From the perspective of commercial relations, Japan remains a critical partner for Australia. Japanese FDI into Australia continues to grow at a substantial rate. The Australian Bureau of Statistics data will come out some time in May but looking at the Bank of Japan data for Jan-Sep 2024 shows that the pace of investment from Japan continued at a high rate. It would suggest that Japan will remain the 2nd or 3rd largest direct investor into Australia. The most recent annual data for Australia’s trade showed Japan is Australia’s second highest export market after China and third highest source of imports after China and the USA.

From the perspective of business opportunities, Australia’s housing crisis is being alleviated by the expanding presence of Japanese housing construction firms, domestic investment is being supported by the major Japanese banks and traditional areas of energy and raw materials continue to benefit from new capital injections. Certain areas of future potential, such as hydrogen, are now entering a transition phase where some projects have to be reconsidered while others become more likely to be successful.

However, as I have stated before, the raw numbers have to be evaluated by risk adjustment, as trusted partnerships with aligned partners will have higher value over the long term. One area in which alignment and trust can be clearly seen is security cooperation, including in the cyber and defence domains. The Quad and AUKUS Pillar 2 are examples, but so is the development of cooperation between Australia and Japan in defence. For example, recently in Exercise Cope North 25, for the first time Australian, American and Japanese air force personnel engaged in joint exercises of fifth generation air warfare capabilities in Guam. In 2024 Australia, the US and Japan defence forces worked together in Exercise Yama Sakura, which was held in Japan, the US and Australia. In 2025 there are plans for Japanese personnel of the amphibious Rapid Deployment Brigade to train in the Northern Territory.

The deepening of trust in security matters complements and strengthens the potential for partnerships in defence production. MHI’s bid to build Australian frigates is the latest example of a new horizon for Australia-Japan collaboration and the enhancement of resilience amidst global uncertainty.

At this moment we are all experiencing the disruption of the policies of the new US administration. I am not using the word ‘disruption’ in a negative sense, because disrupting a system that is inefficient or unproductive or unbalanced can be the correct remedy. That is something we will evaluate in the long term but in the short term we feel the uncertainty and work hard to respond in the best way. However, for Australia and Japan there is the imperative to work ever more closely together so that we can succeed and defend ourselves regardless of the changes that may occur in third countries.

While Australia and Japan can rightly be proud of the long and successful bilateral relationship, we can never be complacent in the face of change. Several policies of the new US administration, including taxation, deregulation and other measures will result in large investment into the US, including from Japan. Australia must work even harder to remain an attractive destination for Japan by providing a stable policy environment and encourage more opportunity.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence