Russian President Putin has placed all seven Russian subsidiaries of Japan Tobacco under "temporary" state control, a measure targeting companies from "unfriendly countries." "We have lodged a protest and demand that the measure be withdrawn immediately," declared Japanese Chief Cabinet Secretary Minoru Kihara.
The factories continue to operate and the more than 4,000 employees remain employed for the time being. But the company behind the cigarette brands Camel and Winston has completely lost control. A heavy blow for the Japanese state, which with about 37 percent is the largest shareholder of Japan Tobacco.
Rising tensions
The intervention further sharpens relations between Tokyo and Moscow. The two countries have been disputing for decades over four islands and island groups north of the Japanese island of Hokkaido, which the Soviet Union took at the end of World War II. Japan calls them the Northern Territories and demands their return. Russia still administers them.
Japan had hoped for years to smooth negotiations with joint energy projects and better trade relations. In 2018, the two countries agreed to negotiate faster. When Japan imposed economic measures against Russia in 2022, following the invasion of Ukraine, Moscow completely broke off talks.
Last August, Putin visited one of the disputed islands for the first time. He tasted caviar in a fish factory, promised to replace a rusted ambulance at the hospital, and was shown a drone at a school. "Just like a holiday resort," he said to residents about the sunny weather. Prime Minister Sanae Takaichi called his visit "completely unacceptable."
Monument
Subsequently, Russia unveiled in Khabarovsk a 15-meter-high monument of a Soviet soldier smashing a Japanese border post bearing the symbol of the Japanese emperor. Tokyo immediately demanded that Russia remove it.
The fact that relations between Tokyo and Beijing have also deteriorated significantly plays into Moscow's hands. On the day of Putin's visit to Iturup, Etorofu in Japanese, the Russian and Chinese ambassadors in a joint letter referred to their fight against "Japanese militarism." Meanwhile, their naval ships and bombers increasingly conduct joint exercises around Japan. Moscow and Beijing also call Japan's defense buildup a "joint threat to world peace."
When Japan announced new economic sanctions last month, Moscow threatened countermeasures. Later that month, the Russian security service reported that they had arrested a reporter from the Japanese newspaper Hokkaido Shimbun on Sakhalin on suspicion of espionage. He was transferred to Moscow. According to Russia experts, this is a form of "hostage diplomacy."
A quarter of the profit
Japan Tobacco's share has meanwhile lost almost a third of its value. The company expected to generate over 10 percent of its revenue and a quarter of its operating profit from Russia by 2026. At the end of September, it had assets there worth 1,500 billion yen, about 8.5 billion euros. The company is currently investigating the consequences.
Japan Tobacco has been active in Russia since 1999 and is the largest cigarette maker there with about 40 percent market share. After the invasion of Ukraine, the company announced it would make no new investments but continued to manufacture and sell cigarettes. Other Japanese companies, such as Toyota and Nissan, withdrew.
Putin is now using a 2023 regulation that allows Russia to place assets of companies from "unfriendly countries" under its own control. In September, this also happened with the Russian activities of Swiss Nestlé. Kremlin spokesman Dmitry Peskov said then that Moscow took into account the "increasing involvement of unfriendly countries in direct hostilities against us."
After Russian government intervention, company assets often end up in the hands of people close to the Kremlin. Japan Tobacco already paid taxes in Russia, but it is still unclear whether the company will be able to transfer its profits back to Japan and whether Moscow can use that money for the war.
Two weeks ago, the Japanese and Russian foreign ministers met at the G20 in Atlanta, for the first time in about five years. Foreign Minister Motegi demanded the release of the reporter. His Russian counterpart Lavrov said he wanted full negotiations again only if Tokyo withdrew its "unfriendly policy."