Japan is Australia’s second largest trading partner behind China. Total goods and services trade amounted to $86.8 billion in 2019, making up 9.5% of Australia’s trading portfolio. The COVID-19 pandemic disrupted bilateral trade in 2020.
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, BHP, Whitehaven Coal, and Oil Search are some of the major Australian companies that export commodities to Japan. Teys Australia, JBS Australia and NH Foods export beef to Japan.
COVID-19 has hit the Japanese food service sector particularly hard, presenting challenges for Australian premium food and wine exports, which are often consumed at high-end restaurants and bars. But with more Japanese eating at home, retail food sales have been increasing, supporting demand for fruit and vegetables.
Major Japanese imports to Australia include motor vehicles, refined petroleum, civil engineering equipment and gold.
Service exports to Japan totalled $2.7 billion in 2019. Before the pandemic, Japanese tourist arrivals had risen from a low of 331,000 in 2013 to almost 500,000 in 2019. That increase in large part reflected the addition of many more flights between Japan and Australia. Japanese student enrolments remained around 16,000 in 2019, similar to levels in 2017 and 2018. The COVID-19 pandemic and associated international travel restrictions disproportionately hurt services trade in 2020. Ongoing international travel restrictions points to another challenging year for services exports in 2021.
Japan is Australia’s fourth largest source of foreign investment behind the US, UK and Belgium. Japan’s stock of foreign investment reached $271 billion in 2019 (6.5% of total inward investment), centred predominantly in the resources and energy sectors. For instance, the INPEX Corporation’s US$34 billion Ichthys LNG project in Western Australia was, in 2012, the largest single global investment by any Japanese company. However, the global economic downturn has seen many postpone expansion plans in energy projects. Japanese companies have continued to invest in major iron ore project expansions with their joint venture partners. Japanese investment in financial services, infrastructure, information and communications technology, property, food and agribusiness are also growing.
Australian investment in Japan amounted to $140 billion in 2019, equivalent to 4.7% of Australia’s foreign investment portfolio. Japan remains open to foreign investment. However, language barriers, the high cost of doing business, a declining population and a relatively restrictive foreign investment regime, notwithstanding enhanced protections for Australian investors resulting from the FTA, remain constraints on investing in Japan.