It’s official: Japan is back

It’s cherry blossum time in Japan, and time for Australian exporters to take some ripe pickings.

The Bank of Japan has ended its fight-deflation first policy of nearly half a decade and the country can now expect a return to economic growth with moderate price rises, with many commentators expecting a modest rise in official interest rates.

This is important for a world economy that has had to expand on one less cylinder given Japan’s sluggish recent past.

According to The Lowy Institute, the Japanese economy is now in its longest uninterrupted expansion since the late 1960s, real GDP has averaged over 2% growth a year since mid-2002, and in last calendar year, Japan achieved 5.5% growth.

But what does this mean for Australia? Plenty. After all, despite the rise of China, Japan is still Australia’s number one export destination. Australia exports more than $34 billion worth of goods and services per year to Japan and the Australia-Japan two way trade relationship is worth almost $54 billion.

There are four reasons why Japan is back on the radar of Australian exporters.

First, Australia and Japan have just announced the commencement of negotiations for a free trade agreement this year.

Research jointly commissioned by Australia and Japan found that full and immediate trade and investment liberalisation could potentially bring gains of $39 billion and $27 billion to the GDP of Australia and Japan respectively.

Second, as many economists have noted, there has to be an increase in consumption in Japan, and that will mean more opportunities for Australia in Japan’s vast and sophisticated consumer market.

Third, there is likely to be a new wave of reform as Prime Minister Abe continues the reforms of recently retired Premier Koizumi.

A new wave of “Koizuminomics” under Abe has the potential to really open up the economy. With a return to growth, strong export performance and cleaned-up balance sheets and the slaying of deflation, the environment in Japan will be much more conducive to microeconomic and institutional reform.

In particular, there is scope for reform in several previously “untouchable’ parts of the Japanese economy – particularly in the services sector. There will be opportunities for Australian exporters in the health, education and the lifestyle sectors.

Fourth, Japan’s unique demographics should also create export opportunities at both ends of scale that are particularly suited to Australia.

At the young end of the market, consumer products like surf exports are booming, with Japan being the number one destination for Australian exports such as water skis, surfboards and water sports equipment (accounting for over a third of a $21 million market).

At the other end of the scale, grey power in Japan is still doing its bit for our export account as well. Japan’s ageing population – especially older women – have big spending power.

In short, if you thought Bill Clinton’s “soccer moms” were influential, wait until you see the economic power of Mrs Hashimoto and her neighbours.

Open an office in Japan

The crucial factor to determine the success of Australian companies in generating more export opportunities in Japan is the need for businesses to establish a presence there. Despite the fact that more than 3500 Australian companies currently export to Japan, fewer than 100 have offices or investments.

Australians in Japan say the lack of local business presence puts Australia at a disadvantage.

According to research by Austrade/Sensis, around 14% of exporting small and medium sized enterprises sell to the Japanese market (which has jumped up from 12% a year ago). However, given the more benign economic environment in Japan, with an increased emphasis on consumption, there’ll be plenty more room to move in the Japanese market, especially if the services industry reforms kick-in.

Click here to read tips for exporters doing business in Japan.

*Tim Harcourt is chief economist at Austrade and author of Beyond Our Shores