Japan’s Upper House Election and Tariff Outcomes

Japan has effectively been a one-party state since the founding of the Liberal Democratic Party (LDP) in 1955. Only twice in its history has it ceded power – 1993-1994 and 2009-2012. Only twice has the LDP lost both houses of parliament (the Diet) – the lower House of Representatives (HoR) and the upper chamber, the House of Councillors (HoC) over the periods 2009-2012 and in the July 2025 election just held.

While media attention has focused on the more obvious election issues driven by the LDP fundraising scandals which forced the resignation of Prime Minister Kishida, the cost of living, inflation, foreigner integration problems, the economic costs of the rapidly aging population and addressing the lowest birthrate recorded since 1947, it has consistently ignored Prime Minister Shigeru Ishiba’s stance on China and the threat this poses.

While Australia does not have the troublesome 20th Century history of Japan with respect to China, resentment continues to run deep in Beijing.

As one example in July 2021, a now deleted propaganda video associated with the CCP showed overt threats of nuclear strikes on Tokyo if Japan intervened in any military conflict with Taiwan. It was never confirmed, denied or condemned by the CCP. Then again, why would we expect otherwise?On the website of Keisuke Suzuki MP, State Minister for Foreign Affairs, the following survey question is asked – “It has been pointed out that there is a risk of a Taiwan emergency occurring within the next 2-3 years. Various contingencies are envisioned, but if the runways at Yonaguni Airport and Naha Airport were suddenly attacked by missiles from the Chinese military and destroyed, but no human casualties have yet occurred, what do you think Japan should do?”

 83 percent of respondents replied, “In order to deter a second wave of attacks, Japan should immediately retaliate by exercising its right of individual self-defense against any attack on its territory.” Hardly ambiguous.

So, expect that PM Ishiba to resign by the end of August, if not sooner, and gets replaced with Sanae Takaichi, who would be Japan’s first female PM. She is more from the Abe side of politics which is what Japanese voters prefer.

It was curious to see the sharp jump in seats – from one to fourteen – secured by the Sanseito Party which is pursuing a “Japan First” mantra, making it the fourth largest bloc in the HoC. However, the risk for many minor parties is that the LDP manages to find ways to regain its majorities, which is not surprising when they have ruled for 65 of the last 70 years. Simply, opposition parties struggle to know how to govern.  The splintered LDP will need to channel Shinzo Abe again. His legacy is proving that Japanese sovereignty, security and self-determination comes from calling a sword a sword.

As to the US tariffs, the Japanese automakers managed to make themselves very financially profitable at JPY70~80/US$ just after Lehman shock.  We are now in the JPY 148/US$ mark meaning they can comfortably absorb the tariff and still make money.

Trump has won rice concessions. Japanese tend not to buy US cars for obvious reasons. Yank tanks tend not to work well in narrow streets of Japan.

Rational economics suggests that US President Donald Trump was right to question the current import quota on rice. Japan allows 770,000 tonnes of tariff-free rice annually under WTO rules. Only 100,000 tonnes is available for human consumption. Above that, Japanese tariffs of JPY341 (A$3.65) per kilogram apply. While 770,000 tonnes of rice (including animal feed) are tariff-free, only 742,000 tonnes were imported in 2024. When rice yields were good, imported rice hovered in the mid 600,000 range.

Yet, Japan is not a rational market. Having lived in Japan for 25 years, Japanese rice is different – in taste and texture not to mention preparation. Still, Japan faces very little downside by offering Trump what he wants. Put simply, the Japan are rice snobs. As am I. They eat it everyday often for breakfast, lunch and dinner. As a staple, it is an area most Japanese households are unlikely to compromise on.

To put that in perspective, more financially constrained Japanese are buying ‘bichikumai’ (which is essentially rice grains that have been in storage for up to four years) to cope with the high prices of newer harvests which cost around A$50 for a 5 kilogram bag. Bichikumai has usually been reserved for animal feed.

However, Japan has been in the midst of a rice shortage. In 2023, a severe heatwave caused the lowest harvest in decades. On top of that, since the 1970s the Japanese government has paid subsidies to reduce rice production to keep prices high. Japan now faces another larger problem.

70 percent of farmers in Japan are aged over 65 years of age. 50 years ago, Japan had 4.7 million farming households. Today there are less than 700,000. The land available for cropping has also slumped from almost 5 million hectares to less than 1.8 million today. Within that, rice fields have fallen two thirds since the 1970s to 1.2 million hectares today. Rice farming has the lowest number of new entrants with only 8 people in 10,000 choosing it as a profession today. 

By value, 50 years ago Japan produced 11.6 million metric tonnes at a value of JPY2.5 trillion (currency adjusted A$6.25 billion). Today 7.8 million tonnes are produced with a value of around JPY 1.5 trillion (A$16 billion).

However the Americans must look to the car industry as a yardstick.

Japan exported around 1.5 million vehicles to the US last year with a value of over $41 billion (A$62 billion) or 25 percent of total US-bound exports. Japanese auto market share is around 38 percent or around US$200 billion (A$300 billion) in value.  Toyota alone sold 2.3 million vehicles in a market of 16 million passenger car sales in 2024. Trump has lifted tariffs to 15 percent on imported Japanese cars.

Conversely, in 2024, only 16,000 American built cars sold in Japan. Jeep shifted just shy of 9,700 vehicles, thanks to its compact offerings like the Renegade. Chevrolet did not crack 600. Cadillac didn’t make 450 sales. Ford pulled out of Japan a decade ago even after a failed collaboration with Volkswagen on the dealer distribution side. European brands are seen as status symbols. BMW and Mercedes Benz shifted over 50,000 units each last year. Even Porsche, Ferrari and Lamborghini moved 9,292, 1,445 and 821 sports cars respectively in 2024.

It is a perfect example of why the Japanese authorities need not worry that households will flock to a cheaper US alternative just because it is available. While US or Thai rice is being mixed with 80- percent domestic rice in order to maintain the taste, prices are only 10 percent cheaper.

The Japanese government should welcome President Trump’s demands to further open the rice market to protect its number one dominant sector – automobiles. Just like cars, the reality is when the harvests return and the supply side is restored to a level of normality, the Japanese will instinctively buy the home product. For no other reason than it is better, even in a free market.

Instinctively Trump knows that the Japanese are already pouring tens of billions of dollars into LNG production in Alaska, Louisiana and Texas. As mentioned in previous dispatches, there is a real concern that this focus on US gas will pull investment dollars away from Australia.

No amount of American rice exports to Japan will put a dent in the value and jobs creation that the inbound fossil fuel investment will provide. Still, the Japanese should let America experience the consumption choices of its citizens. Experience is a hard teacher. You get the test first and the lesson afterwards.

 

Thematics

Japanese and Korean investors are increasingly looking to India for the next growth phase. Australia’s regulatory settings are also accelerating this trend. India is offering immediate approvals in certain sectors provided conditions are met.

North Asian food companies are especially active in India seeking to capture the burgeoning middle-class consumers. India now has delivery services which can reach your door within 7 minutes of placing the order.

Housing is front and centre of investments. Especially out of Japan with more money being piled into projects – main areas – Sydney, Brisbane and Melbourne. Kanden Realty (Kansai Electric subsidiary) invested in a $100m project with Novus in the BTR market. Nippon Steel is also throwing its hat in the real estate ring although it will just be in the form of equity.

The Japanese are growing keen to invest in commercial, BTS (mainly) and there have been quite a few transactions occurring in warehousing around Sydney and potentially Western Sydney airport.

NXT Group is also moving away from just standard home builds to broaden the property portfolio into commercial and apartments.

I have met all of the hydrogen players in Japan who lost out of the CQ-H2 project in Gladstone. They remain despondent but are reconsidering their global positions and positively they view PoN as the premier site in Australia. Having said that, sponsorship from federal and state governments will be important in winning back these investors.

One major trading house CEO sent me an unsolicited message after seeing some of the cringeworthy TikTok videos posted by our newly elected parliamentarians this month,

“I think you are right. No matter how you look at it, I don’t think Australia is looking to attract foreign investment from a medium to long term perspective.”

Our political class is seen by our international investors as low-resolution thinkers with a clear focus on virtue signalling rather than striving to improve investor conditions. The truth is if they were supremely confident in their ability to execute their portfolios, there would be no need to resort to juvenile antics because the voters would already be feeling the impacts.

Ironically, the social media post with the most cut through this month was Mining Equipment Safety technical manager Gerry Noonan, the grumpy old man who issued a profanity laden rant on his view of our energy policies during a TV interview. Millions of views with overwhelmingly supportive comments. Compare that to the humiliating smackdowns dealt to our MPs on both sides of the aisle. The truth is supposed to hurt.