Opinion | How India-Japan Ties Are Set To Become More Robust And Dynamic
The rapidly evolving multifaceted partnership between a resurgent Japan and a rising India, the world’s fourth- and fifth-largest economies, respectively, holds immense promise for mutual growth and regional stability
Japan, with a landmass just 11 per cent the size of India’s, has historically wielded an outsized influence in shaping the destiny of Asia and the wider world. This island nation has alternated between being a benign economic powerhouse and a belligerent military force. It has demonstrated remarkable resilience in both prosperity and adversity. Japan’s history is marked by dramatic cycles of rise, fall, and resurgence.
Japan launched two invasions of Korea in 1592 and 1597. Despite initial successes, Japanese forces were ultimately repelled. Japan then entered a long period of isolation known as Sakoku. It ended with the arrival of Commodore Matthew Perry’s “Black Ships" in 1853, which forced Japan to open its borders. This event led to the Meiji Restoration in 1868, marking Japan’s rapid modernisation and re-engagement with the world.
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In the 20th century, Japan emerged as a significant and often harsh colonial power, expanding its empire to include Korea, Taiwan, Manchuria, and parts of East Asia. It went on to attack Pearl Harbor in 1941, drawing the United States into the conflict.
Geographical distance and historical circumstances insulated India from the impact of Imperial Japan’s excesses. It allowed India to maintain a cordial relationship with Japan, unlike many countries in East and Southeast Asia, which continue to be burdened by traumatic memories of Japanese occupation.
Humbled in World War II and devastated by the atomic bombings of Hiroshima and Nagasaki in 1945, Japan adopted a pacifist constitution in 1947. It renounced war and prioritised economic development over military expansion. Rising literally from the ashes, Japan achieved the “Japanese Economic Miracle", transforming itself into the world’s second-largest economy by 1968.
The nation’s GDP registered a stunning surge from $47 billion in 1960 to $3.1 trillion in 1990 and an all-time high of $5,545.6 trillion in 1995. Seemingly unstoppable it was well on the road to becoming a superpower and even overtaking the US economy by the turn of the century. It actually surpassed America’s GDP in terms of per capita in 1987.
By the 1980s, Japan’s manufacturing and financial prowess was at a zenith. In 1989, it accounted for an impressive 42 per cent of the global equity market share and approximately 18 per cent of the global economy. The country was home to the world’s top ten banks and emerged as the largest lender to the United States. Remarkably, Japan’s land value was estimated to be four times that of the US, despite it being nearly 25 times smaller in size.
Japanese brands like Toyota, Honda, Sony and Panasonic became global icons. Japan ran up huge trade surpluses exporting automobiles, consumer electronics and machinery across continents.
Flush with cash from its economic boom, Japan embarked on a global acquisition spree, targeting prestigious real estate and industrial assets. Notable acquisitions included Columbia Pictures and New York’s Rockefeller Center. Japan’s remarkable economic success and innovative business practices during this period became essential case studies for institutions worldwide.
The rapid rise of Japan’s economic power led to growing concerns in the United States and other Western nations. In response, the US spearheaded efforts to curb Japan’s economic dominance through various measures, including imposition of countervailing tariffs and imposing the Plaza Accord in 1985 which effectively doubled Yen’s value from 240 to a US dollar to 120 by 1988.
In the 1980s, Japan experienced a dramatic surge in real estate and stock prices, which caused a significant asset bubble. This bubble began to deflate in early 1992. The Nikkei 225 stock market index, which had reached an all-time high of nearly 39,000 at the end of 1989, suffered a steep decline, losing about 60 per cent of its value by August 1992. Over the following decade, land prices fell by approximately 70 per cent.
The Japanese miracle began to fade with the bursting of the asset bubble. What followed was a prolonged period of stagnation and deflation that has already lasted some 30 years and dubbed as ‘lost decades’.
Japan’s GDP, which accounted for over 70 per cent of the US GDP in 1995, declined to just 15 per cent by 2023. In nominal terms, Japan’s GDP contracted from $5.55 trillion to $4.21 trillion during this period, while that of the US surged from $7.64 trillion to an impressive $27.36 trillion.
China overtook Japan as the world’s second-largest economy in 2010, and in 2023, Germany surpassed Japan, relegating it to the position of the fourth-largest economy in nominal terms. This shift was partly driven by the steep depreciation of the Japanese yen, which fell from 95 to the dollar in 2010 to 140 by 2023.
The jury is still out on whether Japan is truly on the path to economic recovery. However, former Prime Minister Shinzo Abe’s widely publicised “three arrows" strategy—focused on fiscal stimulus, monetary easing, and structural reforms—along with Prime Minister Fumio Kishida’s “New Capitalism" agenda, emphasising heavy deficit spending and economic revitalisation, appear to be yielding some positive results.
The Nikkei 225 stock index finally regained the 39000 benchmark 35 years later in February 2024. Inflation is hovering around the target of 2 per cent. Interest rates which were near zero have started to creep up. Real wages have started to rise. Japan’s economy expanded by 1.9 per cent in 2023 and is projected to expand further by about 1 per cent this year. On the flip side Japanese sovereign debt, though mostly domestic, has ballooned to over 260 per cent of its GDP.
To sustain the growth momentum, Japan needs to find a new sweet spot which poses a significant challenge. Currently, no Japanese brand or business house ranks among the global top 10, with American tech giants and a company from Taiwan now occupying these positions.
Japan, once a global leader in consumer electronics and industrial products, has struggled to keep pace with the rapid advancements in artificial intelligence (AI) and the semiconductor revolution. In the late 1980s, Japan commanded over half of the global semiconductor market, but its share has since declined sharply to just 10 per cent.
Japanese firms continued to bet on DRAM (Dynamic Random Access Memory) production which became increasingly less profitable over time. Its competitors meanwhile diversified into more advanced and lucrative segments like microprocessors, which became crucial components in personal computers and other digital devices.
This decline can be attributed to several factors, including complacency, prolonged trade friction with the United States, delays in adopting advanced production technologies, an ageing workforce and corporate leadership, and sluggish investment in emerging technologies. Over time, competitors such as the United States, China, Taiwan, and South Korea have surged ahead, leaving Japan trailing in this critical sector.
To regain its competitive edge, Japan has launched an ambitious $65 billion investment initiative aimed at revitalising its semiconductor industry and advancing its AI capabilities. This strategic vision has opened new avenues for partnership between India and Japan.
During a visit to India in July 2023, Japan’s Minister for Economy, Trade, and Industry (METI) Nishimura and India’s Minister for Electronics and Information Technology Ashwini Vaishnaw signed a memorandum of cooperation to strengthen collaboration in semiconductor design, manufacturing, equipment research, talent development, and supply chain resilience. This partnership is set to unfold at both government-to-government (G2G) and business-to-business (B2B) levels.
The global disruption of supply chains in the wake of the Covid-19 pandemic has starkly exposed their fragility and vulnerability to geopolitical factors. In response, concerted efforts are now afoot to develop more robust, resilient, and trusted supply chains, particularly with respect to sensitive, critical, and emerging technologies, components, and commodities.
The scale, scope, complexity, capital requirements, and potential rewards of AI and semiconductor applications, services, and products are of such magnitude that no single country or company can dominate the entire ecosystem of innovation, design, fabrication, and marketing. This reality underscores the critical importance of collaboration among friendly nations like Japan and India.
By combining Japan’s capabilities in advanced manufacturing, robotics and technology with India’s software prowess, digital services, and large talent base, both countries can create a more resilient and competitive ecosystem. Besides AI and semiconductors, Hi-Tech engagement between the two nations cover a variety of sectors such as robotics, renewable energy, 5G, space exploration, and digital public infrastructure. India’s NITI Aayog has identified Japan as a key partner in advancing AI solutions.
Hi-tech cooperation is a key component of the “Special Strategic and Global Partnership" between India and Japan, established in 2014. However, this has not always been the case. While India and Japan have historically maintained cordial relations, they were initially limited in scope. Beginning in 1958 Japan did provide invaluable ODA (overseas development assistance) to India.
This was primarily due to a divergence in the economic and political outlook of both countries. India followed a doctrine of non-alignment and a socialist model of development, while Japan forged a security alliance with the US and embraced capitalism. The conclusion of the Cold War marked a turning point in India-Japan relations, but not without some high-octane political drama.
Japan responded sharply to India’s nuclear tests in May 1998 by suspending ODA and pushing for punitive UN sanctions. However, its position began to shift in tandem with the United States, influenced by the success of strategic dialogues between US Deputy Secretary of State Strobe Talbott and India’s Minister for External Affairs, Jaswant Singh. Both the US and Japan started reassessing their ties with India, framing them within a broader geopolitical context.
Japanese Prime Minister Yoshiro Mori visited India in August 2000 when the sides agreed to establish the “Japan-India Global Partnership in the 21st Century", laying the groundwork for deeper collaboration. It set the stage for future high-level exchanges and a series of agreements that would strengthen ties between the two countries.
Prime Minister Shinzo Abe’s landmark visit to India in 2007 when he delivered the seminal ‘confluence of the two seas’ address in the Parliament marked a turning point in bilateral relations. India and Japan concluded a civil nuclear cooperation agreement and Comprehensive Economic Partnership Agreement in 2011.
Bilateral trade between India and Japan has grown steadily since, rising from $16.95 billion in 2019-20 to $22.85 billion in 2023-24. Japan has also emerged as India’s fifth-largest foreign investor, with cumulative investments of $41.4 billion by December 2023, primarily in sectors such as manufacturing, finance, and services.
However, these figures remain well below the potential of their economic partnership. In comparison, Japanese businesses have invested a staggering $130 billion in China, with bilateral trade between Japan and China reaching $313 billion in 2022.
The investment gap between Japan and India is expected to narrow as numerous Japanese manufacturing companies scale down their operations in China and increasingly view India as a promising investment destination. This shift has been bolstered by Japanese Prime Minister Fumio Kishida’s pledge, made during his visit to India in March 2022, to invest JPY 5 trillion (approximately $37 billion) over five years in public and private projects.
India is the largest recipient of Japanese ODA, which has been instrumental in the development of numerous landmark infrastructure projects across the country. An excellent example of this collaboration is the ambitious Mumbai-Ahmedabad High-Speed Rail (MAHSR) project, or the “Bullet Train", which leverages Japan’s cutting-edge railway technology and is supported by a concessional loan of approximately $11 billion from Japan.
India-Japan ties have evolved into a comprehensive partnership also encompassing defence, security, and strategic domains. The sides share a common perspective on regional opportunities and challenges, including China’s aggressive behaviour in the Indo-Pacific.
The rapidly evolving multifaceted partnership between a resurgent Japan and a rising India, the world’s fourth- and fifth-largest economies respectively, holds immense promise for mutual growth and regional stability. With a strong foundation already in place, this relationship is poised to become even more robust and dynamic in the years ahead.
The author is a foreign affairs specialist and an ex-envoy to Canada and South Korea. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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