Canada-Japan Relations: Old and New

July 3, 2009

Royalty connotes continuity and stability, and the visit this week of the Emperor and Empress of Japan will likely leave many Canadians with an impression of Japan’s placid immutability. This would be mistaken, since Japan is going through a number of wrenching changes that are being driven by both global and domestic forces.

The economy is in the throes of a sharp recession which, unlike the 1990s, is striking hard at the most competitive part of Japanese industry – the export sector. In the last six months, exports have fallen by over 40%. Unemployment in turn has risen above 5% – respectable compared to Western economies, but still a major adjustment for a workforce accustomed to lifetime employment.

Domestic politics remains fractured as ever, with a series of revolving door prime ministers and cabinet ministers providing little more than caretaker services since the departure of Junichiro Koizumi in 2006. The ruling Liberal Democratic Party faces possible defeat in elections that must be held in the next three months. The opposition Democratic Party of Japan is threatening to shake the status quo on such issues as bureaucratic power, the US military presence and “hereditary” constituencies.

More fundamentally, the aging of Japanese society has meant a shrinking of the Japanese population since 2006, with the full implications for consumer demand and economic growth yet to be played out. The shinjinrui (Japan’s Generation X) have different priorities than their forebears, and this, too, is having an impact on Japan’s economy and society that we are only beginning to appreciate.

The Canada-Japan relationship tends to be viewed through the same distorted lens of perpetual sameness. In some respects, this perception is correct. More than 80% of our exports to Japan consist of commodities and lightly processed natural resources, much as it was a decade ago. Our politicians and senior officials often describe the relationship as one of old friends, which sometimes comes across as a sense of mutual disinterest rather than one of deep trust and regular exchanges. The state of discussions on a bilateral economic agreement is emblematic of the comfortable stasis that has settled on Tokyo and Ottawa – nearly five years after the two governments agreed to pursue the idea, the latest information is that officials have agreed to discuss whether or not to proceed to negotiations.

It would be a mistake, however, to dwell on the lack of change in Canada-Japan relations. In our obsession with merchandise exports, we often overlook the fact that Japan is Canada’s leading source of investment from Asia, and that Japanese capital inflows have increased steadily over the years. Between 2004 and 2007, Japanese companies have injected more than C$46 billion of investment into Canada, far exceeding investment from China. And a growing share of Canada’s recent exports to Japan has been in the form of services, which may not be captured in official statistics. In the last week alone, the Foundation’s Canada-Asia News Service has reported on stories of Canadian firms selling high-end medical and environmental technologies to Japan.

The biggest change facing Japan may be finding its place in a world where economic and geo-political powers are shifting to Asia, but not necessarily to Tokyo. Japan’s relations with China in particular, and with the broader region in general, will be a key factor in determining the pace and depth of Asian regionalism, which will in turn affect transpacific ties, especially with the US. Hence Canada’s relations with Japan will increasingly have to be set in a context of regional developments on both sides of the Pacific, as well as on broader multilateral issues such as climate change. As part of this shift, the Foundation is working on a project with partners in Japan and the US that will look at trilateral cooperation on energy/environment and arctic issues.

Change can emanate from the most unlikely places. In their own ways, the Emperor and Empress of Japan have already transformed the role of the Chrysanthemum Throne and its place in Japanese society. Their visit to Canada should be a reminder of the wider changes that are taking place in Japan, and of the need for stronger relations based not on the complacency of a stale friendship, but on the need to respond to the new challenges facing both countries.