China in Sight: Australia & Japan Conclude Exchange and Military Agreement

It now seems that hardly a day goes by without significant deterioration in bilateral tensions between China and Australia. This is not only causing a full-blown crisis for commodity exporters in Australia – in particular, the geopolitical implications and signals cannot be ignored.

In general, the current situation in the Asia-Pacific region, from the situation around Taiwan to Hong Kong to the intensifying trade dispute between China and Australia, indicates that dark clouds are gathering over the entire region.

The fact that the Russian Federation announced the day before yesterday that it had deployed S-300 air defense systems on the Kuril archipelago – to which Japan also lays claim – certainly does not point to an easing of the situation in the Far East.

To stay with Australia in today’s report, its government is increasingly using military alliances to gain leverage.

The escalating trade dispute between China and Down Under – or, put another way, perhaps more likely the start of a trade war? – has long since become a full-blown crisis from the perspective of commodity exporters in Australia.

Things took off after U.S. Secretary of State Mike Pompeo traveled to India and other nations in Southeast Asia last month to bolster coordinated opposition to a hegemonic claim, along with the People’s Republic of China’s economic and military influence, in the region.

After the acclaimed conclusion of an economic and military agreement between Australia and India in early June of this year, the Australian government’s plans now include the signing of a so-called exchange and military agreement with U.S. ally Japan.

The goal is to pool the firepower of the two nations’ military units in the future, should that become necessary, to counter the People’s Republic of China and put a stop to it in the region, according to the state-funded Voice of America broadcaster.

Voice of America also says that following a high-level meeting on Nov. 17, the two sides indicated they would sign a memorandum of understanding next year on mutual commitments in each case.

This, it said, will allow the two parties to conduct troop exercises in each other’s territories and enable each other’s operations and activities in their territories.

The agreement, he said, should be seen as a major boost to the overall readiness of a loosened defense alliance known as the Quad, the purpose of which is based on coordination of information, respective intelligence activities, and cooperation in military exercises. In 2007, India, Japan, Australia, and the United States formed this group.

Assuming the signing of the agreement is approved by the Japanese parliament, it would be the first time since the end of World War II that the Tokyo government would officially and willingly approve the invitation of foreign troop formations in its own territory to operate on Japanese soil.

Earlier, Japan’s Prime Minister Yoshihide Suga announced that the two regional militaries would cooperate in the spirit of a “free and open Indo-Pacific.” Everyone should remember that, in addition, the U.S. Navy’s Seventh Pacific Fleet also has its main base in Japan.

Meanwhile, the drop of a bizarre Twitter message by the U.S. National Security Council has come after the People’s Republic of China announced it would raise domestic import tariffs on Australian wine to 212.1 percent. These import duties have been in effect since last Saturday, making Australian wine simply unsellable in the People’s Republic of China.

Recently, Australia’s Prime Minister Scott Morrison flew to Tokyo to clarify details on the spot. At the time, Morrison communicated as follows:

“Japan enjoys a very special relationship with Australia. It is not just an economic relationship – and therefore purely a trade relationship – but this special relationship also extends to the cultural and social spheres. Importantly, it is a strategic relationship between our two nations. Together, we play a very important role in cooperation in the Southwest Pacific.”

Chinese state media, which often reflect official government statements by senior Communist Party officials, condemned the agreement reached between Australia and Japan, saying it “clearly targets China” and will “further accelerate the confrontational atmosphere in the Asia-Pacific region in this way.

Meanwhile, the Japan-based Pacific Seventh Fleet has issued its own statement praising and welcoming the upcoming agreement in the highest terms.

DepthTrade Outlook

In recent reports on these developments, I recommended that you keep a close eye on the situation in the Asia-Pacific region. In terms of encirclement policy, we can probably expect further reports of this kind, while the Premier of the state of Western Australia is meanwhile already worrying about a collapse of his domestic mining industry. Geopolitically, something seems to be brewing that could erupt at any time.

Hayato Ishikawa Send an email

Mr. Ishikawa has more than 25 years of experience in the financial markets, focusing on stocks, real estate, cross-asset risk hedging, and business founding. He is co-founder of a private investment group - specializing in the western pacific region and an independent analyst as well as business advisor. Mr. Ishikawa is known for bringing technical and fundamental analysis as well as sentiment into a coherent overall assessment - unbiased financial and political journalism made in Japan.


  1. But the next lunatic with his finger on the button or the “football” within reach could start a nuclear war, provided he believes the U.S. is secure enough to repel a counterstrike.
    I see the risk of nuclear war as high at present as it was in the 1960s.
    On the other hand, of course, the Chinese “tariff trick” is also a way to bring Australian exporters to their knees, perhaps even with the support of global financial elites who are also currently using the corona virus as a weapon against the middle class.

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