3rd largest economy in the world
Japan is a country located in East Asia with a population of 125.7 million. Japan is the world’s third-largest economy after the United States and China. In 2021, its gross domestic product was about $4.9 trillion ($39,312 at GDP per capita). In terms of the GDP structure, agriculture accounts for 1.04% of Japan’s GDP, industry for 29.02%, and services for 69.47%.
Although Japan is home to large corporations such as Toyota, Honda, Subaru, Sony, Hitachi, and Toshiba, 99.7% of companies (3.58 million) are small or medium-sized enterprises. Japan’s economy is driven by domestic consumption. International trade accounts for 37% of GDP, below the European and world averages. In 2021, Japan’s exports were worth $910.5 billion and imports $936.4 billion.
High per capita income makes for a well-developed consumer market. After temporary troubles related to the COVID-19 pandemic, Japan’s economy is back on a growth path. In 2021, Prime Minister Fumio Kishida announced a “New form of capitalism” plan to invest in human capital, technological innovation, start-ups, and digital initiatives to promote sustainable economic development, which is tied to the energy transformation process.
Population of Japan
The population of Japan is 125.7 million. Japan’s population is the oldest in the world. The growing demographic crisis results from high life expectancy and low fertility rates. In 2020, 28.7% of the population was 65 years old or older, and by 2036, people in this age span will make up a third of the population. The population has been declining since 2011. The number of Japanese is projected to fall to 88 million in 2065.
The consequences of the crisis are economic problems, depopulation of rural areas, and budget pressures. On the other hand, the so-called silver economy targeting the needs of senior citizens, and agetech, or technologies designed to improve the quality of their lives, is gradually expanding. The authorities’ efforts also led to the inclusion of the concept of human security in the Sustainable Development Goals (SDGs) adopted by the UN in September 2015.
The general trend indicates that the medical, pharmaceutical, and healthcare sectors will be among the most rapidly growing areas. Due to the increasing needs of senior citizens in Japan, health spending is rising. According to projections by the International Monetary Fund, they will reach 12.1% of GDP in 2030, up from 10.9% in 2018. It also implies increased investment in the research and manufacturing of advanced medical devices.
Economy of Japan
Automobile and other motor vehicle manufacturing, electronics, machinery manufacturing, and steel and non-ferrous metal processing are core sectors of Japan’s economy. There is also significant growth potential in telecommunications, finance, food, design, fashion, medical supplies, and pharmaceuticals. An expanding sector is energy due to the drive to achieve climate neutrality by 2050.
Due to its geographic location and natural conditions, Japan relies heavily on imports for food and energy raw materials. Japan is one of the world’s largest buyers of food products such as vegetables, meat, seafood, and grains. Other goods in demand include aerospace products, industrial machinery, robots, medical devices, energy, defense industry technologies, IT solutions, pharmaceuticals, and semiconductors.
As the Japanese population ages, the healthcare sector is becoming increasingly prominent. Demographics also shape demand in other industries, such as robotics, pharmaceuticals, and real estate. Although the infrastructure, legal, and tax systems are similar to those in European countries, Japan is widely seen as a challenging market due to its specific customer preferences, business culture, and customer service requirements.
International trade
Japan is the 4th largest importer and 4th largest exporter in the world. In recent years, imports have outweighed exports. Due to higher energy resource prices, the trade deficit increased in 2022. Japan’s main trading partners are China, the United States, South Korea, Hong Kong, Thailand, Germany, Singapore, Vietnam, Malaysia, and Australia.
Japan’s trade is diverse. The largest group of imported goods are oil and mineral fuels (20%), electrical machinery (14.7%), industrial machinery (9.21%), pharmaceuticals (4.83%), ores (4.46%), precision instruments (3.66%), precious stones and metals (3.12%), and motor vehicles and parts (2.99%). In addition, statistics for sales of textiles, medical equipment, and specific food categories are high.
Conversely, among the most exported goods are industrial machinery (19.5%), motor vehicles and parts (18.2%), electrical machinery (15.7%), precision instruments (5.69%), iron and steel (4.59%), plastics (4.01%), organic chemicals (2.42%), and chemical products (1.93%). Other products include shipbuilding industry products, iron and steel items, inorganic chemicals, cosmetics, medicines, paints, dyes, toys, and sports equipment.
Trade agreements
Japan has signed many international trade agreements and is negotiating additional ones. Trade agreements have been concluded with both individual countries and associations of countries. Japanese authorities consistently emphasize the importance of international cooperation in economic development and modernization.
Japan has signed trade agreements with the following countries:
Australia
Brunei
Chile
India
Indonesia
Malaysia
Mexico
Mongolia
Peru
Philippines
Singapore
Switzerland
Thailand
United States
United Kingdom
Vietnam
Agreements with associations of countries:
Association of South-East Asian Nations (ASEAN)
European Union (EU)
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)
Regional Comprehensive Economic Partnership (RCEP)
Japan – European Union relations
The European Union and Japan are linked by a strategic partnership. It is based on the Economic Partnership Agreement (EPA) and Strategic Partnership Agreement (SPA), which came into force on February 1, 2019. Tokyo is the EU’s closest partner in the Indo-Pacific region.
Japan is the EU’s second-largest Asian trading partner after China. Japan is also the EU’s seventh-largest partner in exports and imports of goods. Trade between the two sides is worth about $125 billion.
The EU exports chemicals, motor vehicles, machinery, optical and medical devices, food, and beverages to Japan. Imports, on the other hand, include machinery, motor vehicles, chemicals, optical and medical devices, and plastics.
The European Union and Japan also cooperate in combating climate change. Cooperation in this area takes place under the so-called Green Alliance.
Opportunities and challenges
Generally, Japan is seen as a country with a favorable business environment. Any company that deals with financial transfers in Japan must be registered and licensed. The establishment of a local branch is also often required. However, one has to expect Japanese companies to be highly competitive. Entrepreneurs must also consider the specific business culture and local preferences if they want to succeed.
The Japanese yen is a stable currency, but by the end of 2022, it had lost value, resulting in a price of 150 yen per dollar. Inflation has risen to 3.7% due to Russian aggression against Ukraine but is projected to fall to 1.6% in 2023. With inflation slowing and wages expected to rise, household savings accumulated during the pandemic will boost domestic consumption.
Japan’s economic status is also notable for its low unemployment rate of 2.4%. On the other hand, the challenges are the domestic debt, which will have to undergo restructuring, and the need to accelerate GDP growth, projected at 1.8% in 2023. Another challenge is the implementation of the “Green Growth Strategy,” which aims to combat climate change by decarbonizing industry, energy, and transportation by 2050.
