Japan was Australia’s largest trading partner until 2007 and largest export destination before 2009. Japan is now Australia’s second largest trading partner behind China. Total goods and services trade amounted to $85.7 billion in 2018, making up 10.1% of Australia’s trading portfolio.
Australia and Japan entered a free trade agreement in April 2014, which grants more than 97% of Australian exports preferential treatment in Japanese markets. Australian exports to Japan are dominated by coal, natural gas, iron ore and beef. Woodside, Mitsui and Co, MMG, Centennial Coal, and Newmont Mining are some of the Australian companies that export commodities to Japan. Teys Australia, JBS Australia and NH Foods export beef to Japan. Major Japanese imports to Australia include motor vehicles, gold and petroleum.
Service exports to Japan totalled $2.5 billion in 2018. Japanese tourist arrivals have declined since 2004, in large part due to the depreciation of the yen against the Australian dollar and stagnant Japanese income growth. But since their low in 2013, Japanese tourist arrivals have grown an average of 7.5% per annum to reach 469,000 in 2018. That growth in large part reflected a sharp increase in flights between Japan and Australia. Elsewhere, Japanese student enrolments remain low but have gradually risen in recent years to more than 16,000 students in 2018.
Japan is Australia’s fourth largest source of foreign investment behind the US, UK and Belgium. Japan’s stock of foreign investment reached $229 billion in 2018 (7% of total investment), centred predominantly in the resource sector. Japanese investment in financial services, infrastructure, information and communications technology, property, food and agribusiness are growing.
Australian investment in Japan fell to $112 billion in 2018, equivalent to 4.5% of Australia’s foreign investment portfolio. But this is a trend that isn’t unique to Australia—Japan’s inward stock of FDI is the lowest in the OECD. Deterrents to foreign investment include language barriers, the high cost of doing business in Japan, a declining population and a relatively restrictive foreign investment regime, notwithstanding enhanced protections for Australian investors resulting from the FTA.