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
We remain convinced that the BoJ and government's inflationary policies are compounding the woes of the economy, rather than improving the growth outlook, and that there is little likelihood of these policies being pared back anytime soon. As such, a sustainable recovery is a long way off, and we caution that the weakness may be only just beginning.
The yen continues to look strong, benefitting from broad-based US dollar weakness, but we are growing increasingly cautious of BoJ intervention given recent appreciation. As such, we are neutral on the yen, but would see any move to JPY105.00/USD as an opportunity to establish a bearish position ahead of the next, and more aggressive, round of monetary stimulus.
Despite Prime Minister Shinzo Abe seemingly sticking to his plan to raise the consumption tax in 2017, there is...
Japan Industry Coverage (31)
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: Japan's consumer electronics market is one of the most advanced in the Asia Pacific and is characterised by high penetration of devices. The flat-panel TV boom has passed while the computer market is also saturated, and with an aging population and uncertain economic outlook this means growth potential over the medium term is limited. We forecast spending will decrease at a CAGR of -0.6% in USD terms over 2016-2020, and be flat in local currency terms. This is nonetheless an improvement over 2010-2015 when negative device trends (LED/LCD TV sets, desktops, notebooks and digital cameras) were more pronounced, and there is...
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: IT market spending in Japan was dragged into negative territory in 2015 as the hardware market contracted sharply, but this was primarily the result of temporary conditions and we envisage a return to growth over the medium term. Momentum will however be weak as a combination of Japan's IT market maturity, and economic weakness including its unfavourable demographic profile, limit potential for sales growth. We forecast IT market growth at a CAGR of just 1.2% over 2016-2020, but there will be select growth opportunities for vendors to exploit in areas such as cloud computing and the Internet of Things, where adoption rates are much low...
BMI View: The sluggish growth in construction and infrastructure growth in Japan is a sign the government's aggressive stimulus measures have already begun to wear off. This again underscores our long-held view that Japan's fiscal stimulus programme is not sustainable for the infrastructure sector and significant structural reforms are needed to restore competitiveness. To this end, a new market on the Tokyo Stock Exchange for infrastructure funds has the potential to boost private participation in the industry, while simultaneously taking pressure off government expenditure. Minimal construction industry growth is expected over the coming five years, followed by industry contraction to 2025.
Latest Updates And Structural Trends...
BMI View: This quarter, we have broadly maintained our forecasts for both the life and the non-life segments. 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, contracting volumes for motor insurers remains a challenge. Nevertheless, even in non-life insurance, profitable niches are available to foreign insurers.
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 3.6% in US dollar terms in 2016, 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: We have increased our 2016 tin price forecast to USD16,500/tonne owing to a stabilisation in the Chinese economy over Q116 that has boosted all industrial metal prices significantly over January-April. While we expect consolidation over the remainder of 2016, tin prices will continue to recover beyond 2016 as the global market posts sustained market deficits and inventories dwindle.
BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.
BMI View: Despite the strong H116 iron ore price rally, prices will edge lower due to weakening Chinese consumption over the latter half of 2016. From 2017 onwards, iron ore prices will remain subdued as iron ore prices remain under pressure from an over-supplied seaborne market, driven by strong production growth in Australia and Brazil, and weak consumption growth in China.
BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.
BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.
BMI View: We have raised our gold price forecast for 2016 to USD1,275/oz and have a new five-year price target of USD1,400/oz. We have turned more positive towards prices due to rising inflation pressures and our view that real rates will remain depressed in developed markets beyond 2016. A modest rise in prices will be insufficient to reverse the trend of weak mine investment and industry consolidation.
BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.
BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.
BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.
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: Slow economic growth, negative demographic trends and the growing prominence of nuclear and renewables energy will curtail Japan's long-term consumption of refined fuels and LNG. The aggressive government-led consolidation drive in the refining sector poses significant downside risk to our refining capacity forecasts, though improving run rates and more flexible production slates will allow Japan to see a small surplus in refined fuels from 2016.
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: There will be opportunities for haemophilia products within the Japan pharmaceutical market. The country has the third largest population of haemophilia patients in Asia, high levels of adherence and an extensive health insurance coverage that significantly lowers financial barriers to high-value treatments. Correspondingly, these factors have seen high levels of company activity in Japan, which will demand that firms offer differentiated treatments to effectively compete in the country.
Headline Expenditure Projections
Pharmaceuticals: JPY11.5trn (USD94.9bn) in 2015 to JPY11.7trn (USD101.6bn) by 2016 with a y-o-y growth of 2.2% in local currency terms and -7.1% in USD terms. Forecast unchanged from last quarter.
Healthcare: JPY50trn (USD419bn) in...
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: Recent reductions to Japan's feed-in tariffs for solar power align with our long-held view that the Japanese renewables market will undergo a slowdown, amid the government's lessening support for the sector. Furthermore, the move echoes other mature global renewables markets, whereby governments are focusing more heavily on achieving sustainable growth, as opposed to very high installation rates.
BMI View: We forecast only lacklustre growth for the Japanese economy over our forecast period to 2020, averaging 0.7% a year. This, added to the challenges of an ageing population and declining population, means that growth opportunities in Japan's retail market remain limited. Meanwhile, with one of the world's most developed retail sectors, foreign entrants find it difficult to gain a toehold in the market. However, the industry will continue to grow, as the population remains affluent and highly urbanised, and with tourist numbers increasing, opportunities for foreign luxury retailers should increase.
|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.
|Vast Opportunity For VAS|
|Japan Mobile Market Forecasts|
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 we may see a short-term dip in 2016 following huge growth in 2015. The government is highly supportive of the tourism industry, investing in extensive marketing campaigns and connected infrastructure developments such as the upgrading of the high speed rail network and development of luxury cruise tourism. New, ambitious targets have been set for tourism arrivals and spending and over the new few years we would 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...