How would you describe the relationship between Malaysia and Japan?

MAKIO MIYAGAWA: The relations between Malaysia and Japan is characterized by a special nature, not seen in any other countries in this region. The relations are underpinned by a strong bond, forged for a long time by a policy called the Look East policy. This Look East policy has worked as a lynch-pin between the two nations. Under this Look East policy, young people in Malaysia have been studying in Japan and this policy has brought back benefits through the brains and hands of those young people to help the Malaysian economy to invigorate.

What are the current trade levels between the two nations?

MAKIO MIYAGAWA: The bilateral trade figures are quite good but one thing which I think is important is that 10% of the total Malaysian trade has been with Japan. More importantly, the composition of the trade includes a fairly good percentage of high technology products from Malaysia to Japan. We can assume that there are a number of high technology products coming into the Malaysian market from Japan, but due to the transformation of the Malaysian economy for the last 20-30 years, Malaysia can also export a good amount of hi-tech products and services to Japan. Fourthly, more importantly, Malaysia has been enjoying a trade surplus for the last 10—12 years, and this has helped the Malaysian economy to enjoy superfluous assets to invest into Malaysia and to the region.

How has currency volatility impacted trade between Malaysia and Japan? How do you see this impacting trade going forward?

MAKIO MIYAGAWA: Since the beginning of 2015, the Malaysian Ringgit has depreciated roughly 20% vis-a-vis the Japanese Yen and against the US Dollar. The depreciation of currency in theory would provide a favorable environment to the exporters while imposing unfavorable conditions upon the importers. So therefore we expect that currency depreciation of the Malaysian Ringgit would ameliorate the trade balance between Japan and Malaysia for the Malaysian side. But at the same time, the fact was that the Malaysian exports to Japan have not increased for the last 1.5 years. I think it is due to the plummeting of the petroleum price. Japan has been importing a good amount of petroleum and natural gas from Malaysia and the amount must have been increasing, but due to the price plummeting, the amount has not increased on trade.

Last year, Japan and Malaysia signed a new strategic partnership. What were your overall economic and political aims of this partnership?

MAKIO MIYAGAWA: The Look East policy has been a good success between the two countries and has invigorated development and growth on the Malaysian side. But for the last 30 years, or even 40 years, the Malaysian economy has successfully been transforming from an economy dependent upon commodity export to an economy of hi-tech industries and value added services. It is timely that the two prime ministers agreed last year to uplift our relations into a strategic partnership. This is the Look East policy second wave. The Look East policy second wave is to expand the scope of Look East policy collaborations, programs, and projects into high technology area and value added services areas. This is one part of the strategic partnership in the economic field. Economic growth and development success in Malaysia and in this region as a whole seemed to be possibly marred by the looming apprehension in South China Sea. Japan and Malaysia share a common concern over the security of the Sea and of the Coast, particularly in Malaysia off the Coast of East Malaysia and in Japan very close to our Southern Islands. For this purpose, the two countries determined to have closer dialogues, consultations, and cooperation in the field, making the security dialogues and security consultations closely so as to find a way to stabilize the region.

What kinds of political/environmental business changes would need to take place in Malaysia to entice the kinds of Japanese FDI we see in Thailand today?

MAKIO MIYAGAWA: Attractions of Malaysia as a destination for FDI is very conspicuous. The rapid development and growth has attracted Japanese companies into Malaysia because it has generated a middle class, which have offered a good purchasing power. But on the other hand, there are some challenges for Malaysia to further attract Japanese FDI into Malaysia. First of all, as the Malaysian economy has been growing very rapidly, it has been confronted with the insufficiency of industrial infrastructure: electricity, water, public transportation, and housing. Those infrastructures ought to be strengthened so as to offer a comfortable ground for Japanese companies to come to Malaysia.

The second challenge is the insufficiency of high skilled labor. If Japanese companies come to Malaysia, they would like to employ high skilled labor so as to expand their production and services. We are very happy in both areas to help Malaysia to expand. Our Japanese companies have been helping Malaysian partners to expand infrastructure building. Also, Japanese universities offer services for Malaysian students to acquire highly skilled know-how and education. Thirdly, we would like to see Malaysia as a place to get easier access to other nations in this region, particularly ASEAN countries. If the project to create this region, the ASEAN Economic Community, succeeds, then from Malaysia Japanese investors can export products and services, together with the Malaysian partners, to the markets in South East Asia. This would certainly attract the attention of the Japanese companies.

Lastly, as Malaysia in an Islamic nation, Malaysia can open a gateway for Japanese investors to the markets of the Islamic nations. Some of the Japanese financial institutions have already started to issue Sukuk bonds, Islamic financial systems. I think many Japanese food producers are interested in gaining a Halal certificate with which to expand its exports to the Islamic nation markets in good cooperation with the Malaysians.