Introduction

Japan and Australia differ in almost every aspect of geography and demography. Australia is 21 times the area of Japan, but has less than a fifth of Japan's population. It is abundant in energy and natural resources; Japan has nearly none, but consumes them in large quantities. Over more than 50 years, a shared commitment to democracy, the rule of law and open-market economics, underpinned by striking economic complementarity, have made the Australia–Japan partnership our closest and most mature in the region and a template for our wider engagement with Asia.

Japan is currently the largest developed economy in the region. It is a huge, sophisticated and reliable market for Australian exports, the third largest source of foreign investment into Australia globally and a major source of innovation. It is also Australia's closest regional partner in efforts to shape the global and regional strategic environment to ensure peace, security and prosperity.

Japan has been renowned chiefly for the quality and cost-effectiveness of its domestic manufacturing industry. But demographic and economic factors have seen Japanese manufacturers increasingly investing offshore, thus driving the establishment of major regional supply chains and production networks. In joint ventures with local firms, Japanese businesses have been important contributors to the success of other East Asian economies, including China. There are opportunities for Australian firms to integrate with such production and supply chains.

Government, business and people-to-people links

Australia has strong relationships with Japan at all levels. The earliest contacts were economic, as Japan rapidly became a major customer for Australian wool. By 1924-25, Japan was Australia’s third largest export market. Following World War II, after the signing of the landmark Commerce Agreement in 1957, Japan became our largest trading partner in the early 1960s—a position it maintained for 40 years.

Australian exports to Japan continue to grow. Australia's trade surplus with Japan was valued at $32 billion in 2011—our second-largest bilateral surplus after China. Japan is Australia's the largest source of investment from any Asian country with a total stock of $123 billion at end June 2011. This stock has more than doubled in the past five years.

Australia is the third largest exporter of energy to Japan, supplying 12 per cent of Japan's imports in 2011, including 61 per cent of its coal imports. In 2011, Japan also took about 70 per cent of Australia's liquefied natural gas (LNG) exports. It is an important partner in Australian resources projects, particularly in the rapid expansion of LNG capacity that could see Australia become the world's biggest producer by around 2017. The $34 billion Ichthys project near Darwin, headed by Japan's INPEX and scheduled to start production in 2016, will be the first Japanese-operated LNG project anywhere in the world.

In the 21st century, the relationship extends far beyond the economy. Australia maintains three consulates in regional centres in Japan (Osaka, Fukuoka and Sapporo), as well as the embassy in Tokyo. The embassy is the base for representatives from seven Australian Government agencies, reflecting the breadth of our interests in Japan. Queensland, Western Australia and Victoria also maintain offices in Tokyo.

Australian and Japanese businesses have well-developed institutional linkages. The Australia–Japan and Japan–Australia business cooperation committees, which represent a broad spectrum of firms, celebrated their 50th anniversaries in 2012. In recent years, the committees have explored opportunities in third countries such as India and Indonesia. The Australia and New Zealand Chamber of Commerce in Japan has more than 50 Australian entities as members. Resource and energy business links have long been strong, but a recent feature of the trade relationship is the growth in business in services.

Excellent people-to-people links underpin these strong business and strategic ties, exemplified by the more than 100 sister city and state relationships. According to the 2011 census, more than 50,000 people of Japanese ancestry live in Australia. Since 1980, the working holiday visa program, the first Japan entered into, has seen large numbers of Japanese and Australians experience and work in our respective countries, building broader understanding and awareness. Tens of thousands of Japanese students visit Australia each year on school visits. Japanese remains among the most-studied languages in Australia and Japan is the fifth most popular overseas study destination for Australians; the most popular in Asia. Australian tourism to Japan has grown; from 150,000 in 2000 to over 225,000 in 2010. Much of this is due to skiing; around 30,000 Australians visited the Hokkaido ski fields alone in the 2010-11 season.

The Australia Japan Foundation (AJF) supports cultural, academic business and community exchanges and, in response to the disasters that hit Japan in 2011, has provided support for a number of projects designed to assist communities affected by the disasters. Other representative examples of its activities include the funding of the Visiting Professor of Australian Studies, University of Tokyo and funding internships for Japanese dancers at the Australian Ballet School.

Our shared values, security interests and perspectives are coming into sharper focus. Australia and Japan conduct a range of bilateral dialogues at the ministerial, senior officials and working levels on security and strategic issues and a strategic trilateral dialogue process that includes the United States. Both Australia and Japan work closely with other regional partners through diplomatic channels to develop regional and global norms and consultative frameworks to realise those goals, and through defence channels to enhance regional security and stability.

Growth in our defence and security cooperation has been a feature of the relationship in recent years. This includes '2+2' talks between foreign and defence ministers; joint exercises and skills-based training of the two defence forces; and enhanced operational cooperation in humanitarian assistance, disaster relief and peacekeeping. The speed with which the Australian Government, including the Australian Defence Force, assisted Japan after the March 2011 earthquake and tsunami demonstrated the benefits of the work already done in this area.

Australia and Japan cooperate closely in global and regional institutions, including on nuclear non-proliferation and disarmament, climate change, bolstering the multilateral trading system based on the World Trade Organization, United Nations reform and the Group of Twenty (G20). At the regional level, Australia and Japan are founding members of the Asia–Pacific Economic Cooperation (APEC) forum, work together to consolidate the East Asian Summit, contribute to the work of the ASEAN Regional Forum, and support development and governance in the Pacific.

In 2011, AusAID and the Japan International Cooperation Agency signed a memorandum of understanding on development cooperation. Australia and Japan aim to extend the impact and increase the efficiency of aid efforts to achieve better outcomes for poor people – key goals of both Australian and Japanese aid programs.

Towards 2025

By 2025, Japan may have substantially liberalised its economy, including in the currently protected sectors such as agriculture, allowing for deeper bilateral and regional economic integration and participation in bilateral and regional economic architecture. This would include conclusion of the bilateral free trade agreement and structures such as the Trans-Pacific Partnership Agreement and the Regional Comprehensive Economic Partnership.

Japanese agricultural reforms, if implemented, would increase the efficiency and productivity of its agriculture and offer opportunities for Australia to build on our reputation as a stable exporter of safe, high-quality food. Australian and Japanese food production and processing enterprises will form stronger partnerships to supply larger volumes to third-country markets. Joint ventures in dairy processing, noodle production and timber milling will diversify the relationship.

Opportunities in services would grow with trade liberalisation, aided by the training of more fluent speakers of Japanese and greater mutual recognition of qualifications. Australia is well-placed to use education and research collaboration with Japan to help internationalise Japan's tertiary education sector, encouraging greater student mobility from Australia. Closer collaboration between Australia and Japan would help produce graduates with the skills required for Asia's economic and social development and build further people-to-people links. It could also shape regional structures to encourage education networks and a flow of knowledge and people across Asia. Australia and Japan's far-sighted investment in the infrastructure and skills that secure a dynamic and resilient online environment will only increase these opportunities. These developments will facilitate Australia and Japan working together still more closely through regional supply chains and joint initiatives involving commercial cooperation in third-country markets.

Public–private partnership infrastructure projects could unlock services trade opportunities, including in the management of privatised airports, legal services, and financial services based on Japanese pension funds increasing their international asset allocations to meet future payment liabilities.

The challenges of an ageing society will likely preoccupy Japan's political and corporate leaders, leading to innovative approaches in public policy and corporate product development and generating opportunities for Australian businesses to cooperate in addressing the challenges of an ageing population.

Australia will continue to be a major energy provider to Japan. The size of bilateral energy trade, and climate-change driven requirements for cleaner use of fossil fuels, will foster scientific, technological and industrial collaboration to develop and use clean energy technologies and to commercialise these technologies to third markets.

Building from the well-established strategic partnership, and shaped by Australia–Japan cooperative diplomacy, the armed forces of the two countries will cooperate instinctively in addressing global and regional crises, such as natural disasters. This will occur bilaterally and in partnership with others, principally the United States, but also the Republic of Korea (South Korea), India, ASEAN countries and China. These efforts will be underpinned by greater practical cooperation on the ground in aid projects, ensuring that the resources of Japan and Australia, as major regional aid donors, are used effectively to improve living conditions in poorer countries.