Israel is a small country in the Middle East, and Japan is a huge country in East Asia. These two countries have completely different histories, cultures, religions and economies. But for some reason the two countries have always had a close relationship with each other.
As Japan was still under Allied occupation in 1952, Israel and Japan established diplomatic relations for the first time. Israeli exports were able to enter the Japanese market duty-free following a 1962 trade agreement between Israel and Japan. After the global financial crisis, both countries signed a currency swap agreement in 2009 to ease Israel’s economic difficulties.
Due to their economic dependence on each other, Japan and Israel have realized they need each other more in recent years. We will examine in this article the actions taken by the countries committed to improving their economic ties and cooperation.
Israel – Japan Economic trade relations
Among the countries of the world, Israel’s trade relations with Japan are among the largest and most important. In recent years there has been an impressive increase in the volume of trade between Israel and Japan, which was manifested both in the increase in export and import volumes.
As of the end of 2022, Japan is the tenth largest export destination for Israel and the third in Asia after China and India. Also,The seventh source of imports of goods from around the world and the second largest in Asia after China. accordingly Japan is ranked as the eighth largest trading country among all the countries of the world with which Israel trades.
A look at Japan’s trade trends
The volume of trade between Israel and Japan has increased by tens of percent in recent years when the export of goods to Japan jumped by about 43% to a volume of about 1.1 billion dollars – the highest level recorded in exports to Japan in the last 20 years. Additional growth was also recorded in the import of goods, which increased by about 20% in the amount of about 2.8 billion dollars.
The volume of imports is the most dominant factor, accounting for about 75% of the total trade between the countries. The export of goods constitutes respectively about 25% of the total trade. In accordance with the great dominance of imports in trade, Israel is in deficit
ongoing against Japan.
Exporting goods to Japan
Starting in 2011, after several years of growth in volumes, there was a retreat in Japan’s demand for goods from Israel. This negative trend is reflected both in the decrease in export volumes and in the decrease in the proportion of export weight out of total exports to Asia.
A sharp increase of about 43% in volumes and reached to a level of about 1.1 billion dollars – the highest level recorded exported since the late 1990s.
In the first half of 2019, the export of goods decreased by about 22% compared to the corresponding period of about 410 million dollars. The decrease was recorded thanks to the decrease in the metals sector which returned to its average level after a jump recorded last year. As of today, Japan is Israel’s 3rd largest export destination among Asian countries. However, in recent years with the significant increase in export volumes to Japan, there has also been a significant increase in the share of total exports to Asia.
Israel exports to Japan mainly measuring and controlling equipment, metals, medical equipment, machines and devices mechanical, and electronic and telecom equipment – these together constitute about 70% of the total exports to the country.
The sharp increase in exports to Japan during 2018 was recorded with an overall and horizontal increase in all the main export branches, which showed a double-digit growth compared to the volumes in the corresponding period in 2017. Export of measuring instruments and industrial control and medical devices which mainly includes equipment for controlling production processes in the electronics industry,increased by about 60% to the extent of about 385 million dollars; The export of metal products also increased at a rate of
about 60% to the extent of about 200 million dollars; The export of machines and mechanical devices registered an increase of about 55% compared to last year’s volume and amounted to about 110 million dollars; Export of electronic equipment and telecommunications equipment, increased by about 5% and amounted to about 115 million dollars; The export of fruit concentrates and juices increased by about 23% to the extent of about 80 million dollars.
Import goods from Japan
Japan is the second largest source of imports of goods from Asia and the seventh source of imports among all countries in the world. Japan is traditionally one of Israel’s main importing countries and the average import in the last decade stands at about 2 billion dollars a year. The import of vehicles and vehicle parts is also another main branch, with a similar weight of about 35% of the total of other main import branches, although in significantly lower volumes, there are machines and electrical equipment about 7% of the imports, optical and medical equipment about 5% of the imports, and plastic and its products constitute about 3% of the total average annual import.
Direct investments in Israel
Japan Interest in Israeli companies has steadily increased in recent years. According to the estimates of the research company IVC, companies from Japan have invested an amount equal to about 2% of all technology investments in Israel. The investments are mainly made by leading companies, such as: Fujitsu, Toyota, Takeda, ORIX as well as by venture capital funds which in many cases form the investment arms of corporations.
The Japanese company Softbank, whose market value is estimated at about 85 billion dollars, has been very active with Israeli companies’ startups for several years. The company is looking at start-up companies whose products are synergistic for the company’s activities and vision.
A number of leading Japanese companies have opened R&D centers to look for potential goals of cooperation and investment targets. Among the R&D centers of leading companies that have opened in Israel are Yaskawa, Honda, Toshiba, Sony, Sun Corporation and Hitachi.
Japanese investments in Israel can be characterized by the following characteristics:
1. Most of the investments are strategic investments and not financial investments.
2. Many times the investments are led by a leading body from Israel or the USA.
3. Japanese companies for the most part are not interested in the realization of the EXIT investment but in the integration of the technology at the core of their business.
4. The vast majority of investments are directly in the target companies.
5. In many cases, the Japanese investors want to be modest
their investments for two main reasons:
i. Since the nature of the investment is strategic and not financial, they have no interest in the information reaching their direct competitors in Japan and abroad.
ii. Many of the Japanese companies politically prefer to operate with a low profile when doing business with Israel, especially if they have extensive business activities in countries that do not maintain diplomatic relations with Israel.
Israel and Japan have had trade relations for over 50 years. From the beginning of trade relations, the two countries established many joint ventures and cooperative projects that strengthened the economic relations between the countries.
Israel and Japan aspire to a more open trade policy with each other and by mutual consent and to manage a free trade agreement.
Israel is channeling its geographical proximity to Asia and thus opening its economy to the Japanese market. This move encourages Israel’s economic growth, which relies heavily on exports.
The economic trade relations between Israel and Japan are good. They have many different agreements with each other such as a free trade agreement and a scientific and technological cooperation agreement.
Japan and Israel cooperate on a variety of issues including economy, trade, security and agriculture. The two countries are also committed to strengthening their bilateral relations in the future.
Israel is an important ally and partner for Japan in the Middle East as it imports Israeli technology and information technology to help rebuild its economy.
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