Japan has well-developed and high-tech manufacturing and services sectors with strong advantages in key areas such as electronics and heavy engineering. It is the world's largest creditor nation, with years of current account surpluses resulting in a huge build-up of foreign reserves and other external assets. Japan stands to benefit from rising demand from emerging markets – especially China and India – which can compensate for its own weak demand.
We keep our clients informed of the latest market moves and political developments in Japan, as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 21 of Japan’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you one step ahead, so you can operate with confidence in Japan.
Japan Country Risk
The yen remains on an appreciating trend but with recent strength taking the currency into overbought and overvalued territory, the BoJ is unlikely to allow the currency to appreciate much further, and we hold a neutral near term view. The combination of weak growth and high inflation relative to the US should drive medium-term weakness, in spite of the country's huge external asset position.
Despite the strong Q116 real GDP growth figure, Japan's economy is unlikely to mount a sustainable recovery as the current policy mix continues to undermine productivity. The BoJ will continue to ease, likely cutting interest rates deeper into negative territory at its upcoming meeting, while fiscal stimulus spending will remain elevated, both to the detriment of private investment.
The Japanese government's decision...
Japan Industry Coverage (22)
BMI View: The ageing Japanese agriculture sector is seeing some green shoots in the form of technological innovations. The use of robots in primary industries of agriculture and fisheries and utilisation of data in dairy farming is proof that the agriculture industry is making changes in the way it operates - a long-awaited development for the traditionally old-fashioned and less progressive industry.
The Japanese government has launched a series of initiatives to support technological advancements in the agriculture industry, including an investment of USD10mn in robots aimed at reducing farming workloads and investments into cloud-based agriculture technologies, such as wearable devices...
BMI View: Car sales will return to positive growth in 2016, but only as a result of base effects. The increase in production will be stronger based on company export strategies.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: JAMA, BMI|
|* Mini car tax will continue to drag on overall car sales growth, which will be marginal at 0.6% in 2016.|
Japan Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Japan Consumer Electronics
BMI View: The consumer electronics device spending trend in Japan in 2015 and 2016 has been determined to a significant degree by the sharp depreciation of the yen in 2015 and then appreciation against the US dollar in H116. We expect a much more stable market over the medium term as yen volatility reduces, putting the market back onto a growth trajectory determined by underlying product trends. The maturity of the Japanese market where most device categories are at, or close to, saturation - along with a declining population, means growth potential is limited and we forecast a flat market over the medium term with a CAGR of just 0.6% over 2016-2020.
Latest Updates And Industry Developments
Defence & Security
Japan Defence & Security
BMI View: Landmark constitutional changes in 2014 will continue to have a significant impact on Japan's defence policy and role in regional and international security in 2015. Key reforms to Article 9 of the constitution have opened the doors to the international market for Japanese defence firms, who can now export defence systems and cooperate on joint ventures with international partners. In addition, these constitutional changes have edged Japan towards military normalisation, paving the way for a more active role in regional security. To make these amendments actionable, the Ministry of Defence has requested a record 3.5% budget increase, which will be used to fund major new acquisitions in maritime and air security.
Following a decade of defence cuts, the Ministry is seeking its third successive defence budget increase in 2015. Military expenditure will increase to USD42.3bn for FY2015,...
Food & Drink
Japan Food & Drink
BMI View: Weak economic growth, combined with unfavourable demographic dynamics - namely a shrinking and ageing population - will significantly weigh on Japan's consumer outlook throughout our forecast period to 2019. Due to the existing maturity of the food and drink sector, growth will be limited in the sector. Innovative categories such as functional drinks will perform relatively better, as they answer to dynamics consumer preferences.
Headline Industry Data (local currency)
Food consumption (local currency) growth in 2015: +0.1%; CAGR to 2019: +0.2%.
Alcoholic drinks value (local currency) sales growth in 2015: +0.4%; CAGR to 2019: +0.8%.
Soft drinks value (local currency) sales growth in 2015: +3.9%; CAGR to 2019: +3.2%.
Japan Freight Transport
BMI View: The Japanese freight industry will once more be led by the rail sector in terms of y-o-y tonnage growth, pencilled in to come in at 3.30% in 2016. Behind this mode will be air and road with annual growth of 1.30% and 0.34% respectively. Stymieing freight growth to some degree over the short term at least is the fact that Japan's largest export market is the US, which recently overtook China and receives 20% of total exports. The weakening JPY/USD exchange rate will continue to undermine Japanese exports in US dollar terms as any increase in shipment volumes fails to match up to the depreciation in the currency. Contrary to mainstream belief, the weakening of the yen is undermining the Japanese economy, but its effects are being concealed by the windfall gains of lower energy imports.
The weakening yen continues to undermine Japan...
Japan Information Technology
BMI View: We forecast Japanese IT market spending will increase at a CAGR of 3.0% in local currency terms throughout the 2016-2020 period. This is an upgrade on our previous forecast, resulting from the positive impact of yen appreciation on the hardware market in H116. However, the main growth driver in the medium term will be software and services, where adoption of cloud computing and Internet of Things solutions has broad potential in Japan. Meanwhile, hardware growth prospects are more...
BMI View: We expect minimal construction industry growth over the next five years, followed by industry contraction to 2025. The country's economic stimulus measures are not sustainable over the long term and will need to be accompanied with structural reforms to have positive long-term effects.
Latest Updates And Structural Trends
We maintain our view that Japan's fiscal stimulus programme is not sustainable for the infrastructure sector and significant structural reforms are needed to restore competitiveness.
We forecast weak but positive growth for Japan's transport infrastructure sector, averaging a yearly 1.1% growth rate over our 10-year forecast period. Within the different sub-sectors of the transport infrastructure indicator, we expect...
BMI View: This quarter, we have basically maintained our forecasts for the life segment Taking a much more optimistic view of the motor vehicle insurance sub-sector, we are now looking for markedly higher non-life insurance premiums than we were in Q316. Overall however, the key themes remain the same. Massive by any metric, the life segment continues to grow at almost mid-single digit rates. This reflects the persistently high savings rate, the central position of the life insurers in the organised savings landscape and innovation by the leading companies. The market is mature though, and many of the majors are looking for growth overseas and/or at domestic acquisitions. In the much smaller non-life segment, premiums are rising, but only because of favourable trends in the motor vehicle sub-sector. Nevertheless, even in non-life...
Japan Medical Devices
BMI View: Strained government health expenditure due to a rapid ageing population will hinder market growth. We expect the market to grow at 2.6% in local currency terms in 2017, which will be at a faster pace than the economy. The current trend of Japanese manufacturers seeking acquisition opportunities to expand their footprint and seeking new growth opportunities will continue to play out. The opening up of markets under the TPP deal will...
BMI View : Japan's mining sector is small in comparison with those of other large Asia Pacific nations, with the total value of the industry amounting to just USD3.4bn, which translates as less than 0.1% of GDP. Activity is focused almost exclusively on gold mining at the Hishikari mine, which is owned and operated by Sumitomo Metal Mining. At present we maintain a relatively healthy view as regards growth in gold production, with the company expected to expand the project in order to extend the life of the mine. This development may see Japan resume its role as a net gold exporter over the next few years as price levels stabilise and begin slowly start to grow again. Aside from this, most new developments are likely to continue to take place overseas as companies scour the globe...
Oil & Gas
Japan Oil & Gas
BMI View: While it will continue to remain a global refining powerhouse, aggressive cutbacks in refining capacity and a gradual shift away from oil-based fuels will weigh on Japan's refined fuels exports in the long run. Japan will remain the largest LNG buyer in the world through to 2025, though the risk of an LNG oversupply domestically is pertinent due to the rise of alternative energy sources such as nuclear, coal and renewables energy, which will erode gas' share in the total power mix and drag on overall demand.
Japanese ethylene production will never return to pre-recession levels due to a series of cracker closures and more likely over the next five years. However, this does not mean Japan's petrochemicals industry is dying - it is instead continuing its process of reform with shutdowns necessary to restructure the industry and it will need to reduce ethylene capacity by 1.7mn tonnes per annum (tpa) in order to address the looming national olefins surplus.
Petrochemicals crackers depend on naphtha for over 90% of their feedstock. With naphtha declining in cost since mid-2014, the industry has improved its competitiveness. The situation has been boosted further by the weaker yen, which improved sales on the local market even as the regional market was becoming more challenging. Nevertheless, plant closures have continued and more are likely in the years ahead as producers seek to focus more on adding value and improving margins, while...
Pharmaceuticals & Healthcare
Japan Pharmaceuticals & Healthcare
BMI View: Competition in the Japanese biosimilar market is set to intensify over the coming years. Fundamentals attracting drugmakers into this field include its relatively nascent state, with few biosimilars launched thus far, cost containment pressures and well-defined regulations that will facilitate market entry. We expect branding to be a key differentiator in this medicine class, as it will require pharmaceutical firms to actively engage stakeholders, especially doctors.
Headline Expenditure Projections
Pharmaceuticals: JPY11.5trn (USD94.9bn) in 2015 to JPY11.7trn (USD109.7bn) by 2016 with a y-o-y growth of 2.2% in local currency terms and 15.6% in USD terms. Local currency forecast unchanged from last quarter, though a...
BMI View: Our view that reactors will start to go online in 2015 is still very much in play. We expect roughly 20 reactors to come online by the end of our forecast period in 2024, accounting for around 10% of the generation mix. The risks to this view lie largely in the continued strong public opposition to nuclear energy. Additionally, growing renewable fleet will add an upside to Japanese power output.
At the time of writing all 50 of Japan's nuclear reactors are offline, but Shinzo Abe's commitment to nuclear energy will see the first reactors return to the grid in 2015. Japan has faced significant financial implications from switching off nuclear and consequently having to rely more heavily on costly imported diesel and liquefied natural gas (LNG) to fill the nuclear void.
We believe that nuclear restarts will begin by the end...
Japan Real Estate
BMI View: In 2016 we expect a fall in vacancy rates in all three commercial real estate sub-sectors we cover, as demand continues to outstrip supply. In the longer term, government efforts to kick-start real GDP growth will have favourable effects on the real estate sector, leading to new development opportunities. Rental rates are stable and are not expected to rise significantly, and with the introduction of new projects over the coming five years, the balance between supply and demand will become more even.
Japan is on a track for a slow recovery as its economy crawls out of a recession, reflected in 0.0% growth during 2014. We expect growth to remain sluggish in 2016, despite government efforts to boost real GDP. Historically Japanese exports have been the prime contributor to GDP growth, and in an effort to boost trade volumes, the government and the Bank of Japan...
BMI View: Japan's solar sector will undergo a slowdown in growth over the coming years as government subsidy cuts and grid connectivity bottlenecks lead to a reduction in installations. Solar will continue to be the technology of choice for the country - both utility scale and rooftop - and solar capacity will dominate Japan's renewables mix.
BMI View: While the strengthening yen and the government's decision to delay the scheduled sales tax increase until late 2019 are positive news for new for the retail sector, we do not expect a major improvement over the coming year as the country's economy continues to stagnate. We believe that e-commerce is one of the very few sectors that could expect to see a meaningful growth in the short-to-medium term.
|Headline Household Spending|
|Household Spending, 2014-2020 (USDbn and % change y-o-y)|
BMI View : Japan's telecommunications industry is one of the most developed globally, as characterised by high-speed internet connections. Continued growth is largely attributable to operators' success in pursuing multi-device strategies. However, the country's economic slowdown brings considerable downside risks to this strategy; which relies on high levels of disposable income. We believe that the future of the Japanese mobile and telecommunications market as a whole will be driven by advanced technologies such as M2M, Internet of Things (IoT), connected cars and smart devices. With very high rates of...
BMI View: Japan has a robust tourism industry, attracting visitors from a wide range of global source markets. Over the course of the five-year forecast period through to 2020, we expect to see continued growth in international arrivals, particularly from major regional markets such as China, South Korea and Taiwan, though growth will decelerate in 2016 following a huge surge in 2015. The government is highly supportive of the tourism industry, investing in extensive marketing campaigns and connected infrastructure developments. New, ambitious targets have been set for tourism arrivals and spending, and over the next few years we expect to see a number of promotional developments, including the potential relaxation of visa restrictions and investment incentives.
BMI View: This quarter has seen the expansion of our water forecasts and the revision of our existing forecasts following the release of new historical data. In addition, we now forecast mains and non mains water extraction by source, household and non mains water consumption, and water losses. We view the overall state of the Japanese water sector as relatively strong, with good water availability for industrial usage. However, in the wake of the continued controversy surrounding the Fukushima leakages, which have not only contaminated Japan's ground water but are also affecting the Pacific Ocean, we expect to see more stringent industrial water consumption and water treatment legislation. Japan has a good track record for enforcing stricter water sector legislation when needed.
An overall increased...