Japan

Strong stimulus, slow return to normal

LOW RISK for entreprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP	USD5064.87bn (World ranking 3, World Bank 2020)
Population	125.84mn (World ranking 11, World Bank 2020)
Form of state	Parliamentary government with a Constitutional Monarchy
Head of government	Fumio Kishida (PM)
Next elections	on or before 22 October 2021, House of Representatives

Robust external position (current account surplus, low public external debt etc.)
JPY considered safe-haven currency
Innovative industries and high-quality products
Large financial surplus of non-financial corporations
Developed country in a dynamic region

Vulnerable to natural disasters
Aging population
Huge public debt and large public deficit
Highly dependent on energy imports

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Delayed return to normal

Japan’s GDP contracted by -4.8% in 2020 (after +0.7% growth in 2019) and is expected to recover by +2.5% in 2021. The Japanese economy entered the Covid-19 crisis on a soft footing, already on the verge of a technical recession at the end of 2019 due to the consumption tax hike and super typhoon. The return-to-normal going forward is likely to be dragged out, in part due to the main downside risk of resurging Covid-19 cases. A third state of emergency introduced in end-April 2021 along with a very slow pace of vaccination (compared to other advanced economies) are delaying the economic recovery. We expect it to be more visible in H2 2021, supported by stimulus measures ahead of the Lower House election due by October and the easing of Covid-19-related restrictions domestically and in the rest of the world. The external environment is overall supportive for Japan in 2021, given the early recovery of the Chinese economy and the US super stimulus. We expect quarterly GDP to come back to pre-Covid-19 levels at the beginning of 2022.

Macro policies: Not shying away from easing, both monetary and fiscal

Inflation is low in Japan (+0.5% on average over the past decade) and there is little chance that it will reach the central bank target (+2%) in the short and medium term, given soft aggregate demand. Against this backdrop, the central bank (Bank of Japan, BoJ) has further stepped up its accommodative stance since the beginning of the Covid-19 crisis. The annual limit for JGB purchases (which was JPY80tn) was removed in April 2020, signalling that the BoJ was ready to make more aggressive purchases if necessary. Financial assistance for companies and households (through special fund-supplying operations and fund-provisioning measures) amounting in total to JPY90tn (16.8% of 2020 GDP) has been put in place. In March 2021, the BoJ announced another slew of policy decisions: 1/ introducing a new “Interest Scheme to Promote Lending”, 2/ clarifying some yield curve control parameters (tolerable band for the 10-year yield of +/-25bp around the target along with asymmetric intervention focused on the upper limit) and 3/ continuing purchases of up to JPY12tn worth of ETFs and JPY180bn of J-REITs per year. For the remainder of 2021, the BoJ is likely to remain mostly on hold, monitoring the effectiveness of its actions.

The fiscal policy has also been eased significantly since the beginning of the crisis, despite the structural need for consolidation in theory (public debt at 238% of GDP in 2019, expected to increase to 266% in 2020). By the end of May 2020, two supplementary budgets had been approved by the Cabinet, with measures ranging from private-public sector projects to corporate loans and transfers to households. Beyond the very large headline totals announced (around 40% of GDP), we estimate that recovery-focused measures (vs. emergency measures against the Covid-19 shock) amount to 4.6% of GDP. In December 2020, the government adopted an additional fiscal support package (worth c.14% of GDP), with measures including incentives for firms to invest in digitalization and green technologies, as well as an extension of ongoing Covid-19 responses such as concessional loans to affected firms.

External position: very strong

External indicators are generally robust. The country is a net foreign creditor, with the largest net international investment position surplus in the world in 2020. The current account balance is in surplus (+3.3% of GDP in 2020) and is forecast to remain so in the coming years. On the currency front, the strong expectations for the US economy (driven by the stimulus) could support a moderate JPY in the near term, though the JPY, being a safe-haven currency, should remain attractive in the longer run. - April 2021.

Trade structure by destination/origin

(% of total, 2020)

Exports	Rank	Imports
China 22%	1	25.8% China
United States 18.5%	2	11.3% United States
Korea, Republic of 7.0%	3	5.6% Australia
Taiwan 6.9%	4	4.2% Taiwan
China, Hong Kong SAR 5.0%	5	4.2% Korea, Republic of

Trade structure by product

(% of total, 2020)

Exports	Rank	Imports
Road vehicles 18.9%	1	9.0% Electrical machinery, apparatus and appliances, n.e.s.
Electrical machinery, apparatus and appliances, n.e.s. 14.0%	2	8.7% Petroleum, petroleum products and related materials
Specialised machinery 7.9%	3	5.5% Telecommunication and sound recording apparatus
Other industrial machinery and parts 5.4%	4	5.4% Gas, natural and manufactured
Professional and scientific instruments, n.e.s. 4.2%	5	4.9% Office machines and automatic data processing machines

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

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.