The relationship between Australia and Japan continues to be augmented in trade, investment and security to levels that give us great hope for our combined futures. I will look at all three elements, which complement each other.

In 2021 Japan not only retained its position as Australia’s second largest source of FDI, but increased its share and closed the gap with the USA. In 2021 the level of Japanese FDI into Australia reached $134 billion. The level of FDI from the US was $185 billion, which has fallen the past two years and from a peak of $219 billion in 2019. Japan’s share rose from 11% to 13%. The UK was third with $128 billion and China was sixth with $46 billion.

It is worth noting that Japanese FDI into Australia in the decade from 2012-2021 was worth $70 billion, easily the largest amount, ahead of $55 billion from the UK and $54 billion from the US. Japan is the only source of FDI that has grown every single year. These figures are quite remarkable and highlight some real changes in economic relationships. As an aside, it is worth mentioning that FDI from ASEAN has grown by $33 billion in the decade to reach a level of $66 billion. This trend provides a solid foundation for our shared economic futures in this region.

On the trade front, I was surprised to learn that Australia’s merchandise exports to Japan grew from $44 billion in $62 billion in 2021, way ahead of Korea’s third spot of $36 billion, followed by India with $19 billion, US $16 billion and UK with just $5 billion. Of course China is still number one but Japan’s second place has risen and complements our other regional partners. Australia’s two way trade with Japan was $82 billion, $32 billion larger than with the US.

Investment and trade are synergistic. The economic relationship between Australia and Japan plus the other relationships that they have with countries in the Indo-Asia-Pacific region are foundations for the development of new resilience in a world of heightened risk and bifurcation.

Security relations are the third important component. We have been cheered by the seamless continuity in our security relationship after the change of Government in Australia. Immediately after their swearing in, Prime Minister Albanese and Foreign Minister Wong flew to Tokyo for the QUAD leaders meeting where Mr Albanese met Mr Kishida. Earlier this month Deputy Prime Minister and Defence Minister Marles flew to Tokyo to meet with Defence Minister Kishi, another clear signal our alignment remains tight and our increased collaboration remains on track. Just prior to the visit, the Japanese Government announced its intention to double its defence spending from 1% to 2% of GDP in five years. This is a serious and ambitious aim and confirms Japan’s acceptance of responsibility as a security leader. Australia also spends 2% of GDP on defence.

The decades of trust in business and the friendships that have developed are repeated in the geopolitical and security realms. As I always say, we are each other’s best friend.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence