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What will change in Japanese leadership mean to Australia

09 August, 2006

In September 2006, Japanese Prime Minister Junichiro Koizumi will say goodbye to political life when he steps down as Liberal Democratic Party (LDP) president and the premiership.

After five years in the job, including a stunning landslide election victory just last year in September, Japan’s biggest Elvis fan will leave the building. In fact, on his farewell tour to the United States – probably his last as Prime Minister – Koizumi was filmed enthusiastically singing Elvis songs with his US counterpart George W. Bush.

What will the charismatic Prime Minister’s legacy be? Most commentators in Tokyo see three main aspects of the Koizumi years.

The first legacy is political. According to seasoned Japan watchers, Koizumi effectively stared down the old guard and broke down the LDP factional system. For example, he handpicked his own ministry instead of having the factions nominate their preferred candidates.

The second is economic growth. Japan’s economy has been in recovery phase for most of this period – giving the global economy a much needed extra cylinder to fire off. According to The Lowy Institute, the Japanese economy is now its longest uninterrupted expansion since the late 1960s, real GDP has averaged over two per cent growth per annum since mid-2002, and in last calendar year, Japan achieved 5.5 per cent growth. Given that Japan is still the world’s second largest economy, the return to growth is especially welcome given the world’s reliance on the US for economic momentum amongst the mature economies and China in the emerging camp.

The third is institutional reform. After decades of being a closed economy and society, Koizumi made some inroads in terms of openness, corporate governance and microeconomic reform in Japan.

Of course, it hasn’t been easy. Institutional reform has always been difficult in Japan. Like most cultural change issues, it all comes down to history. Many long-term Japan-watchers have told me that Japanese and Chinese leaders have a different view of history. This permeates politics as well as economic management. Japan is an island state. Throughout its history, when isolated – politically and geographically – its leaders had nowhere else to run. There was no chance of retreat. It was all or nothing. A leader must go forth or else all is lost. By contrast, China is a big terrain. Leaders who are defeated could always hide in another province or Mongolia, and wait to fight another day. They could wait out big problems in a strategic fashion. Accordingly, Koizumi should be given some credit for getting some reforms through – both political and economic – in a relatively short space of time.

What does this all mean for Australia? Mostly, it’s been good news.

Firstly, economic growth in Japan is good news for the region as a whole, due to the nature of intra-Asian trade, and this is ultimately good news for Australia (given our reliance on Asian markets for our exports – with Japan accounting for nearly 18 per cent of all our goods and services exports on its own).

Secondly, reform and openness in Japan itself from “Koizuminomics” has helped Australian companies to build a presence within the Japanese market itself and has also helped build exporter markets for our producers of advanced manufactures and knowledge based services. In fact, in many ways, Australia’s trade composition with China now resembles our trade patterns with Japan when the latter was industrialising in the 1950s and 1960s. And now that Japan has become richer and a more mature market, our export mix is tending more towards more knowledge based services, and niche exporters in industries like food and beverages.

As Australia’s senior trade commissioner in Tokyo, Phil Ingram says: “The game has totally changed now; it’s about getting small businesses – many of them – new exporters, into the right nooks and crannies in the enormous, wealthy, sophisticated Japanese consumer market. Over the past year, we have seen an enormous up take of opportunities by Australian companies who are totally new to the Japanese market.”

Thirdly, the Koizumi reforms have helped Australia to take advantage of Japan’s unique demographics and resulting opportunities in services and the exports of ‘well-being’ products. Sectors that had previously been closed – such as health and education, recreation and leisure – are now opening up and are coupled with an ageing Japanese population looking for longer lifestyle options in the sunshine of Queensland or clean air and open spaces of Tasmania.

In conclusion, Japan is still Australia’s number one export destination, and even with the amazing rise of China it will continue to be an important economic partner for Australian and a key global economic player – particularly in the Asia Pacific region. Accordingly, the events after the departure of Junichiro Koizumi will be watched closely by Australian exporters who will be hopeful that some key aspects of the Koizumi economic legacy will be preserved.  We may hear a little less of Elvis on the juke box in Tokyo but a little less conservation and plenty of action on the trade front will ensure a bright future for Australian exporters in the land of the rising sun.

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