Russia seizes local operations of Japan Tobacco

Expropriation of market's largest cigarette company set to further strain ties between Moscow and Tokyo

Vladimir Putin has ordered the seizure of Japan Tobacco's Russian business, straining already fraught relations between Moscow and Tokyo.

Russia's president signed a decree late on Thursday to place the assets of the Russian subsidiaries of the tobacco producer under the "temporary management" of a local company. The Japanese finance ministry is the largest shareholder of Japan Tobacco.

Japan's finance minister Satsuki Katayama told reporters on Friday that Tokyo had lodged a protest and demanded Moscow reverse its decision. "We called for the withdrawal of the measure and other appropriate action," she said.

The incident marks a rapid deterioration in Russia-Japan relations. In August, Putin visited the disputed Kuril Islands in the Pacific, drawing a strong rebuke from Japanese Prime Minister Sanae Takaichi.

Last month, Moscow detained a Japanese journalist working for the Hokkaido Shimbun on suspicions that he was spying on behalf of Japanese intelligence agencies, a claim Tokyo denied.

Bilateral ties have also been strained by the International Criminal Court pursuing an arrest warrant for Putin over alleged war crimes in Ukraine. That has led Moscow to demand the extradition of Tomoko Akane, the court's president, and eight other officials after they were tried in absentia in Russia over the arrest warrant and sentenced to prison terms.

Last month, Japan imposed sanctions on dozens of Russian companies and individuals it said were related to the country's military-industrial complex as well as 35 vessels in its "shadow fleet", targeting Moscow's energy export revenue.

James Brown, a professor specialising in Japan-Russia relations at Temple University, traced the deterioration in ties to Japan's contribution in May to a Nato scheme to purchase US-manufactured equipment for Ukraine's armed forces.

"That crossed the line for Russians," said Brown. "It's part of a broader campaign by Russia. They sense that Takaichi is much weaker on Russia policy. If they can create enough pressure, they hope that Japan will not retaliate but will concede."

Japan Tobacco has also come under criticism for continuing to operate in Russia following the full-scale invasion of Ukraine, even as many western businesses have withdrawn. It is the largest cigarette company in Russia, with 37 per cent of the tobacco market, and the country contributed a quarter of its operating profit last year.

Ukraine has designated Japan Tobacco as a supporter of Russia's war effort because of its tax payments to the Russian state. Kyiv estimated the amount at $182mn in 2023, making it the fourth-largest foreign taxpayer.

Tokyo has resisted a mass withdrawal of businesses from Russia because of the importance to its energy security of Sakhalin-2, a major gas project in the Far East in which Japan holds a stake, as well as other projects.

The "temporary administration" order means that Japan Tobacco is in effect no longer in control of its business in Russia, although it remains the owner.

Japan Tobacco, whose shares were paused on Friday morning, confirmed that "four manufacturing entities have been placed under temporary administration".

It added that it was "gathering further information" and "assessing the potential impact on the group".

A Japan Tobacco factory in Ukraine was hit by a Russian missile and drone strike last month. Moscow accused the facility of being used to produce munitions, which the company denied.