Japan’s Sanctions on Russia’s Economy have been in a deep recession, and the Russian ruble is losing value at an unsustainable rate. These factors have had a major impact on Japan’s business environment and the growth of Japanese investments in Russia.
Despite the Abe administration’s promise to revive economic cooperation, Japan-Russia bilateral relations are still shaped by Russia’s domestic factors and Western sanctions.
Economic Impact
In response to Russia’s invasion of Ukraine one year ago, Japan and other G7 countries quickly took action against Moscow’s aggression. They imposed sanctions on various products and businesses, including banks and oil companies. They also banned coal imports from Russia, a significant energy source for Japan.
The economic impact of Japan’s imposed monetary sanctions to isolate Russia is likely minimal, as the two countries have a low dependence on each other. However, higher energy costs may have an adverse impact on Japan’s economy in the long term if supplies of crude oil and natural gas from Russia are disrupted.
Japanese companies adapted to the sanctions by de-risking their cooperation with Russia. First, they partnered with projects not directly targeted by the sanctions, such as joint LNG and renewables ventures and nuclear power. In addition, government-linked investment funds and export-import trade agencies provided financing to companies engaged in a range of joint projects.
Political Impact
Despite Japan’s tough response to Russia’s invasion of Ukraine, Japan-Russia economic cooperation has not dramatically improved. Instead, it has deteriorated and remains modest.
The Russian government’s response to Western sanctions has been to downplay the impact of such measures on its economy. While Western governments have imposed various commercial restrictions on Russia, Moscow sees them as largely symbolic, with little effect on its trade balance.
When Japanese Prime Minister Shinzo Abe launched an eight-point economic plan in 2016, the goal was to boost economic interdependence between Japan and Russia and encourage a broader discussion of the unresolved territorial dispute. Nevertheless, the sanctions have significantly hindered Abe’s efforts to boost Russia-Japan economic cooperation.
Since the sanctions’ onset, many Japanese firms have been deterred from expanding their business operations in Russia due to U.S. sanctions and the upcoming CAATSA legislation.
While the economic impacts of the sanctions are real and difficult to measure, they also have a significant political and social impact. Not only do they harm the sanctioners’ economy, but also their welfare and credibility in the eyes of the global public.
Since the 1930s, an economy of Russia’s size has been placed under a large array of commercial restrictions. This should prompt a reconsideration of sanctions as a powerful policy instrument with major global economic implications.
Security Impact
Japan has reacted to the invasion of Ukraine by Russia with one of the toughest sanctions policies in the Indo-Pacific. It has banned imports of Russian oil and coal and has sanctioned hundreds of entities and individuals.
The decision to impose these measures took a lot of work for Japan, which depends heavily on Russian gas and oil to power its economy. But it was necessary for the face of Russia’s aggression against Ukraine.
In addition, Tokyo needed to show its tough stance to send a strong message to Beijing. This was particularly important in light of Japan’s longstanding relationship with China, which Tokyo views as a primary threat to its security.
When determining the appropriate sanctions policy, Japan’s officials faced two main challenges: ensuring energy security and avoiding protectionism in an increasingly difficult geopolitical environment.
First, to secure energy supplies, Tokyo negotiated with the United States and others to de-risk oil supply by allowing Japanese firms to participate in projects exempt from U.S. and EU sanctions.
Secondly, Tokyo aimed to strengthen its economic cooperation with Russia by expanding investment opportunities in areas not subject to U.S. or EU sanctions.
Social Impact
The impact of sanctions on Russia’s economy is a complex matter. Sanctions affect the real and financial aspects of Russian business transactions and foreign firms’ decisions to invest in Russia.
The history of economic sanctions has shown that they can produce significant commercial losses and weaken their effects through trade diversion and evasion. However, in many ways, they are less damaging than in the past because of more broad-based market integration and the broader range of countries that can provide substitute supplies for their threatened trade partners.
First, they also have a stronger ability to counteract the economic impacts of sanctions through their domestic policies and boost global demand for alternative exports. This makes the consequences of economic sanctions much more likely to be absorbed by the global economy.
In the second place, the Japanese side reacted to Western sanctions differently from its Russian counterparts. This was partly because Japanese political and business elites saw sanctions as a symbol of a U.S.-led foreign policy approach rather than a serious challenge to Abe-Putin relations.
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