annual Herbert Smith Freehills Japanese M&A in Australia focuses on the proliferation of partnerships (consortia, alliances, collaborations, join feasibility studies) between Australian and Japanese companies in several Australian States.

Notable examples can be found on the production and transportation of hydrogen and ammonia, which requires companies that can contribute technology, logistics, finance, project management, etc, to work together as stakeholders. I have written about this type of detailed value chain collaboration before, but it is now coming into fuller fruition thanks to the accumulation of networks and trust that Japanese investment has built over the decades. The earlier types of investment (joint ventures and acquisitions) are now followed by this partnership model, which will propel new investment for the decade.

While traditional and renewable energy and batteries, critical minerals, real

estate, agribusiness, etc, will continue to attract investment, perhaps the most exciting new development is Japanese investment in new ventures and start ups. In a diverse range of sectors (decarbonisation, AgTech, FoodTech, software) companies such as Mitsubishi, Nippon Yusen, ITOCHU, Mizuho Securities and Softbank are either becoming shareholders or providing funding for cutting edge ventures.

Regardless of the challenges, the Australia-Japan relationship keeps on giving. The resilience of the relationship builds resilience for our economies.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence