An ongoing journal on Russia-Japan relations #2

The state of economic cooperation between Japan and Russia

Since the new Japanese Prime Minister Yoshihide Suga took over, the consensus has been that his administration will continue the policies of economic cooperation with Russia pursued by his predecessor Prime Minister Shinzo Abe.

Japan is primarily motivated by two things in its relationship with Russia. Commercial fishing around the Kurils and the prospects of the return of some islands in the chain, which would spell an end to the territorial dispute between the two nations.

Some analysts directly connect Japan’s attempt to achieve these goals with the political leverage emerging from the prospect of deeper economic relations with Moscow.

Russia is also happy to engage in bilateral trade and other economic cooperation with Japan, since international sanctions have been bearing heavily on Russia’s economy since the annexation of Crimea in 2014.

The Abe administration led a serious diplomatic effort with an eight point economic cooperation plan in 2016, all in the hopes that Russian public opinion on returning Kurils to Japan could be softened. Tass reported in 2018 that the plan was bearing fruit with almost 25% bilateral trade growth.

More recently, although both sides have reiterated their commitment to economic relations, the reality on the ground is very different.  In early 2019, Russian President Vladimir Putin had said bilateral trade could exceed 30 billion USD annually. That goal is set to be delayed because of the COVID-19 pandemic. Following the worldwide economic slowdown of 2020, the figure for that year was expected to fall below 20 billion USD after three years of up-tick. Japanese private enterprises also remain hesitant to do business in Russia, due to concerns about complicated regulations and the presence of Western sanctions. This has, in turn, led to a general sense of frustration in Russia, which has taken up certain infrastructure projects in South Kurils previously envisioned to be undertaken jointly with Japan.

There have been many mixed signals and anecdotal points of friction. These include a potential ban on timber export to Japan from Russia, Honda withdrawing from the Russian market altogether (the majority of imported cars sold in Russia are Japanese), and Russian border guards subjecting Japanese fishing vessels to extensive searches. This has led to some of them even missing the annual auction, resulting in prices being significantly higher. It might appear to be a minor issue to an outsider but in Japan this is a significant point of contention with a lot of livelihoods depending on commercial fishing.

Despite these challenges, there are still significant points of cooperation, especially in the area of clean energy supplies and regional shipping. Japan is set to increase the use of Hydrogen to meet its obligations in terms of reducing its carbon emissions. Russia can emerge as the biggest supplier of hydrogen to Japan in the near term. Russia also sees opportunities to export Methanol to Japan from an upcoming plant in its Amur region. Japan has also received an offer to increase the volume of container shipments through the trans-siberian railway and the Russian side has shown warmth to the idea of further subsidising it if the volume can be increased.

As Japan and Russia simultaneously spar over the Kuril islands and look for opportunities for cooperation, this journal will attempt to chronicle their important relationship over the next few months.

The views expressed above are the author’s own and do not represent Takshashila Institution’s recommendations.