Japan

Consolidating growth

A1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD 4383bn (World ranking 3, World Bank 2015)
Population 127mn (World ranking 11, World Bank 2015)
Form of state Parliamentary government with a Constitutional Monarchy
Head of government Shinzo ABE
Next elections December 2018, general elections
  • Current account surplus
  • Low public external debt
  • Good geographical location
  • Innovative industries and high quality products
  • Large financial surplus of nonfinancial corporations
  • Vulnerable to natural disaster
  • Ageing population
  • Huge public debt and large public deficit
  • Highly dependent on energy imports

Growth above potential, still low inflation

Economic activity became more stable in 2016, as private consumption showed some signs of improvement after two years of contraction and exports gained momentum in the second half.

Supported by a temporary fiscal stimulus, improved global demand conditions, accommodative financial conditions and high corporate profit margins, economic growth is expected to accelerate to 1.3%  this year. Thus. it will remain above the potential growth rate (0.7%, Bank of Japan estimate).

The tight labor market - the unemployment rate has fallen to its lowest level since 1994 - should eventually exert upward pressure on wages and bring about higher inflation. To date, however, the wage trend remains soft and consumer price inflation has been hovering around the zero line in the early months of 2017. The momentum towards achieving the price stability goal of 2% is not yet firm. Thus, we do not expect the BoJ to forgo its accommodative monetary policy for the time being.

External position remains robust

The goods and services trade balance returned to surplus last year, following deficits in the preceding five years. The reduction in the energy import bill was a key factor. Given rising commodity prices after last year’s lows and increasing import volumes, the current account surplus is expected to stabilize around 3.5% GDP. Japan will maintain a solid net foreign creditor position. On the currency front, downward pressure will prevail due to a diverging monetary policy with US central bank.

 

Improving the fiscal situation remains a core requirement for economic policy

Japan stands out for the high level of government debt. Gross debt amounted to 238% of GDP in 2015 and looks set to increase further in the near term, as the fiscal policy stance will remain expansionary amid the supplementary budgets approved over the past year. For the time being, the impact of high debt is mitigated by low-interest rates, helped by large-scale government bond purchases by the BoJ and a home bias of Japanese investors.

As a result, the share of government debt held by foreign investors is still relatively low. Besides limiting government spending and a steady increase in revenues, finding a solution to Japan’s government debt problem requires higher nominal output growth. Efforts by the Abe administration to increase the female labor force participation – to counter the aging population problem – have yielded positive results. Other reforms have yet to translate into stronger domestic growth.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 20%
1
26% China
China 18%
2
11% United States
Korea, Republic of 7%
3
5% Australia
China, Taiwan Province of 6%
4
4% Korea, Republic of
China, Hong Kong SAR 5%
5
4% China, Taiwan Province of

Trade structure by product

(% of total)

Exports Rank Imports
Road vehicles 22%
1
10% Petroleum, petroleum products and related materials
Electrical machinery, apparatus and appliances, n.e.s. 13%
2
9% Electrical machinery, apparatus and appliances, n.e.s.
Specialised machinery 7%
3
6% Telecommunication and sound recording apparatus
Other industrial machinery and parts 6%
4
6% Gas, natural and manufactured
Power generating machinery and equipment 4%
5
5% Articles of apparel & clothing accessories

The payment culture in Japan is excellent with only a minority of invoices remaining unpaid thanks to strong cultural particularities. However, excessive DSO and significant payment disparities may be observed from one sector to another.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings


Although domestic courts tend to be fairly efficient in delivering timely decisions, tribunals are time-consuming, expensive and complex. Therefore, conducting well-orchestrated pre-legal collection actions is essential.

Similarly, collecting debt from insolvent debtors is overall a challenging exercise and, even though insolvency proceedings could yield dividends, these would spread over years and generate significant costs.

Download the entire collection complexity PDF:

Collection complexity Japan

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Contact

Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

Contact Mahamoud Islam

Senior Economist for Asia

mahamoud.islam@eulerhermes.com

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