Airport Economist

Tuesday, May 1, 2012 - 12:28

Our role in Japan's time of need. By Tim Harcourt

A year on from the tsunami and earthquake disasters that killed 19,000 people, Japan continues to rebuild domestically as well as in international trade.

Resilience and the generosity to offer a helping hand in times of crisis are Japanese traits, of which I got my first taste at age four, when my father was taking a sabbatical at Keio University in Tokyo. A Japanese family moved out so we - a family of six - could live in comfort.

I was reminded of this as the Japanese community pulled together, helping each other cope with one tragedy after another in the biggest catastrophe Japan has faced in more than 60 years.

It is well-known Japan is Australia's second-largest export partner, but for many years it was our first. Perhaps not as well-known is that Japan enabled Australia to be a successful trading partner with Asia, something we now take for granted.

In 1957, just 12 years after World War II, we signed an economic partnership agreement. Australian National University Economics Professor Peter Drysdale has written eloquently about how he witnessed the first shipment of iron ore from Australia arrive on the docks in Japan.

"It was before economic development had really taken off and Japan was still recovering from the horrors of the war. Nutrition was poor, and the average number of calories was half of what the average Japanese household consumes today," he wrote.

Since then, of course, Japan has become a major export destination for our raw materials - mainly coal, iron ore and LNG, a major source of foreign investment, a major source of technology, innovation and strong cross-cultural ties in terms of tourism and education.

But Australia also has great export success with China, India, Korea, Taiwan, ASEAN and the emerging markets - and Japan played a key role in giving Australia the confidence to succeed in the Asia Pacific region.

The past year since has seen improvements in Japan's economic fundamentals. Inflation is higher, equities are up and the yen continues to trend down encouraging exports. But over the past two decades, there have been many false dawns for the Japanese economy.

Is it finally set to embark on a period of sustained outperformance?

Many of the key indicators, including the highly significant Nikkei Index, at about 13 times future earnings, have definitely improved.

For Australia, the improvement in Japanese exports and a renewed focus on infrastructure and building has to be good news for commodities.

The demand for LNG is also likely to be strong, as Japan deals with contamination issues that have risen from the problems at the Fukushima plant.

It is likely Australia will also receive more goods sourced from Japan with the weaker yen. I would also suggest it is a great time for Australian service companies to examine the Japanese market with signs of a greater openness in the wake of last year's events.

In consumer markets, there are already many examples of Australian products - from Minami Sodachi, a tuna brand launched on behalf of the Australian Southern Blue Fin Industry Association, to a green tea called "Australia" - thanks to Itoen, a company that has reinvested $8.4 million into its Australian production facilities.

You can buy Tasmanian cherries on Valentine's Day, thanks to Reid Fruits, while Kangaroo Island Pure Grain, which received an export award from the South Australian government, tripled its exports of fully traceable non-genetically modified canola to 6000 tonnes in 2010.

In professional services, Blake Dawson is the first Australian law firm to open an office in Japan, Bovis Lend Lease is offering green building technology contracts and Toll Holdings is expanding its client base after the acquisition of Osaka-based Footwork Express. This is matched by collaboration and developments in solar technology, healthcare and medical research.

While uncertainty remains about the long-term economic effects of the disasters, Japan is showing signs of bouncing back - and Australia is certainly playing a role in the proud nation's revival.

Tim Harcourt is the JW Nevile Fellow in Economics, Australian School of Business, UNSW and author of The Airport Economist: www.timharcourt.com