Japan’s dreams of better Russian ties extinguished

• By Gearoid Reidy / Bloomberg Opinion

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As one of Russia’s more provocative politicians, Dmitry Medvedev, wryly noted after his country seized Japan Tobacco Inc’s assets: Smoking kills. It has also likely extinguished Tokyo’s lingering hopes for better relations with Moscow.

The move was the latest in a series of provocations that increasingly read like a test of Japanese Prime Minister Sanae Takaichi. This summer, Russian President Vladimir Putin for the first time visited one of the disputed islands occupied by the Soviet Union after Japan’s surrender at the end of World War II, an area around which Russia has since conducted live-fire missile exercises and announced bombing drills. A Japanese journalist working in Russia has been detained on espionage charges.

And last week, the Kremlin announced it had taken over factories belonging to Japan Tobacco, the dominant player in the domestic cigarette market. Its assets in Russia are worth about ￥1.5 trillion (US$9.5 billion), the company said on Monday, with the market making up about a quarter of its adjusted operating profit.

The stock lost one-third of its value since the news broke. It is likely no coincidence that the government in Tokyo is the largest shareholder — and thus one of the heaviest losers. Japanese Minister of Economy, Trade and Industry Ryosei Akazawa filed a protest, demanding the decision be reversed.

WEAK LINK

These affronts come despite Tokyo’s rather timid approach to its neighbor. While it has joined in sanctions following the invasion of Ukraine, Japan has been a relatively weak link in the chain compared with other G7 members, continuing to import Russian gas at pre-2022 levels.

Nor is Japan Tobacco the only Japanese company to have stayed in Russia: A survey late last year by the Japan External Trade Organization found that three-quarters of firms surveyed did not plan to scale back.

The successive escalations demand a tougher response. Takaichi talked a bigger game on Russia as a lawmaker than she has played as leader. In a series of 2022 essays, she blasted Moscow as an unreliable partner and called on the private sector to make tough decisions; Russia went on to sanction her personally. However, as prime minister, she has largely kept to the status quo, a mishmash stuck between the late Shinzo Abe’s relentless optimism about Russia and former leader Fumio Kishida’s post-invasion approach: tough on paper, limited in action.

Between an erratic US and a belligerent China, perhaps it is understandable that Takaichi has had bigger priorities. The eddies of the war in Iran have made life even harder for Japan, which is almost entirely dependent on foreign energy. One of Abe’s goals was to drive a wedge between Moscow and Beijing; pushing back, the thinking went, risked driving them closer together. However, his strategy was a failure: The two are far closer now. Indeed, some suspect Beijing is even encouraging Moscow’s latest moves, given Chinese President Xi Jinping’s (習近平) dislike for the Takaichi administration. With a potential summit between Putin, Xi and US President Donald Trump mooted at APEC later this month, the opportunity to sow division is clear.

RESPONSE

Nonetheless, Japan has options to respond. A simple one is to end an injustice: Russian tourists, shut out of many other regions since the Ukraine invasion, have been enjoying Japan in droves. A record 195,000 visited last year, double the number of the previous year. That free ride is all the more egregious considering Moscow denies Japanese former residents of the disputed territories permission to visit their ancestors’ graves.

Second, Takaichi has plenty of room to increase her support for Ukraine. The prime minister was right to scrap Japan’s self-imposed restrictions on weapons sales abroad earlier this year. However, the rules limit sales to 17 partners, which do not include Kyiv, and bar exports to participants in active conflict. A transfer agreement can still be signed, and an exception made for countries at war. That might even allow the export of much-needed Japanese-made Patriot missiles, something Tokyo recently ruled out. It would be a bold demonstration, though one that would require US approval; a quicker one would be a visit by Takaichi to Kyiv.

REDUCING RELIANCE

Finally, she must follow through on her words in 2022 and encourage the private sector to reduce the leverage Russia still holds. Japan’s dependence on the Sakhalin-2 plant, which supplies about 9 percent of its liquefied natural gas, gives Moscow a card it will play over and over. Tokyo has not reduced that reliance since the Ukraine war began, even though the Iran conflict has shown that it can move quickly when needed. Many large contracts expire in the next few years, however, giving firms an opportunity to exit if geopolitical tides elsewhere cooperate. Likewise, Japan Tobacco’s woes should signal to others still operating in Russia that it is time to reconsider, before Moscow makes the decision for them.

In a more hopeful era, Abe once told Putin that the two men were looking at the same future. It appears to be going up in smoke.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan. He previously led the breaking news team in North Asia, and was the Tokyo deputy bureau chief. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.