International Trade in Japan

News Related to International Trade in Japan

Business outline for Japan

Main Industry Sectors

Japan has few natural resources (some deposits of gold, magnesium, coal and silver), therefore, it depends from exports to supply itself with raw materials and energy resources.  Having a large maritime area, the country is one of the first producers of halieutic (fishing) products. Only 15% of Japan's surface is suitable for cultivation. Tea and rice are the two main crops. The agricultural economy is highly subsidized and protected. Agriculture contributes marginally to the GNP and employs less than 5% of the active population.

The industrial sector is very diversified and it covers basic products (steel, paper), as well as high technology products. Japan dominates the sectors of automobile, robotics, biotechnology, nanotechnology and renewable energy. Japan is the world's second producer of cars and ships. The industrial sector contributes to nearly 30% of the GNP.

The service sector accounts for more than two thirds of the GDP and employs two thirds of the active population.

Economic Overview

Japan, being the second world's economy, was one of the countries most affected by the international economic crisis, due to its strong dependence on exports. The country entered into recession in 2008 (-1.2% of growth) and in 2009 (-5.2%), mainly due to a decline of the economic activity in the United States (its number one trade partner), in Europe (which attracts 15% of the total exports from the country) and in Asia (mostly in China). Moreover, the price rise in energy and food products has contributed to the drop of the domestic demand. Supported by the dynamism of the Chinese economy, Japan's growth, estimated at 2.8%, has rebounded in 2010, stimulated by exports as well as the resurgence of private consumption.

The perspectives for 2011 were less optimistic due to the slowdown in exports and a less favorable business climate. The earthquake that hit Japan on March 11, 2011 and the tsunami that followed led to a more negative review of these estimates. The cost of the disaster is expected to exceed 300 billion USD, not to mention the significant concerns regarding the nuclear power plant in Fukushima, whose consequences are not yet well known. According to experts, the Japanese economy should not recover before 2012.

The government's general balance-sheet is experiencing a huge deficit and the level of the state's net-debt is very important. They account for 3.7% and almost 200% of GNP respectively. Due to these reasons, the government has announced restrictions on budgetary and monetary policies. A priority is also given to the environment, to the social system and a policy favoring the increase of birth rate. In a long term, the problem of the ageing of the population will also increase the pressure on expenditures.

The unemployment rate had declined until 2007, but it increased again under the effects of the crisis, it remains moderate at about 5%.

FDI in Figures

Despite the increase of FDI since the mid-1990s, Japan continues to have the smallest inflow of foreign investments. The stock of FDI in Japan did not account but for 4% of the GDP at the end of 2009. The flow of FDI had slowed down due to the global economic crisis, and they started to pick up again at a slow rhythm. According to the UNCTAD report on world investment, Japan's potential appeal for foreign investment is very strong compared to the other countries of the world, but its performance in terms of reception of FDI is weak. Of the 141 countries studied for the report, Japan ranked on the 135th place on performance level in 2009.

The main asset of Japan is its position as a leader in matters of high technology, research and development. The potential hindrance to investment are of a linguistic order and business culture. The disaster that hit Japan on March 11, 2011 (the earthquake and the devastating tsunami that followed), as well as environmental and health concerns about the situation of the Fukushima Daiichi Nuclear Plant could slow down foreign investment for a short period. However, Japan remains a key market for investors. In addition, the Japanese economy should be able to finance the reconstruction of the country without too much difficulty thanks to a Surplus in Savings accumulated over recent years.

FDI Government Measures

The government still imposes some restrictions on the penetration of the Japanese economy by foreign investors. Nevertheless, Japan's Company Law has been re-examined in 2009, which simplified and made access to the national market easier for foreign investors.
Click here for further information about this reform.

Country Strong Points

Japan is the world's second economic power. The purchasing power is one of the highest in the world. Technology is modern and innovative. Substantial means are devoted to education and R&D. Accessing the Japanese market gives access to the rest of Asia. The business climate is favorable. The population is ageing, which opens up a new development potential to meet the needs of the older age groups.
Click here for further arguments in favor of investing in Japan.

Country Weak Points

Over-regulation in Japan continues to restrain economic growth, raise the cost of doing business, restrict competition, slow down the market entry and exit, and slow down investment.

Foreign Trade Overview

Foreign trade is an essential element of the Japanese economy, but the country is not sufficiently open. Trade represents about 30% of Japan's GDP. Even though it is the second economic power, Japan ranks fifth as a global importer and imposes extensive non-tariff barriers, mainly in the agricultural sector. Structurally, Japan has a high positive trade balance, however  this surplus has been reduced heavily during the crisis, due to the fall on exports which have increased again in 2010 (as well as imports), these are supported by the dynamic Asian demand despite the increase of the value of the yen.

The earthquake and tsunami that struck Japan on 11 March 2011, as well as environmental and health concerns related to the situation in the Fukushima Daiichi Nuclear Power Plant, including the proven risks of contamination of the food chain, have hurt Japanese exports. Many countries have decided to introduce systematic checks on certain imports from Japan. Other countries have simply decided to suspend imports, including agricultural products. Observers expect that Japan's exports decline of 0.5% - 1.6% and imports increase of 0.4% - 1.3% for the year 2011.

The main trade partners of Japan are the United States, China, Southeast Asia and Saudi Arabia.