2021: The Year Ahead for Japan

Although 2020 remained a challenging year for Japan due to the coronavirus pandemic, 2021 offers no alleviation from the existent troubles. The year started with a second month-long emergency, albeit a soft lockdown limited to the nation's capital and the neighbouring prefectures. There is uncertainty despite the government assertion on the hosting of the rescheduled Tokyo Olympics in July. The term for the House of Representatives, or Lower House, is set to expire in October this year, mandating the holding of general elections. But prior to them, the Liberal Democratic Party (LDP) presidential elections will also have to be convened. After Prime Minister Shinzo Abe’s resignation owing to health issues, the LDP handed Yoshihide Suga a one-year party president term (instead of the regular three-year term) due to the exceptional circumstances. With the lack of another factional consensus candidate and a sharp decline in approval ratings of Suga due to Abe’s campaign finance scandal and the ‘Go to Travel’ debacle, the elections are open for the taking. However, the beginning of vaccination in late February may upend the situational unpredictability.

With two years of consecutive negative growth (2019 and 2020), Japan’s growth is expected to surge to 4 per cent in fiscal 2021--the highest since fiscal 1995--because of the economic rebound from 2020 and the government’s massive economic stimulus packages¹. Yet a decade of uninterrupted population decline and falling consumption cloud the economic outlook. Japan’s attachment to paper processes and its failure to put government services online was harshly exposed during the coronavirus pandemic. Creation of a National Digital Agency and increased business investments in digitization may yield new productivity gains and help counteract the negative effects of a shrinking population on GDP growth. On the trade front, the signing of the Regional Comprehensive Partnership Agreement (RCEP) could boost exports, but the gains would be incremental as tariff reductions are phased in gradually. External demand has been a large contributor to Japan’s nascent economic recovery, largely thanks to China. However, demand from China may slow as stockpiling of tech products subsides, and demand from the United States and Europe may take a hit as infection rates rise in those export markets².

On the foreign policy front, as Biden presidency starts, Japan can assume a breather on the Host Nation Support (HNS) negotiations with the US that were becoming contentious with the Trump administration. Japan has also been elated with the appointment of Kurt Campbell as Coordinator for Indo-Pacific affairs under Biden administration as he is well-versed in issues related to US military bases in Japan. In Suga’s first call with President elect Biden in November last year, Biden confirmed that Article 5 of the Japan-US Security Treaty will be applied to the defence of Okinawa Prefecture and the Senkaku Islands. China has sought to incrementally build a persistent presence in the surrounding waters to eventually fatigue Japanese claims by way of grey-zone coercion. Chinese vessels had been observed near the islands for a record 283 days in 2020. Infact, during Chinese Foreign Minister Wang Yi’s visit in November 2020, his comments about the disputed Senkaku Islands in the East China Sea were seen as highly unacceptable by many LDP members. Some within the government now envisage Xi Jinping’ 2020 deferred state visit taking place in 2022, which will mark the 50th anniversary of normalization of Japan's diplomatic ties with China. Japan also extended its naval mission in the Middle East to protect its merchant oil shipping until end of 2021 because of continued tensions between the US and Iran.

Despite all the brouhaha over China's Belt and Road Initiative, ironically it is Japan that continues to be a leading source of big-ticket infrastructure investments in the region. Unlike his predecessor who had chosen Washington, Suga chose Vietnam and Indonesia as destinations for his first overseas trip in October 2020 underscoring his commitment to the region. In 2021, engagement with Southeast Asia and counterbalancing China through breakthrough moves such as defense exports and new dialogue formats will remain a top foreign policy priority for Tokyo. Japan’s Free and Open Indo-Pacific vision can also be expected to receive further fillip this year evidenced by significant developments last year. In September, a Resilient Supply Chain Initiative (RSCI) proposal was mooted jointly by Australia, India, and Japan. Despite an ongoing pandemic, in October, a stand-alone Second Quad Foreign Ministers dialogue was attended in person by Foreign Ministers from the US, Australia, India, and Japan. Then in November, PM Suga received his first in-person visit from his Australian counterpart Scott Morrison. The two leaders agreed on a landmark defence pact, the Reciprocal Access Agreement that will ease restrictions on the Japan Self-Defense Forces as well as on Australian military personnel while they are staying in each other's country for defence drills. November also saw participation of all Quad countries in Malabar exercise for the first time in 13 years.

Russia and South Korea will remain sore points for Japan, even in 2021, in terms of relations with major powers. Russia’s deployment of the S-300V4, an air defence system, on the disputed Northern Territories and inability to come to a political solution with South Korea over World War 2 legacies weigh down both the bilateral relationships. Suga's government also approved a record US$ 52 billion for 2021, in a ninth consecutive rise in military spending in December last year. Funding plans include a planned jet fighter, the first in three decades. It is expected to cost about US$40 billion and will be deployed in 2035, around when the Self-Defense Forces start decommissioning F-2s. Japan will spend US$323 million to begin development of a long-range anti-ship missile to defend its south-western Okinawa island chain. Other big purchases include US$628 million for six Lockheed F-35 stealth fighters for its revamped converted helicopter carrier to be operational by 2025. The military will also get US$ 912 million to build two new Aegis naval vessels (in lieu of the land-based Aegis Ashore system) that can operate with fewer sailors than conventional destroyers, easing pressure on a navy struggling to find recruits in an ageing population³.

Climate Change is also expected to become a defining theme in Japan’s policy calculus in 2021. In November last year, PM Suga had mentioned that his country would lead international efforts to combat climate change in his comments on the sidelines of the G20 summit. Japan aims for net-zero emissions by 2050. In December, Japan's environment minister had also proposed increasing renewable power sources to more than 40% of the nation's energy mix by fiscal 2030, about twice the government's current goal⁴.

In terms of relations with India, the year is already off to a best possible start. New themes involving technological cooperation and skills development are now becoming mainstream agendas in the bilateral partnership. A new agreement on the Information technology (IT) sector that seeks to increase cooperation in 5G, Artificial intelligence (AI), and submarine cable network was signed between Union Minister Ravi Shankar Prasad and Japan's Minister for Internal Affairs Takeda Ryota on January 16⁵. On January 18, India’s Foreign Secretary Harsh Shringla and Japanese Ambassador Satoshi Suzuki signed a Memorandum of Cooperation on a Basic Framework for Partnership for Proper Operation of the System Pertaining to "Specified Skilled Worker”⁶.

References

1. Economic growth rate downwardly revised to -5.2%, lowest since 1995, http://www.asahi.com/ajw/articles/14031425#:~:text=The%20new%20estimate%20marks%20Japan's,at%20minus%200.3%20percent%20growth.
2. External demand-led economic growth, but will it last?, https://www2.deloitte.com/us/en/insights/economy/asia-pacific/japan-economic-outlook.html [3]
3. Japan sets record US$52 billion military budget with stealth jets, long-range missiles, https://www.channelnewsasia.com/news/business/japan-record-us-52-billion-military-budget-stealth-jet-missiles-13815580 [4]
4. Japan's Koizumi ups climate ante with goal of 40% renewable power, https://asia.nikkei.com/Spotlight/Environment/Climate-Change/Japan-s-Koizumi-ups-climate-ante-with-goal-of-40-renewable-power [5]
5. India and Japan sign new agreement on IT, seek to increase cooperation in 5G, AI, https://zeenews.india.com/india/india-and-japan-sign-new-agreement-on-it-seek-to-increase-cooperation-in-5g-ai-2336293.html [6]
6. Signing of the India-Japan Memorandum of Cooperation on Specified Skilled Workers, https://www.mea.gov.in/press-releases.htm?dtl/33394/Signing+of+the+IndiaJapan+Memorandum+of+Cooperation+on+Specified+Skilled+Workers [7]

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