Japan became Australia’s largest trading partner in the early 1970s and maintained that position for 26 years. Despite becoming our second-largest export market in 2009-2010, the Australia-Japan economic relationship remains a vital one, underpinned by complementary strengths, needs and opportunities.
Japan has a highly industrialised market economy, the world’s third largest (GDP at market exchange rates). It views Australia as a safe, secure, and reliable food supplier, source of energy and mineral resources and a world-class centre for financial and other services.
Our Asian neighbour is an attractive market for Australian exporters because Japanese buyers are drawn to premium, high-end goods and services offering higher returns on trade investment.
“Japan has made a name for itself as a nation of quality and innovation and has staked its future on this value proposition,” says Mr Brett Cooper, Austrade’s General Manager, North East Asia. “Along with this comes a strong commitment and loyalty to business partners, once acquired.”
The Australia-Japan Free Trade Agreement (JAEPA), which came into force six years ago, has resulted in many Australian products receiving zero-tariff treatment on implementation, while other tariffs are gradually being reduced year by year.
“Once JAEPA is fully implemented by 2034, around 98 per cent of Australia’s merchandise exports to Japan will be able to receive preferential access or enter duty-free,” says Mr Cooper.
“JAEPA also provides Australian services exporters with treatment equivalent to the best Japan has agreed with any other trading partner. There are also benefits for Australian financial service providers, law firms, education providers, telecommunications providers, professional service firms (including architects, engineers and accountants), innovators and creative industries. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on 30 December 2018, has also delivered deep tariff reductions across a range of products.”
Mr Copper says Japanese investment extends beyond the traditional areas of natural resources to sectors such as financial services, infrastructure, information and communications technology, property, food, and agribusiness. JAEPA will further boost Japan’s diverse and growing investment in Australia, generating employment growth, including in regional Australia.
Emerging opportunities for Australian exporters
With a shrinking population, Japanese firms continue to pursue growth opportunities overseas. It is positioning itself as a flag-bearer for free trade, an open international economic order, and quality infrastructure standards.
Prime Minister Suga has announced priority areas for his government include economic recovery, digitalisation and government reform, data protection and revitalisation of Japan’s rural areas.
Some emerging sectors of opportunity identified by Austrade include:
Agribusiness
“With the growing popularity of cereals, opportunities exist for Australia’s grain exporters offering healthy and functional grains,” says Mr Cooper. “For example, BARLEYmax, which was developed by the CSIRO over a decade, has twice the total dietary fibre and four times the resistant starch content compared to regular barley. Since Japan started importing BARLEYmax, it has been used in many products, including noodles.”
“Preventing illness through diet and without the use of medicine is gaining popularity in Japan, so there is an opportunity for Australia to collaborate in R&D in this area.”
Food and Beverage
Japanese consumers are open to new, innovative, uniquely value-added products and always have a strong appetite for trying new products that offer value for money. Uniquely value-added products are those using unique ingredients, packaging, and/or manufacturing methods.
“Demand for food and beverage products with healthy attributes is growing rapidly, with increased interest in disease prevention from Japan’s aging population,” says Mr Cooper. “COVID has also increased consumer interest in strengthening the immune system.
“Protein has extended its popularity to general consumers, and demand for “protein” added to food and beverage products is emerging. The market, however, is quite competitive, and Japanese preference concerning differentiation, taste and competitive price needs to be accommodated.
“Plant-based food and beverage products is another sector of growing demand. This has been influenced by global population growth, sustainability issues and concerns from some consumers about the livestock industry’s impact on the global climate.
Japanese consumers are gradually becoming more interested in alternative meats, with some 20 per cent of people in Japan now reported as having tried plant-derived meat, largely due to health consciousness and its low calories.
Growing demand for alternative milk is another trend in Japan. Almond milk, rice milk and macadamia milk have become staples in supermarkets recently, and now oat milk is also appearing on the shelves.
Health and Medical
COVID-19 has increased the opportunities in the health sector and accelerated social acceptance of online health care. The government has relaxed the regulations around providing healthcare services remotely. As a result, there are increased opportunities for Australian companies in digital health-related products and services – such as medical sensing and measurement devices to enable remote consultations.
Mr Cooper says that clinical trials are another area of opportunity, and Australia has world-class capabilities in this area.
“Like other countries, Japan saw the spread of COVID delay its non-COVID-related clinical trials,” he explains. “By contrast, Australia was one of the first countries in the world that was able to resume non-COVID-related clinical trials. This has shown the value of high-quality clinical trial services that Australia can provide pharmaceutical and medical device developers in Japan.”
Clean energy and technology
One of the most significant opportunities for Australia is in the clean energy and technology space.
Last October, PM Suga committed Japan to become carbon neutral by 2050, and Japan is now also committed to a 46 per cent reduction of CO2 by 2030. Additionally, in late 2020, a roadmap was released by the Japanese government outlining how Japan will move away from its reliance on fossil fuel and towards renewable energy. The 2050 plan is to create opportunities in renewables, energy storage systems like batteries and new energy management systems.
Carbon capture and storage (CCS) is also a critical part of Japan’s 2050 strategy. As a result, many Japanese corporates are looking at opportunities in Australia to store CO2 captured either in Japan or elsewhere to offset corporate portfolios.
Also, hydrogen is emerging as the third phase of the Australia-Japanese energy partnership (after coal from the 1960s and LNG from the late 1980s). Different forms of hydrogen and ammonia will be crucial components for helping Japan achieve the 2050 carbon-neutral target, and Australia is one of Japan’s priority potential suppliers.
Challenges facing Australian exporters
Japan is well into its fourth wave of COVID-19 and has introduced various measures to control its spread. To manage COVID-19, the Government implemented a State of Emergency with limited and various concentrated restrictions, which has extended to Tokyo, Osaka, and a number of other prefectures.
Some of the restrictions have included reducing the number of workers at offices by 70 per cent, shortening business hours for restaurants and bars, avoiding outings in the evening and cancellation of events.
While the State of Emergency is impacting Japan’s economy, companies and individuals are more familiar with working under COVID conditions and working remotely, and exporters need to be aware of the changes and adapt as well.
Australian exporters looking to diversify their export strategy further to include Japan should remember that while opportunities exist, Japan remains a mature, sophisticated, and competitive market requiring a long-term commitment to succeed.
Further information on the Japanese Market
Austrade’s website has a Japan country page which includes the following information to help exporters:
- Market profile
- Doing Business
- Austrade assistance
To learn more about how Austrade can help your business, visit austrade.gov.au, email info@austrade.gov.au or phone 13 28 78 (within Australia).
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