Israeli-Japanese friendship: A potential yet to be realized
By Shaun Ho
In the past few years, Israel has begun to tilt toward the East. Prompted by declining political support from Europe, Jerusalem gradually turned to non-Western powers such as Russia and China for support. While Israel’s growing relationship with China, in particular, has gained widespread attention in recent years, little attention has been paid to Israel’s relationship with the other Asian economic superpower—Japan. Despite being the third largest economy and one of the most powerful countries in the world, Japan has often been below the radar in Israel’s foreign relations and vice versa. Until the 1990s, Japan avoided trade with the Jewish state because of its strong reliance on oil and gas imported from the Arab states and hence its compliance with the Arab League boycott of Israel. As a result, most Japanese firms were unwilling to trade with Israel until the Arab League boycott ended in the 1990s. Although relations between Israel and Japan have improved significantly, especially in trade and economic cooperation, these two countries have yet to develop a close political and economic relationship to the extent that Israel has with its Western allies and even China. Yet there is great potential for the two countries to develop deeper economic and even geopolitical ties, as both Japan and Israel would benefit considerably from increasing economic and technological cooperation, particularly in the field of innovation, and political cooperation on the international stage.
Japan’s Need for Israeli Innovation
Despite both being developed nations, Japan and Israel have very different economic structures. The former has an enormous and mature economy dominated by conglomerates and other large corporations, while the latter has a relatively small but innovative economy whose growth is largely dependent on the myriad start-ups in “Silicon Wadi.” Additionally, corporate cultural differences between the two countries cannot be any starker. Japanese corporations are known globally for their rigid hierarchical structures and meticulous attention to detail, while Israelis are averse to vertical hierarchies and prioritize innovation over detail. Although it may seem that two countries with such contrasting cultures would not be able to work together effectively, these differences, in fact, would allow Japan and Israel to complement each other and alleviate each other’s structural weaknesses. As Glenn Newman wrote in the Japan Times in August 2018, “Israel and Japan are the yin and yang of countries. And yet, despite — or maybe because of — their differences, they have much to offer each other. Marrying their respective geniuses, Japan and Israel could be a killer combination.”
Following decades of economic boom in the post-war period, Japan’s asset price bubble burst, and its economy slumped into a period of stagnation known as the “Lost Decades” from the 1990s until well into the early 2010s. To reinvigorate the Japanese economy and make it more competitive on the world stage, in 2012 Prime Minister Shinzo Abe initiated a set of economic reforms known as “Abenomics,” which consists of three “arrows” (overarching policies): monetary easing, fiscal stimulus, and structural reforms. As part of the third “arrow” to reform the economic structure, the government is seeking to use innovation and technology to increase Japan’s competitiveness and economic growth. Although Japan is often regarded as one of the most technologically advanced nations in the world, it has been falling behind in innovation in recent years and losing its technological edge over countries such as the United States, South Korea, and China. Many critics contend that one major reason for the lack of innovation is that the rigid hierarchical structure of Japanese corporations and the cultural aversion to risk stifle innovation of new technologies and discourage entrepreneurship.
This is where Israel can potentially complement and play a role in Japan’s economy. In contrast to Japanese culture, which values structure, consensus-making, and meticulousness, Israeli culture is more egalitarian, more individualistic, and less risk-averse. As a result, Israelis are much more willing to develop new technologies and to engage in creative entrepreneurship, allowing Israel to become one of the most innovative countries and to have the highest number of start-ups per capita in the world. By investing in and cooperating with Israeli high-tech firms and start-ups, Japanese firms would be able to gain access to Israeli technology. Already, several Japanese corporations, such as Panasonic, NEC, and Ricoh have begun cooperation with Israeli companies in research and development (R&D) programs and plans to establish R&D centers in Silicon Wadi. Japanese automobile giants like Toyota, Nissan, and Honda have also started to invest in and cooperate with Israeli start-ups to improve their automotive technologies. Japan’s investments in Israeli start-ups would be immensely beneficial to the Japanese economy, not only because it would gain access to technology that it would not have otherwise, but also because many of these technologies would be potentially crucial to the Japanese government’s effort to create sustainable economic growth through innovation.
As part of the Abenomics reforms, for example, the Japanese government has launched an initiative called “Society 5.0,” which aims to shift Japan to an “innovative society” based on the Internet of Things (IoT), artificial intelligence (AI), and big data. [See glossary below for definitions.] As a world leader in AI and big data technology, Israel can contribute toward many areas of this initiative.
One area toward which Israeli firms can contribute is health care. With its rapidly aging population, Japan is seeking ways to increase people’s access to health care, particularly in rural areas where the elderly are concentrated. The “Society 5.0” initiative aims to utilize AI and big data to improve people’s access to medical services and data. Having developed some of the top medical technologies in the world, Israeli firms can play a big role in Japan’s effort to innovate its medical data technologies. For example, Israeli startups such as Genoox and Aidoc, which have revolutionized the use of big data in health care, can complement Japan’s current medical data technology.
Another area in which Israeli technology would assist Japan’s transition into an innovative economy is financial technology (fintech). As one of the largest and most important financial markets in the world, Japan is surprisingly backward in fintech, falling behind most other advanced economies and even China and India. Furthermore, a high proportion of transactions in Japan are still conducted in cash, making Japan one of the most cash-dependent societies in the developed world. Because of the high transaction costs that come with cash payments, the Japanese government is promoting cashless payments and money transfers based on blockchain technology [See glossary below for definitions.] as part of the “Society 5.0” initiative.
As a global leader in fintech, Israel is eager to cooperate with Japanese financial firms. In 2017, a delegation of Israeli fintech companies led by the Israel Innovation Authority and the Israeli Ministry of Economy visited Japan to showcase Israeli fintech solutions to Japanese financial institutions and fintech firms. To accelerate Japan’s adoption of fintech and transition into a cashless society, the government has begun to deregulate the financial sector so that innovative technologies can be integrated into the industry and fintech firms can enter the Japanese market. According to Noa Asher, Israel’s trade representative to Japan, the Israeli Ministry of Economy aims to help Israeli fintech firms to penetrate the Japanese market and develop their business with Japanese financial institutions. With such a huge potential for growth in the Japanese fintech industry and strong backing from the Japanese government, Israeli fintech firms are likely to take this opportunity to invest in the Japanese financial sector and cooperate with their Japanese counterparts—a win-win situation for both countries.
Israel’s Need for the Japanese Market
While the Japanese economy can benefit significantly from Israeli innovation and technology, Israeli firms can also profit from investing in the Japanese market and cooperating with their Japanese counterparts. Although Israel has a large innovative capacity, it does not have the scale or the market for expansion. Japan, with a population and GDP 14 times larger than that of Israel, is a massive potential market that Israel has yet to tap into.
Moreover, despite the Japanese government’s past support for the Arab League boycott, the absence of anti-Israel (and anti-Semitic) sentiment and of the BDS movement means that there would be little objection from Japanese firms and consumers to cooperating with their Israeli counterparts or buying Israeli products. Practically speaking, there are almost no obstacles to economic and technological cooperation between Israeli and Japanese firms.
Abe’s International Ambitions and Israel
Although economic cooperation is the most notable common interest between Japan and Israel, the two countries also share geopolitical interests, especially as both countries seek to expand their international influence. For the past 70 years, Japan has pursued a pacifist foreign policy whereby Japan’s military—the Self-Defense Forces—is restricted from foreign intervention and only allowed to defend itself from immediate threat. This is because Article 9 of Japan’s post-war constitution bans the country from maintaining “armed forces” and only allows for “self-defense forces.” In recent years, however, Prime Minister Abe and his nationalist-conservative Liberal Democratic Party have been pushing for changes to the pacifist constitution. Since Abe took power in 2012, he has attempted to amend the constitution to expand the international role of Japan’s Self-Defense Forces. Indeed, by reinterpreting Article 9 of the constitution, in 2014 the Japanese government ended the policy that banned the Self-Defense Forces from taking part in foreign conflicts. Since then, Japan’s Self-Defense Forces will be able to engage in “collective self-defense,” which would allow them to defend allies.
According to The Economist, “Mr. Abe has a fixation with foreign and security policy. He would dearly like Japan to shed the complexes it has developed as a result of its history of militarism and colonialism, and assert itself more in international affairs.” While there is strong opposition from the Japanese public and the political Left to Abe’s plans to amend the constitution, Abe is determined to make Japan a more important player in international security and expand its military forces.
As Japan increases its military influence worldwide, it will seek not only to increase cooperation with its traditional allies like the United States, but also to find new partners. In its effort to win allies and counteract China’s growing assertiveness in the region, Japan has already strengthened political and economic ties with other countries in the Asia-Pacific region, such as Australia, India, and Southeast Asian nations. Although not in the Asia-Pacific, Israel can be an invaluable partner for Japan. As one of the most powerful countries in the Middle East, Israel can provide important strategic benefits to Tokyo in the region. Until recent years, Japan has been reluctant to cultivate political ties with the Jewish state, mainly because of its reliance on the Arab states and Iran for its energy supplies, and thus, it was of greater strategic interest to maintain good relations with these countries.
However, circumstances have changed drastically in recent years. While Israel has not established any new official diplomatic relations with the Arab states, there has been a marked improvement in informal relations between Israel and countries like Saudi Arabia and the Gulf States. Furthermore, as oil prices decrease, the influence of Arab oil supplies on Japanese policy in the region has also declined. Yoshimitsu Kobayashi, chairman of Mitsubishi Chemical Holdings, said, “Geopolitics is changing in the Middle East and as oil prices come down, strategically it’s not as important. Japan is changing its mind.” These changing circumstances mean that Tokyo will not need to be as cautious in improving political relations with Jerusalem. It is now much more viable for Japan to build ties with Israel while maintaining good relations with countries such as Saudi Arabia and the Gulf States.
One area in which Japan and Israel can develop political and military relations is the arms trade. As the Japanese government aims to expand its military power and build up its Self-Defense Forces, it will need to purchase more weapons from abroad. Currently, Japan buys most of its weapons from its own arms industry and from its close allies like United States and Britain. However, Israel can potentially become a major supplier for Japan’s Self-Defense Forces. Japan would greatly benefit from importing weapons from Israel, which are some of the most technologically advanced in the world. For Israel’s large defense industry, which is one of the most important sectors of the Israeli economy, Japan is a particularly attractive and potentially profitable market. In contrast to Israel’s sale of dual-use products to China, which has raised concern from the United States, it is highly unlikely that Washington would be concerned about Israeli arms sales to Japan, as Japan does not pose a security threat to the United States or Israel. In fact, Washington would likely welcome military cooperation between its close allies. Furthermore, Japan’s clean human rights record and pacifist foreign policy mean that selling arms to Japan would not raise any controversy.
“The opportunities are immense, the enthusiasm is great, because there is genius on the Japanese side, there is genius on the Israeli side,” Israel’s Prime Minister Benjamin Netanyahu told Prime Minister Shinzo Abe in Jerusalem in 2015. Indeed, even though Israel and Japan sit at opposite ends of the continent and have very different cultures, the two countries have a great potential to develop close ties, both economic and political. From Israel’s founding in 1948 until the end of the Arab League boycott in the 1990s, Japan was held back from developing close political or economic ties with the Jewish state. Now that Israel has improved its relations with the Arab states, there is little reason for Tokyo not to develop further political ties with Jerusalem. There are even greater reasons for Japan to expand economic cooperation with Israel, particularly in the field of technology and innovation, as the two economies would be able to complement each other. There is practically no obstacle to the two countries increasing cooperation, which would greatly benefit both countries’ economies. What Israel and Japan should do now is to discover each other’s strengths and recognize the immense potential of Israeli-Japanese cooperation.
Shaun Ho is a student at the Georgetown University School of Foreign Service and an intern at the Jerusalem Center for Public Affairs (JCPA).