Review of Japan 2019 and Outlook for 2020

2019 was an eventful year for Japan in both national and international domains. From an imperial transition to being the G20 Chair, to major trade agreements and the deadly Typhoon Hagibis, the year was filled with its share of ups and downs for Japan. Some of the major developments were:

Beginning of Reiwa Era

After the abdication of Emperor Akihito (a first for a Japanese Emperor in almost two centuries) on April 30, 2019 and accession of Emperor Naruhito on May 1, 2019, there was an imperial transition from the Heisei Era to the new Reiwa Era. The Japanese Foreign Ministry provided an English-language interpretation of Reiwa as "beautiful harmony"¹. The enthronement ceremony for Emperor Naruhito on October 22, 2019 was attended by current and former Japanese politicians and more than 3,000 other official guests, which included more than 120 heads of state and government. The ceremony was considered to be one of the “largest gathering of world leaders” in contemporary world’s and Japan’s history.

Japan’s First Presidency of G20

Japan hosted the G20 Summit for the first time which included the G20 members, eight invited countries, and representatives from nine international organizations. It was historically the largest summit ever held in Japan, spanning nine cities. Two notable initiatives launched by Japan under its G20 presidency were the “Osaka Track for Data Governance” and the “Osaka Blue Ocean Vision” that aims to reduce additional pollution by marine plastic litter to zero by 2050. Osaka Track intends to introduce sweeping rules on data flows, removal of prohibitions on data localization, and cloud computing, among other things. India boycotted the “Osaka Track” on digital economy stating that it undermined multilateral negotiating processes in the WTO, and denies policy space regarding digital economy to developing countries. Along with India, Indonesia and South Africa also boycotted the Osaka Track².

Progress on Peace Treaty with Russia remained Elusive

The long-standing territorial dispute over Northern Territories/ Southern Kuril Islands continued to remain a major stumbling block to Japan and Russia signing a formal peace treaty more than 70 years after the end of World War II. At an annual year-end press conference, Russian President Putin stated that a solution has yet to be found, reiterating concerns on the US seeking to deploy intermediate-range missiles in Japan, following the expiration of the INF Treaty (signed by the US and Russia) ³. Tokyo has sought to shift focus to joint economic projects, which Moscow hopes will boost the economy of the underdeveloped Russian Far East. The projects cover five fields -- aquaculture, greenhouse farming, tourism, wind power and waste reduction -- with some programs expected to start in earnest next year.

Engaging Iran

2019 was the 90th anniversary of the establishment of Japan-Iran diplomatic relations. In June, Shinzo Abe became the first Japanese Prime Minister to visit Iran for the first time in 41 years. Later in December, President Rouhani became the first Iranian leader to visit Japan since 2000, to break the impasse over the nuclear accord in view of US President Donald Trump’s "maximum pressure" campaign. Securing safety of navigation in the Middle East is critical for Japan which imports over 80% of crude oil from the Middle East. In view of ties with Iran, Japan decided to launch a yearlong independent SDF mission, against joining a US-led maritime coalition to protect shipping near the Strait of Hormuz. The envisaged dispatch of an SDF destroyer and patrol plane will be limited to intelligence gathering in the Gulf of Oman, the Arabian Sea and the Strait of Bab el-Mandeb. The Japanese vessel and aircraft will stay away from the Strait of Hormuz and Persian Gulf, according to the Japanese government⁴.

The US-Japan Trade Agreement

In December 2019, the Japanese Diet approved a US- Japan trade deal that slashed tariffs on farm and industrial goods, clearing the way for its entry into force at the beginning of 2020. After much hesitation from the Japanese side, Trump and Abe had announced in September 2018 that the US and Japan would begin negotiations for a trade agreement. Under the current deal, Japan will reduce tariff on beef, pork and additional US agricultural products to the same levels it grants other trading partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). While there has been no written pledge from Trump to halt extra tariffs on autos, Japan's government said US officials — including the president — gave assurances that they would not be introduced. In one concession, Japan's politically sensitive rice industry was excluded from the agricultural market opening with the US. The US and Japan also reached a separate agreement on a high-standard and comprehensive set of provisions addressing priority areas of digital trade⁵.

Entry of Japan-EU Economic Partnership Agreement into force

The EU and Japan's Economic Partnership Agreement (EPA) entered into force on 1 February 2019. The Agreement aims to promote liberalization and facilitation of trade in goods and services and increase investment opportunities between Japan and the European Union, while also creating a framework for economic partnership in a broad range of fields such as electronic commerce, government procurement, competition policy, intellectual property and small and medium-sized enterprises. The EPA creates a free trade bloc accounting for 40 percent of global trade. The Japanese government estimates that the pact will increase Japan’s real gross domestic product by ¥5 trillion, or about 1 percent. Under the EPA, the EU will scrap its tariffs on Japanese passenger cars in the eighth year from effectuation, after lowering it in stages from 10 percent. The EU’s tariffs on Japanese beef and sake were removed upon effectuation. The UK will remain within the Japan-EU EPA framework during its post-Brexit transition period⁶.

Japan-South Korea Tensions and GSOMIA

In 2018, the South Korean Supreme Court ordered Japanese companies - Nippon Steel & Sumitomo Metal and Mitsubishi Heavy Industries - to pay reparations to Korean forced laborers who were made to work for Japan during World War II. Due to further appeals and Japanese companies’ unwillingness to pay damages, later court decisions in early 2019 ruled that victims had a right to seize and liquidate the offending companies’ assets in South Korea, sparking outrage from Japan. The tensions escalated to serious proportions in August 2019, when Japan after having imposed export controls in July, removed South Korea from its ‘white-list’ of trading partners. Seoul responded to the alleged trade war by slashing Japan from its own preferred trading list and walked out of the General Security Military Information Agreement (GSOMIA), a military information-sharing pact between Japan and South Korea (inked in November 2016). However, in a dramatic last-minute about-face, the South Korean presidential office announced in November 2019 that it will reverse course on its earlier decision⁷.

Long Delayed Sales Tax Hike

Japan increased its consumption tax for the first time in five years, bringing the long-delayed policy into effect despite concerns it may knock the economy. On October 1, 2019, the sales tax rate was raised from 8% to 10%. The government, however, introduced measures, including rebates for certain purchases made using electronic payments, in a bid to offset the blow. The tax hike is intended to help pay for social security services in an ageing society, such as making preschool education free, lowering nursing care insurance premiums, and providing payouts to the elderly with low pension benefits⁸.

Population Decline

Japan is already one of the world’s fastest-ageing nations, where more than a quarter of the population is over 65. Japan’s Ministry of Health, Labour and Welfare estimated that the number of births in Japan in 2019 have fallen below 900,000 for the first time since records began in 1899. This takes Japan below the 870,000 per year rate, two years earlier than expected in a separate forecast by the National Institute of Population and Social Security Research. Japan also saw a continued drop in population, with deaths outstripping births by a wide margin leading the domestic population to fall by nearly half a million. The declining population is forcing an increasing number of Japanese companies to reconsider their strategies as they find it increasingly difficult to secure staff in a job market where there are 157 jobs for every 100 jobseekers and the total number of people in work has expanded for 83 straight months⁹.

Deferment of Annual India- Japan Summit, but First 2+2 held

Guwahati was set to host the 14th India-Japan Annual summit in December, but it was deferred due to domestic political tensions in the state at the time. Japan is the only major foreign investor in infrastructure in Northeast India, having already invested over $2 billion, including in three major road corridors (two Meghalaya-Assam, one in Mizoram), bridges, energy, and sustainability. Yet, 2019 was a significant milestone in India-Japan partnership as the inaugural foreign and defense ministerial dialogue was held on 30 November 2019 in New Delhi. Defense Minister Rajnath Singh and External Affairs Minister S. Jaishankar led the Indian delegation while the Japanese side was headed by Foreign Minister Toshimitsu Motegi and Minister of Defense Taro Kono. The dialogue focussed on enhancing new mechanisms for further deepening bilateral security and defense cooperation. In the talks, the two sides exchanged views on the situation in the Indo-Pacific region, South China Sea, North Korea, terrorism etc. and also welcomed the progress in bilateral defense exercises and negotiations of Acquisition and Cross-Servicing Agreement (ACSA) ¹⁰.

Outlook for Japan 2020

While success of predictions are always fortuitous, one can envision many of the long plaguing challenges for Japan to continue. The 2020 US Presidential Elections will be watched most closely by Japan. Despite Abe’s personal equation with President Trump, if Trump were to win a second term (notwithstanding the impeachment), the bumpy road of US uncertainty will still have to be constantly managed. On China, while Japan can expect that no strategic concessions would be offered, President Xi’s visit to Japan in spring 2020 will most likely introduce a major fifth document on Tokyo-Beijing relations. Negotiating a peace treaty with Russia will continue to face similar roadblocks, unless a new formula were worked out between Moscow and Tokyo. Also, while convergence on security issues such as dealing with North Korean provocations draw Japan and South Korea together, bitterness from historical legacies and public perceptions will have to be mitigated pragmatically. On the economic side, rapidly declining exports led to the Japanese Cabinet in December 2019 approving a US$ 122 billion stimulus to offset the slowing growth and the potential loss of economic activity after the Tokyo Olympics set for 2020. But challenges remain¹¹.

Implications for India

India and Japan bilateral partnership in recent years have seen an expansion on matters of security and defense. Under the Quad and the trilateral JAI (Japan-American-India) framework in the emerging Indo-Pacific discourse, India and Japan have sought to reinforce regional support for a free, open and inclusive region that fosters universal respect for international law, freedom of navigation and overflight and sustainable development. Bilaterally too, there has been significant progress in maritime security cooperation evident through the high frequency of bilateral naval exercises, deepening level of the Malabar exercises, long standing dialogues and training between the Coast Guards and ongoing negotiations on ACSA. There have also been enhanced exchanges in expanding maritime domain awareness (MDA) based on the Implementing Arrangement for Deeper Cooperation between the Japan Maritime Self-Defense Force (JMSDF) and the Indian Navy signed in 2018¹². Japan is also expected to dispatch a liaison officer to the Indian Information Fusion Centre for Indian Ocean Region (IFC-IOR) in the near future.

On the economic side, the different demographic dividends can be augmented by stronger cooperation in skill development by expanding the scope and number of Japan-India Institutes for Manufacturing (JIMs), Technical Intern Training Program (TITP) and Japanese Endowed Courses (JEC) in various Indian states. Japan’s Official Development Assistance continues to play crucial role in the socio-economic development of India by supporting India’s efforts for social and industrial development, including through key quality infrastructure projects and capacity building. The India-Japan Act East Forum has been pioneering in ensuring international investment into development of India’s North Eastern Region¹³. While the 2019 Annual Summit was deferred, it is most likely India and Japan will launch a new initiative for Disaster Resilient Infrastructure later in 2020. India proposed this to Japan during the G20 Osaka Summit, wherein the initiative would focus on building a loose virtual coalition of countries that have capacity in handling post disaster infrastructure development -be it financial, human resources, or experience- to stave off the rebuilding burden for small, vulnerable and developing countries¹⁴.

Endnotes:

1. The Japan Times: Japan assures world that Reiwa is all about 'beautiful harmony' and has nothing to do with 'command, April 3, 2019, https://www.japantimes.co.jp/news/2019/04/03/national/japan-assures-world-reiwa-beautiful-harmony-nothing-command/#.XjQMI2gzbIU [3]
2. Livemint: India boycotts ‘Osaka Track’ at G20 summit, June 30, 2019, https://www.livemint.com/news/world/india-boycotts-osaka-track-at-g20-summit-1561897592466.html [4]
3. President of Russia: Vladimir Putin’s annual news conference, Dec 19, 2019, http://en.kremlin.ru/events/president/news/62366 [5]
4. The Mainichi: Japan to go ahead with Mideast naval mission, January 10, 2020, https://mainichi.jp/english/articles/20200110/p2g/00m/0na/012000c [6]
5. Office of the United States Trade Representative: FACT SHEET on U.S.-Japan Trade Agreement, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2019/september/fact-sheet-us-japan-trade-agreement [7]
6. The Japan Times: Auto and beef exports from Japan to EU higher after first year of EPA, Jan 30, 2010, https://www.japantimes.co.jp/news/2020/01/30/business/japan-auto-beef-exports-eu-rising-year-economic-partnership-agreement/#.XjQPAWgzbIU [8]
7. The Japan Times: GSOMIA survives as South Korea reverses decision to exit intel pact with Japan, Nov 22, 2019, https://www.japantimes.co.jp/news/2019/11/22/national/politics-diplomacy/japan-south-korea-gsomia-talks/#.XjQPXmgzbIU [9]
8. Reuters: Japan proceeds with twice-delayed sales tax hike as growth sputters, Oct 1, 2019, https://fr.reuters.com/article/idUSKBN1WG2JJ [10]
9. Financial Times: Ageing Japan set to cross critical demographic line, Dec 27, 2019, https://www.ft.com/content/57ba5bc8-2883-11ea-9a4f-963f0ec7e134 [11]
10. MEA, GOI: Joint Statement - First India-Japan 2+2 Foreign and Defence Ministerial Meeting, Nov 30, 2019, https://www.mea.gov.in/bilateral-documents.htm?dtl/32131/Joint_Statement__First_IndiaJapan_2432_Foreign_and_Defence_Ministerial_Meeting [12]
11. The Wall Street Journal: Japan’s Cabinet Approves $120 Billion Stimulus Package as Economic Clouds Gather, Dec 5, 2019, https://www.wsj.com/articles/japans-cabinet-approves-120-billion-stimulus-package-as-economic-clouds-gather-11575544001 [13]
12. Press Information Bureau, GOI: Joint Press Statement on Japan-India Annual Defence Ministerial Dialogue, Sep 3, 2019, https://pib.gov.in/newsite/PrintRelease.aspx?relid=192969 [14]
13. MEA, GOI: India-Japan Vision Statement, October 29, 2018, https://www.mea.gov.in/bilateral-documents.htm?dtl/30543/IndiaJapan_Vision_Statement [15]
14. MEA, GOI: Transcript of Media Briefing by Foreign Secretary after Prime Minister's meeting with Prime Minister of Japan in Osaka, June 27, 2019, https://www.mea.gov.in/media-briefings.htm?dtl/31491/Transcript+of+Media+Briefing+by+Foreign+Secretary+after+Prime+Ministers+meeting+with+Prime+Minister+of+Japan+in+Osaka [16]

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