Weekly Japanese Industry and Policy News (December 15-December 21, 2023)

The EU-Japan Centre is pleased to start a new weekly service by publishing brief summary of the latest information from the Japanese governmental organizations & private companies/organizations. A couple of minutes reading to be informed about what is happening in Japan's policy, economy, EU-Japan relations, and innovation.

*Information is deemed correct at the time of release. 

Itochu participates in South Africa's Hive's green ammonia production business
On December 11, ITOCHU Corporation announced that it has signed an MOC with South Africa's Hive Hydrogen for collaboration to build a green ammonia supply chain using South African resources. The two companies will jointly explore a green ammonia production project at Coega in Nelson Mandela Bay, Cape Province, South Africa.

Coega is working with Built Africa on Hive's flagship green hydrogen and ammonia project to develop a large-scale green hydrogen and ammonia plant powered by renewable energy. It is scheduled to begin operations in 2028. According to Hive, the renewable energy capacity is approximately 3.6GW of solar power generation and onshore wind power generation, and further expansion of capacity through additional phases is also being considered.

In September 2022, ITOCHU Corporation announced that it would collaborate with South African energy giant Sasol in the green ammonia field, too. The Ministry of Economy, Trade and Industry concluded a memorandum of cooperation in the hydrogen and ammonia field with South Africa in September 2023, and recognizes that this MOC with Hive is in line with the purpose of the memorandum between the two countries.

ITOCHU website:
https://www.itochu.co.jp/en/news/press/2023/231211.html

Japan-ASEAN Special Summit Meeting agrees on promoting security cooperation, including maritime issues
A special summit meeting between Japan and ASEAN (Association of Southeast Asian Nations) was held from December 16 to 17 in Tokyo, and the leaders agreed to promote security cooperation, including in the maritime domain, keeping China's movements in mind. In addition to nuclear disarmament and non-proliferation and cybersecurity measures, they also confirmed cooperation in the area of economic security, including strengthening supply chains.

And, in order to further develop the friendly and cooperative relationship between Japan and ASEAN, which celebrates its 50th anniversary this year, they also agreed to launch a new people-to-people exchange program called “Next Generation Co-Creation Partnership,'' which will involve more than 10 million people over the next 10 years. Furthermore, they plan to invest a total of $35 billion in public and private sectors over the next five years to decarbonize the ASEAN region, strengthen infrastructure connectivity, and support startups. The results of the series of discussions were summarized and announced as a joint statement and implementation plan.

MOFA website:
https://www.mofa.go.jp/a_o/rp/pageite_000001_00062.html

Singaporean company invests in Japan with large storage batteries
Gurin Energy, a renewable energy company based in Singapore, will install large-scale storage batteries in the country as early as 2028. The investment amount is expected to be approximately JP¥ 91 billion. The capacity to store electricity is three times that of large storage batteries operating in Japan, making it one of the world's largest storage batteries operating in a single location. Renewable energy such as solar and wind power generation is rapidly increasing in Japan, but there is a serious lack of free capacity on power transmission lines, making the installation of storage batteries an urgent need.

Gurin Energy's major shareholder is Infratil, a New Zealand investment company. The company operates solar and wind power plants in various parts of Asia, including Indonesia and South Korea, and has over 7 million kilowatts of renewable energy power, including projects under development. A Japanese subsidiary will be established in the first half of 2024 and a large storage battery will be constructed. It has an output of 500,000 kilowatts and a maximum capacity of 2 million kilowatt hours, equivalent to the capacity to charge 50,000 electric vehicles (EVs). A large area of 10 to 15 hectares is required for installation, and candidate sites will be selected in Fukushima and Tochigi prefectures. In the medium to long term, it will consider installing it in other areas of the country.

The reason behind Green Energy's decision to enter the Japanese market is the growing need for storage batteries. Storage batteries are becoming more popular in the United States and Europe, but Japan was lagging behind. With the government's decision to provide support by increasing subsidies for storage batteries in 2023, more companies have begun to enter the market in Japan.

Gurin Energy website:
https://gurinenergy.com/wp-content/uploads/2023/12/Gurin-Energy-enters-Japanese-market-to-develop-2GWh-battery-energy-storage-project.pdf

Japan, UK and Italy sign treaty with fighter jets
The defense ministers of Japan, the UK, and Italy met at the Ministry of Defense on December 14 and agreed that an organization called “GIGO'' (
the Global Combat Air Program, International Government Organization) 
would be established to jointly manage the development plans for the next generation of fighter jets by the three countries. The organization’s headquarters will be located in the UK, with a Japanese person serving as the first company's top executive. Defense Minister Kihara, British Defense Ministers Shapps and Italian Defense Minister Crossett signed a treaty outlining the details of the organization. The aim is to deploy the first unit in 2035.

GIGO will be established in 2024 after each country goes through the process of approving the treaty. It will handle the division of roles in the development and production of the next generation of fighter jets. The joint statement stated that work would be distributed according to "the degree of financial and technical contribution." Candidates for the top position at GIGO include people from the Ministry of Defense. Personnel matters are rotated among the three countries over a period of three years.

Japan, Britain, and Italy will also form a joint venture (JV) to design and manufacture the aircraft. Mitsubishi Heavy Industries, Britain's BAE Systems, and Italy's Leonardo are included. The JV's headquarters will also be located in the UK, with the first top management coming from Italy and replacing them in three countries. The decision to locate the two headquarters in the UK was based on the decision that the country is close to a member state of the military alliance NATO and has a large accumulation of defense technology. Germany and Saudi Arabia are said to be interested in getting involved in the next fighter jet project, but the treaty stipulates that if a new country requests to join, a "unanimous agreement" between Japan, the UK, and Italy is required. 

Ministry of Defense website:
https://www.mod.go.jp/en/article/2023/12/8cca4af1a6d679e53ab110da3e338b877f7faefd.html

Hydropower development in Mozambique with French company Sumitomo Corporation
Sumitomo Corporation announced on December 14 that it will begin hydropower development in Mozambique. The company will create a business plan jointly with Mozambique's national power company, Electricity France (EDF), France's Total Energies, and others. The power generation capacity is expected to be approximately 1.5 million kilowatts, equivalent to the annual power consumption of approximately 3 million Mozambique households, and will be sold to Mozambique and neighboring countries. The agreement to participate in a project to build a hydroelectric power plant in the Zambezi River basin that runs through the country, and Sumitomo Corporation owns approximately 20% of the project. Mozambique is rich in water sources, including the Zambezi River, and it is said that around 80% of the country's electricity comes from hydroelectric power. 

Sumitomo Corporation website:
https://www.sumitomocorp.com/en/jp/news/release/2023/group/17250

India ranks first as a promising destination for Japanese manufacturers for the second consecutive year
On December 14, Japan Bank for International Cooperation (JBIC) announced the results of a survey on overseas business development targeting Japanese manufacturing industries. Among the countries/regions with medium-term prospects for the next three years or so, India ranked first for the second year in a row. Vietnam overtook China and moved into second place for the first time. The survey was conducted on manufacturers in the automobile, electrical and electronics industries, etc. When asked multiple answers about countries and regions that are promising as destinations for overseas business development, India came in first with 48.6%. The most common reason given for seeing it as promising was “the future growth potential of the local market.''

The percentage of companies that view China as promising was the lowest ever at 28.4%. The ranking dropped from 2nd place last year to 3rd place. Since 2015, it has remained in either 1st or 2nd place. Headwinds such as the US-China conflict and the slowdown of the Chinese economy are blowing. The strengthening of anti-espionage laws is also a cause for concern. Vietnam rose from 4th place in 2022 to 2nd place at 30.1%. They received high praise for their cheap labor force and excellent human resources. It is said although the salary level of local employees is rising year by year, there is still little concern about rising labor costs. On the other hand, the percentage of companies with concrete investment plans in Vietnam tends to be lower than in India and China.

Japan Bank for International Cooperation website (in Japanese）:
https://www.jbic.go.jp/ja/information/press/press-2023/press_00148.html

Government's GX Implementation Council supports JP¥ 13 trillion to 16 fields including hydrogen 
On December 15, at the GX Implementation Council, the government decided a policy of supporting a total of JP¥ 13 trillion over the next 15 years in 16 areas, including the spread of hydrogen and the development of "next generation innovative reactors" for nuclear power plants, in order to promote decarbonization. It was announced on the same day. The main financial source will be GX Transition Bonds. The government has prepared a support framework of JP¥ 20 trillion, and is considering target areas for the remaining JP¥ 7 trillion.

The largest amount of investment promotion measures through GX Transition Bonds that the government has indicated is hydrogen fuel support of JP¥ 3 trillion. When using hydrogen as a fuel, it will support the price difference compared to existing fuels such as coal for 15 years. Hydrogen is expected to be used as a fuel for automobiles and power plants, as well as for industrial uses such as decarbonizing the steel manufacturing process. However, the current supply cost is about 10 times higher than that of natural gas, which is hindering its widespread use. 

Cabinet secretariate office (in Japanese):
https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/dai10/siryou1.pdf

Asian Zero Emission Community (AZEC) Summit held
The Asia Zero Emission Community (AZEC) Summit was held on December 18, 2023, on the occasion of the 50th anniversary of Japan-ASEAN Friendship and Cooperation Special Summit. Prime Minister Kishida and METI Minister Saito attended from Japan, as well as leaders from AZEC partner countries, and discussions regarding AZEC's ideas and activities were made.

Prime Minister Kishida communicated the importance of three breakthroughs: achieving the common goal of net zero through diverse paths and simultaneously realizing “decarbonization, economic growth and energy security.'' In addition, he touched on Japan's efforts to develop and accelerate the introduction of next-generation GX technology, and expressed his intention to share Japan's technology and experience through the AZEC initiative.

METI Minister Saito commented on the first AZEC Ministerial Meeting held in March this year and the progress of cooperation. He stated that significant progress was being made.

(1) Efforts that are closely aligned with Asia's policy needs, such as support for roadmap formulation, are progressing,
(2) Specific projects are underway in a wide range of fields, including solar power, wind power, hydropower, geothermal power, biomass, hydrogen/ammonia, LNG, synthetic fuels, CCUS, energy conservation, and industrial decarbonization. Approximately 70 MOUs have been signed between companies, and a total of approximately 350 cooperation projects are underway,
(3) And AZEC has supported the human resource development of approximately 8,500 people regarding energy transition.

Prime Minister’s office website:
https://japan.kantei.go.jp/101_kishida/actions/202312/18azec.html

Nippon Steel acquires US Steel for $14.1 billion 
Nippon Steel announced on December 18 that it will acquire US steel giant US Steel. The total acquisition price is approximately $14.1 billion. This is the largest M&A (merger and acquisition) ever for Nippon Steel. As demand for high-performance steel materials used in decarbonized electric vehicles (EVs) increases, Japan and the United States will establish a system for supplying important materials with economic security. Nippon Steel will acquire all shares of US Steel at a price of $55 per share. The closing price of the company's stock price on December 15 was $39, representing a premium of approximately 40%. The company will retain its US Steel name even after the acquisition.

According to the World Steel Association, Nippon Steel's crude steel production in 2022 will be 44.37 million tons, ranking fourth in the world. U.S. Steel is second only to Nucor and Cleveland-Cliffs in the United States, but only ranks 27th in the world. Nippon Steel's acquisition of US Steel will make it the third largest company in the world. However, it will still need to be reviewed by regulatory authorities, negotiate with labor unions that have expressed opposition, and be approved at a general meeting of shareholders.

NIPPON STEEL CORPORATION website:
https://www.nipponsteel.com/common/secure/en/ir/library/pdf/20231218_100.pdf

"Setouchi-Shikoku CO2 Hub Concept" launched - Five companies including Sumitomo Corporation and Australian companies collaborate
On December 18, five companies, Sumitomo Corporation, JFE Steel, Sumitomo Osaka Cement, Kawasaki Kisen, and Australia's Woodside Energy agreed to conduct a feasibility study to realize the "Setouchi-Shikoku CO2 Hub Concept" and signed a memorandum of understanding. The aim is to build a CCS value chain in which CO2 is recovered from CO2 emission sources in the Setouchi and Shikoku areas, collected and stored at domestic export hub ports, and then transported to Australia where it is injected and stored.

This initiative aims to collectively handle CO2 emitted from multiple regions, industries, and companies in the Setouchi and Shikoku areas, increasing scale and reducing costs. Five Japanese and Australian companies will work together to build a CCS value chain that is difficult for individual companies to build. In the future, they will further increase the amount of CO2 captured and pursue further economies of scale. The companies hope to contribute to the carbon neutralization of the entire Setouchi and Shikoku region by creating an efficient supply chain.

Sumitomo corporation website:
https://www.sumitomocorp.com/en/jp/news/topics/2023/group/20231218_1