Thematic

Every Japanese or Korean company spoken to over the last few months, relevantly in manufacturing or energy related fields, have all raised our expensive energy prices as a neck to progressing new business. Without substantial subsidies, new projects could struggle.

New Japanese Prime Minister

“Power is like being a lady… if you have to tell people you are, you aren’t.”- Baroness Margaret Thatcher

Japan has appointed its first ever female prime minister, Ms. Sanae Takaichi. The media will undoubtedly fixate on this milestone, but for a professed admirer of former UK Prime Minister Baroness Margaret Thatcher, gender is the last thing Ms. Takaichi will want to define her legacy.

Starting politics in her early 30s, Takaichi devoted herself to understanding policy rather than join her male colleagues who frequented the Ginza cabaret clubs in the evening. Perhaps she will coin a new adage –  “if you don’t want to join them, beat them.” Takaichi possesses considerable background in national, cyber and energy security, as well as economic and industrial policy, knowing more than most of her senior bureaucrats.

Paraphrasing her victory acceptance speech as newly elected President of the Liberal Democratic Party (LDP),  she resolutely said, “…Forget work-life balance. We have a huge agenda ahead of us. I for one, will not be resting and I expect you to do as I do…”

Some pundits believe the old guard of LDP men will try to pull her down but the reality is her predecessor, Shigeru Ishiba, lost both upper and lower houses during his recent term, the first time in the party’s seventy year history. The LDP had been on the nose for a lot of things but mostly a political donation scandal affecting multiple members of the Abe faction under former PM Kishida.

Her current net popularity is 64.4 percent. A far cry from the teens percent of her predecessor Mr Ishiba.

So who is PM Sanae Takaichi?

For starters, she is a hardline conservative, believes in a Japan First agenda and Abenomics – aggressive monetary easing, bold government spending and economic reform, which is not surprising given she is a part of the slain prime minister’s faction. Woke is not part of the agenda. A staunch traditionalist, Takaichi firmly stands behind male-only succession to the Imperial throne, something uninterrupted since Japan’s first emperor, Jimmu in 660B.C. She is anti-immigration and pro-deportation.

Takaichi is a China hawk and supports Taiwan’s right to sovereignty, wanting to build a security alliance of regional players to support its independence, noting an invasion by China would be a “life and death” outcome for Japan. Like former PM Shinzo Abe before her, she advocates for a revision of Article IX of the Constitution which would allow Japan’s Self Defence Forces to strike first to defend herself, which presently requires her to be attacked first. On top of this, Takaichi backs raising Japan’s defence spending to 2 percent of GDP, as well as being supportive of placing US nuclear assets in Japan during times of crises. With good reason.

The Japanese Ministry of Defense (JMoD) stated in its 2024 Defense White Paper that scrambles to intercept Chinese military aircraft by the Japan Air Self Defense Force (JASDF) surged from 96 in 2010 to 464 in 2024. While below the peak of 851 recorded in 2016, Japan’s security environment has dramatically changed.

Russia has also been a significant challenge for Japan. Scrambles by JASDF fighters intercepting Russian military aircraft approaching its airspace increased 36 percent to 237 in 2024. Of greater concern is the commencement of joint surveillance exercises with China since 2019.

All told, since 2010, the JMoD has recorded almost 12,000 scrambles to intercept Russian and Chinese military aircraft approaching its sovereign borders – more than twice a day.

At sea, the statistics are not much better. The number of announcements made by Chinese combatant ships and aircraft carriers around Japan’s Southwestern Islands as well as the Soya and Tsugaru Straits jumped from three in 2010 to 52 in 2024. Last year, Chinese Coast Guard vessels were active in the contiguous waters around the Senkaku Islands, with activity reaching 355 days and the total number of vessels reaching 1,351 – both the highest ever. 2025 is already on course to exceed these levels.

In other areas, like Abe, Takaichi has been a regular visitor to Yasukuni Shrine where Class-A war criminals are also interred to the ire of her former enemies who view this as provocative.

For Australia, energy is where we will likely be given a reality check by PM Takaichi.

It was with interest to hear Resources Minister Madeleine King speak about Japan ‘having nothing to worry about’ from the Albanese government on LNG approvals in the North-West shelf at this month’s Australia Japan Business Cooperation Committee (AJBCC) conference in Perth. That maybe so, but one of Takaichi’s closest confidants is former Japanese Ambassador to Australia, Shingo Yamagami.

Foreign Minister Penny Wong was allegedly behind Ambassador Yamagami’s early recall by Japan’s Ministry of Foreign Affairs (MOFA) over his strong public opinions around China’s “wolf warrior” diplomacy. The former ambassador has also been deeply critical of Australia’s energy policies for creating too much uncertainty and unpredictability for Japan, most infamously lambasting the Queensland government’s coal royalty hikes without any prior consultation. The Palasczcuk government was crucified by Yamagami in the media with multiple op-eds and interviews criticizing the lack of respect reserved for such a long standing loyal trading partner.

As the former NSW Senior Trade and Investment Commissioner for Japan, I was privileged to share many engagements with Ambassador Yamagami, all of them constructive in striving for the best outcomes for the bilateral. In February 2023, we worked successfully to get Japanese coal miners with evergreen contracts exempted from the NSW coal reservation scheme where the relevant departments became indignant when their false premise was contradicted by their own trade envoy with respect to the damage this would do to trust. The Japanese anxieties stemmed from not being able to honour contract delivery with their end customers, rather than the government’s myopic view that they were already making super profits so would be prepared to grin and bear it.

Therefore, if Mr. Yamagami is advising Prime Minister Takaichi on Australia and energy, we should expect hard conversations that will expose our political ignorance. As much as friendly bilateral conferences talk to enduring friendships between the clinking of champagne glasses, Australia is fast losing its status as a safe jurisdiction with some corporations thinking we have become a ‘political or sovereign risk.’ As one of the only Australian public servants at the time openly warning about these inconvenient truths alongside Yamagami over many years, our tone-deaf federal and state governments are still not listening.

At the same AJBCC conference, one Japanese coal major said Australia’s state and federal regulatory environment was getting too ridiculous so their new priority will switch to Vietnam when its Australian mines are exhausted.

Note, the Japanese rarely vent frustrations. When they do, we should think of it as a corporate version of DEFCON 2. We should count ourselves lucky to be getting open hints.

In the immortal words of Margaret Thatcher, PM Takaichi may well be thinking : “If you want to cut your own throat, don’t come to me for a bandage.“

 

Korea

Korea’s energy market is in a state of flux. The CHPS auctions scheduled for last week were suddenly cancelled. This seems to be driven by the future timelines of phasing out coal fired power by 2040 (10 years earlier than forecast) outside the scope of CfDs that would last to 2045.

The Ministry of Trade, Industry and Energy (MOTIE) has split into two, with a new Environmental agency (we discussed several months ago) having a say on future energy policy. We think this is a bad outcome. Primarily, MOTIE was an economic development agency. With the environment agency now having a say in the future direction of policy, we should expect some conflict and slowdown in execution of energy policy. Most Korean corporates sitting on their hands waiting for clarity which they see by 1H 2026.

Korean companies have been active looking at blue ammonia from China and India at prices close to US$500-600/t. This is the target they would like to see Australia at. While a slight premium (for lower relative political risk) is acknowledged we have a large gap to fill to get close to this number.