At first glance, Japan and India seem natural partners. Located on the periphery of Asia, both are examples of economic growth developing in line with democratic values. Furthermore, Japan and India share no territorial disputes.

Yet the historical substance of interaction has been low until recently, when concerted efforts by both Tokyo and Delhi have suggested a coalescence of policy priorities. By looking at the development of Japan’s approach towards India, several important conclusions can be made regarding Japanese diplomacy:

(1) Geopolitical structure provides the contours through which policy is made. The rise of China, US endorsement of India as a strategic partner, and India’s growing economic significance has laid the foundations of Tokyo’s interest.

(2) Structure alone cannot explain the exact timing or nature of policy. Rather than frame relations only as an attempt to “contain“ or ”balance“ the looming rise of China or alternatively as merely an example of Tokyo following Washington’s lead, intervening variables in the form of elite perceptions and domestic norms deserve attention.

(3) Commercial interests continue to stand at the forefront of external relations, where partners recognize the benefits of working with Japan.

In this article, three examples are provided to demonstrate the evolution of Japanese policy, which has shown deeper levels of understanding of India’s potential and how best to capitalize on India’s rise.

Economic Cooperation

Economic incentives have for many decades provided the impetus for Japanese diplomacy. Regarding India, however, business engagement has been slow to thrive, and hence other streams of policy have similarly fallen behind those of other nations. The reasons for this are multiple, including preference for other, more geographically convenient markets in Southeast Asia and China, a complicated tax system, strict labor laws, poor infrastructure, and power supply. Even after India’s economic liberalization reforms of the early 1990s, Japan found India an inhospitable market, and it virtually discarded India as a commercial opportunity with the souring of relations following the 1998 nuclear tests.

By the mid-2000s Japan reinvigorated its interest in India after the publication of the 2001 BRIC report on India’s emerging power status, coupled with Sino-Japanese tensions, which encouraged Japanese businesses to diversify their markets. For many companies, India continues to represent an “insurance policy” in case the Chinese market becomes saturated or unstable.

Other firms, however, have been more proactive, viewing India’s growing middle class, vast consumer market, and youthful population as a primary target. India’s relatively inexpensive labor costs provide an additional benefit in comparison to other markets, as does the potential for India to become an export hub in the long term. As a senior executive from Hitachi recently described, “Japan in the past, Thailand now, India the future.”

Both the Ministry of Economy, Trade, and Industry and Japanese companies are gradually becoming more accepting of the Indian business environment. As METI willingly admits, previous policy was to make repeated requests to the Indian government to improve labor legislation or customs duties to little avail, whereas the new approach is to work closer in line with Indian officials.

The realization has also grown that India is being approached by several strong competitors who, while they might not offer Japanese levels of technological advance, are able to provide cheaper goods and make quick decisions. South Korean firms, in particular, have become a model for Japanese companies that had overlooked the necessity of adjusting for the Indian market. As Japanese firms retreated from India in the late 1990s, many South Korean firms, such as Hyundai, LG, and Samsung, established market share.

The latest strategy of Japanese business is, rather than incessantly critique India’s industrialization defects, to instead work to improve conditions. The substantial investments made in the Delhi Metro and Delhi-Mumbai Industrial Corridor project are examples of this approach. A Comprehensive Economic Partnership Agreement (CEPA), which came into effect in August 2011, is also gradually improving the business environment for Japanese companies in India.

Nuclear Cooperation

Another example of Japan’s turn of course regarding India relates to nuclear policy. Japan’s wartime experience as the only victim of nuclear aggression has set the anti-nuclear norm firmly in the policymaking lexicon. Japan’s response to India and Pakistan’s nuclear tests in 1998 was among the most severe, with the government enforcing not only stern verbal condemnation but also freezing new grants and yen loans. Public opinion was particularly incited against India, pressuring the Ryutaro Hashimoto government to take a strong stance.

Ironically, however, the nuclear issue—energy rather than weapons—appears to be the next major stage in the development of Indo-Japanese relations. Despite the intense emotions of 1998 and India’s continued refusal to sign the NPT, in June 2010, then Foreign Minister Katsuya Okada announced negotiations for a potential nuclear trade deal.

The reasons for this change were again multiple. Firstly, the decade prior to the Fukushima disaster had witnessed a “renaissance” of interest in nuclear power generation due to soaring energy demand by China and India and a parallel concern about global warming. The sharp increase in the price of crude oil in 2003–04 also stimulated interest in alternative sources, as did continued instability in the Middle East.

South Korea had also shown itself bullish in the nuclear market, posing another systemic stress on Japanese policy. The victory over Japan (and France) in 2009 to win a $20 billion contract with the United Arab Emirates to build and operate the UAE’s first nuclear power plants for example, came as an uncomfortable surprise to Japan.

Before Fukushima threw nuclear policy into flux, Japan had also begun internationalizing its nuclear industry. Policymakers and the industry as a whole began to view nuclear technology as not only a domestic energy resource but also an important export, one which could offer strategic as well as economic advantages.

The US-India nuclear deal, which fundamentally altered the nuclear export regime, also provided a major condition under which Japan could engage with India. Not only did the deal signal Washington’s commitment to India but also the near inevitability of Japanese involvement in India’s nuclear energy industry due to the structure of nuclear conglomerates. A wave of deals from 2006, including tie-ups between Toshiba and Westinghouse, Mitsubishi Heavy Industries and Areva, and Hitachi and GE, consolidated Japan’s crucial position within the industry, holding a considerable amount of leverage in the form of expertise, technology, and process-management ability. As one official noted to the author at the time of the US-India deal, Japan knew “eventually it will be in our interests.”

Okada admitted that the decision to open negotiations was one of the hardest of his career, yet the announcement demonstrates the importance of India’s strategic value over individual concerns. The key deliverable from such a deal will not just be substantial revenue but the deepening of trust, which such a landmark agreement would confirm. As officials state, forging such a deal would bring about an “unbreakable alliance.”

Japan’s faith in nuclear energy was shaken on March 11, 2011, and two years later, there is still little progress on Japan’s long-term energy future. India also has concerns over safety and the legal implications of liability in cases of crisis, but as former State Department official Ashley J. Tellis has argued, “India does not have the luxury of renouncing nuclear power.”

The issue that once stood as the principal barrier to closer cooperation now represents a significant driving force behind the relationship. A deal, even if still in negotiation, is symbolic of the fundamental change in how Japan looks at India. China and even the US have played only a supplementary role in explaining Japanese policy in this area, with domestic concerns a major influence. Looking ahead, Japan will likely create some clever wording to eventually push through a deal, after demonstrating at least domestically, a tough negotiating position.

Maritime Security

Much of the military distance between Japan and India during the twentieth century can be explained by the Cold War. Following Japan’s postwar adoption of pacifism, Japan’s security strategy became framed within US priorities in Asia, centering on the perceived threat from the Soviet Union.

As the world adjusted away from bipolarity, Japan gradually reassessed the strategic value of other theaters, but it was only after several high-profile pirate hijackings of Japanese vessels, such as the MV Alondra Rainbow in 1999, that Tokyo began to look to India for cooperation. Prior to the 9/11 attacks on the United States, the Maritime Self-Defense Forces asked the Ministry of Foreign Affairs to initiate discussions on sea-lane protection and invited the Indian Coast Guard to participate in search and rescue operations. As nations dependent on global commerce and energy security through the seas, such cooperation was recognized as being of mutual benefit.

It cannot be denied, however, that China’s military capabilities have also influenced the formation of closer maritime and military dialogue between Japan and India. As China’s military expenditures, including the launch in 2012 of its first aircraft carrier, expands apace while the US and European powers are reducing their spending, Japan has begun looking further afield for security partners that share similar interests. Furthermore, as territorial disputes linger, historical tension continues, and China’s navy increasingly asserts its presence, the logic of working closer with India on security matters has become more apparent.

India’s widening defense profile and geographical location are further drivers. Recent years have witnessed increased activity by India’s naval forces, not only in anti-piracy missions but also humanitarian relief efforts, such as following the Asian tsunami of 2004. By 2009 India had succeeded in building the INS Arihant, the nation’s first nuclear-powered submarine—which only five other countries possess—and it is expected to spend $80 billion over the next decade to upgrade its military.

For Japan, in stark contrast to the reaction toward China’s modernization, these developments are viewed as an opportunity. Japan’s Coast Guard and MSDF have made several agreements with India and regularly engage in dialogues. In 2007 Japan joined the US-India Malabar exercises with Singapore and Australia and held for the first time, in June 2012, bilateral exercises. Further dialogues have been launched on maritime and cyber security; the first meeting of the Japan-India Maritime Affairs Dialogue was held on January 28, 2013.

Limitations

There are, however, limitations to defense cooperation; one concerns disagreements over the value of the Proliferation Security Initiative (PSI), and a second pertains to arms sales between Japan and India. On the former issue, while both share a “common commitment in pursuing disarmament and non-proliferation as partners seeking a peaceful nuclear weapon free world,” their means differ. India rejects the initiative as “an extension of existing US-headed military alliances,” while Japan has been a strong supporter since its inception.

And despite demand in India for high-quality search-and-rescue seaplanes as well as infrastructure for military ports (India is currently the world’s largest importer of arms), even after the relaxation of Japan’s arms export controls in December 2011, it is uncertain whether or not this will extend to trade with India

Role of Domestic Variables

India has only gradually entered the strategic imagination of Japan’s elites, shifting from the periphery to a position as an “indispensable partner.” Perceptions of Asia have traditionally excluded South Asia, and even today, according senior strategists, India occupies the “second circle” of interests.

At the bureaucratic level, the defense community has been one of the most eager supporters of working with India yet continues to hold less influence over foreign policy than other ministries. MOFA and METI, the two primary external affairs ministries in Japan, are increasingly recognizing the strategic and commercial opportunity provided by India and recently worked together in a relatively rare case of collaboration to deepen relations.

Few politicians have invested political capital in the relationship. To some extent this has been beneficial, avoiding politicization and giving the effort cross-party support. While the LDP under the previous tenure of Shinzo Abe initiated negotiations on a CEPA in 2007, it was under the DPJ that the legislation was passed, in addition to the nuclear trade talks discussed above and greater military cooperation.

Shinzo Abe, elected prime minister for the second time in December 2012, is perhaps the strongest political supporter of ties with India, suggesting a sustained emphasis on the bilateral relationship going forward. Highly influenced by his grandfather, Prime Minister Nobusuke Kishi, who held fond memories of India following a visit there soon after Japan’s wartime defeat, Abe considers India a valuable partner. In 2006, Abe described Indo-Japanese relations as the “most important bilateral relationship in the world” and maintained ties with India’s elite while in the opposition. Prior to the December 2012 election victory, in an article for Project Syndicate , Abe identified India as a “resident power in East Asia” whom Japan should give “greater emphasis.”

Domestic public opinion is overall favorable, but levels of cultural understanding remain low and deserve greater attention by both Tokyo and Delhi to facilitate the high-level engagement outlined above.

Conclusion

While contact between Japan and India has been sporadic for decades, today there is common understanding in the bureaucracy, business community, and the political establishment that working closer with India is in Japan’s national interests.

Gradually, Japan is taking a more flexible position on civil nuclear technology trade, economic policy, and possibly also arms exports to provide greater strategic space for Japan-India engagement. A common misperception holds that the rise of China and the US alliance drives all Japanese initiatives, but while these factors represent a strong undercurrent, the above discussion demonstrates that there are winds above water also steering the course.