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.

Country Risk

Japan Country Risk

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Core Views

  • We continue to see real GDP growth coming in at 0.8% in 2015, marking an uptick from an estimated 0.3% in 2014, but disappointing consensus expectations of 1.0%. While the collapse in oil prices will provide support to the economy through a greatly improved terms of trade picture, structural factors will continue to undermine growth.

  • As we previously anticipated, Japanese policymakers are seeking once again to create inflation as a means of boosting economic growth. While the collapse in oil prices will cause inflation to fall in 2015, greater monetary easing increases the likelihood of high inflation over the coming years.

  • Japan's fiscal and monetary policy has become increasingly indistinguishable in recent years, with the Bank of Japan (BoJ) acting aggressively in the government bond market to lower bond yields and spur bank...

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Japan Industry Coverage (21)

Agribusiness

Japan Agribusiness

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BMI View: The government's plans to diminish the once-powerful Central Union Agricultural Cooperative (JA-Zenchu)'s influence and clout in the industry by 2019 is a strong indication to us that much-needed structural reform of the agriculture industry is underway. Indeed, by 2019, the JA Zenchu is supposed to become a general incorporated association with co-ops having the option of engaging independent auditors instead of working with those associated to the JA Zenchu. By reducing the power of the Union, the government is sending out a clear sign that it is serious about the reforms, as further reflected in the increased openness towards a...

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Autos

Japan Autos

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We forecast sales in both the passenger car segment and commercial vehicle segment to fall by 3.1% and 1.7%, respectively, in 2015, which will see the overall auto market contract by 2.9%. Our bearish outlook is predicated on a weak economy and a continued erosion of consumer purchasing power, as wage growth fails to keep up with the rise in domestic prices.

This will in turn see total vehicle production decline 2.1% in 2015 as a weak domestic market leads to cutbacks in output.

In terms of absolute volumes, exports have not picked up on the back of a cheaper currency. In fact, auto exports for the first 11 months of 2014 fell 4.9% year-on-year to 4,084,528 units. We believe this is due to the fact that carmakers have diversified a lot of their production away from the country in recent years as well as their reluctance to heavily discount their exports from Japan in order to move larger volumes. Furthermore, Japanese...

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Commercial Banking

Japan Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Japan Defence & Security

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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,...

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Food & Drink

Japan Food & Drink

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BMI View: Japan emerged from recession in Q414 thanks to a recovery in net exports, with real GDP growth coming in at 2.2% quarter-on-quarter. We estimate GDP growth for 2014 at 0.3% and we forecast growth of 0.8% in 2015, as low oil prices continue to support positive growth. In previous quarters, one of the main reasons for the contraction of output was the depreciation of the yen against the US dollar. In addition, the April 2014 consumption tax hike directly affected consumers. We estimate that real private consumption declined by 1.2% in 2014. We forecast private consumption growth to stand at 0.6% in 2015 and 1.0% in 2016, but these figures will not be sufficient to drive significant growth in food consumption over our forecast period.

Headline Industry Data (local currency)

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Freight Transport

Japan Freight Transport

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Low (But Positive) Japanese Freight Growth In 2015

Cargo volumes will grow in the low single percentage digits across Japan's main freight transport modes in 2015. Our forecast is based on a fairly sombre outlook for the wider economy - GDP growth of less than 1% - and higher, but still slowing foreign trade expansion (growth of 4.1%, down from an estimated 4.7% in 2014). By transport modes, rail freight will show the greatest dynamism.

BMI is bearish on Japan's economic prospects in 2015, with aggressively below-consensus projections for the economy. While some predict 3.0% GDP growth our forecast is for expansion of only 0.8%, down on an estimated 0.9% in 2014. We attribute this disappointing outlook to the steep fall of the yen versus the currencies of Japan's main trading partners and the sales tax hike in April 2014. GDP fell quarter-on-quarter in Q214 and Q314, pushing the economy into...

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Infrastructure

Japan Infrastructure

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BMI View: The rapid decline in construction and infrastructure growth in Japan is a sign that the government's aggressive stimulus measures have already begun to wear off. This once again underscores our long-held view that Japan's fiscal stimulus programme is not a sustainable path forward for either the infrastructure sector or the broader economy, and that significant structural reforms are needed to restore competitiveness. Following an estimated 1.6% contraction in 2014, we expect the construction industry to recover only slightly in 2015, with a forecasted real growth rate of 0.8%.

Key Trends And Developments

In January 2015, Japan's government signed a deal to accelerate construction of two Shinkansen rail lines in the country. The Liberal...

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Insurance

Japan Insurance

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BMI View: The increasingly negative domestic economic outlook will impact upon the Japanese insurance sector in 2015, with the weakening of the yen resulting in a contraction in premiums in US dollar terms in both the life and non-life sector. Throughout the remainder of our forecast period to 2019, we expect to see only limited single digit growth in premiums, and some sub-sectors may record an overall decrease as demand falls. The overall insurance market remains robust however, and will continue to be one of the largest insurance markets in the world.

In 2015 we expect to see an overall decrease in premiums of around 7.7% in US dollar terms, with the bulk of the contraction attributed to a decline in Japan's non-life insurance sector. In local currency terms the outlook is more positive, with growth of 6.6% expected -...

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Medical Devices

Japan Medical Devices

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BMI Industry View: The Japanese medical device market remains the second largest in the world, behind only the USA. The medical device market has continued to exhibit a slow but positive growth in local currency terms in recent years, with under half of the market supplied by imports. The market looks set to expand by a CAGR of 2.9% in US dollar terms to 2018. Exports from Japan are likely to continue making positive gains due to the weakening local currency in the short to medium term. Japanese manufacturers are also expected to continue seeking acquisition opportunities abroad to expand their footprint and seek new opportunities for growth.

Headline Industry Forecasts

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Metals

Japan Metals

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BMI View : Weak economic growth will lead Japan's metals industry to see minimal growth to 2018.   The country's construction and infrastructure industries will see declining growth by late-2015 after recent expansion, while automotive production will be modest over the coming years. Yet a weaker yen is likely to encourage exports, supporting stable production levels.

Japanese refined metal production and consumption will see minimal growth in the coming years on account of weakening economic fundamentals. Our outlook for Japanese...

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Mining

Japan Mining

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BMI View : Japan's mining sector will experience modest growth over the coming years due to the lack of mineral wealth and the downturn in commodity prices. We forecast the country's mining industry value to reach USD4.0bn by 2018, growing at a modest clip of 1.4% per annum.

The lack of non-ferrous and precious metal reserves will continue to stifle capital flows into the domestic mining sector. While rich deposits of rare earths have been discovered on the seabed, we believe the development of these resources is unlikely to take place over our forecast period to 2018. Low rare earth prices by historical standards and rising environmental concerns suggest that the path towards seabed mining will not be smooth sailing.

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Little Potential In Sight
Japan - Mining Industry Value

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Oil & Gas

Japan Oil & Gas

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BMI View: New legislation intended to streamline the refining sector saw around 400,000 barrels per day (b/d) of Japan's refining capacity taken offline. Favourable terms for joint ventures will see the downstream sector consolidate further. We forecast weak refined product demand to offer limited future prospects for the sector. Although in the long term we forecast up to 50% of nuclear plants to return to the grid, the demand for LNG will remain elevated. The increase in LNG purchases also reflects higher consumption by the power sector. In the short term, demand for LNG will remain steady as Japan continues to fill in the nuclear void.

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Headline Forecasts (Japan 2013-2019)

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Petrochemicals

Japan Petrochemicals

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Japanese cracker capacity is being drastically cut as the country's ageing petrochemicals industry struggles to compete in an increasingly competitive Asian market, according to BMI's latest Japan Petrochemicals report.

Japanese olefins production has been adversely affected by a drop in Japanese polymer output. Polymer production but has failed to return to levels witnessed before the 2008 financial crisis. The trends spell trouble for Japanese petrochemicals producers, who are grappling with falling competitiveness and squeezed margins.

Half of cracker capacity is fed by imported naphtha, which has risen in cost in recent years, losing competitiveness against ethane-fed production being established in the Middle East and the US. BMI calculates that crude distillation capacity fell considerably in reaction to new refining laws - this has affected the domestic naphtha...

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Pharmaceuticals & Healthcare

Japan Pharmaceuticals & Healthcare

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BMI View: Japan's healthcare system will come under increasing financial strain due to the ageing population and the high use of patented medicines. This provides an impetus for the government to use cost containment measures including policies to encourage the uptake of generic drug medicines, posing a downside risk for R&D-based pharmaceutical companies

Headline Expenditure Projections

  • Pharmaceuticals: JPY11,239bn (USD107bn) in 2014 to JPY11,490bn (USD96bn) by 2015 with a year-on-year growth of 2.2% in local currency terms and -10.5% in USD terms. The contraction in the US dollar amount is due to the strengthening of the dollar against the yen.

  • Healthcare: JPY50,661bn (USD482bn) in 2014 to JPY52,266bn (USD436bn) in 2015 with a year-on-year...

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Power

Japan Power

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BMI View: Japan will ultimately restart 40-50% of its nuclear reactors so as to reduce the cost of fuel imports, which have been exacerbated by the weak yen and pushed Japan to register a record trade deficit in 2013. We anticipate LNG imports will remain elevated - as gas-fired generation fills the void left by nuclear facilities that are closed permanently. Coal has also been championed by the government in its April 2014 Basic Energy Plan and looks set to play a role as an important source of baseload capacity.

At the time of writing all 50 of Japan's nuclear reactors are offline. This gaping hole in Japan's electricity generation is being filled by thermal sources (oil, natural gas and coal) and this...

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Real Estate

Japan Real Estate

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BMI View: Interest in Japan's commercial real estate market remains strong, particularly for office property. While a significant portion of investor interest centres on the capital, Tokyo, investors are increasingly looking for opportunities elsewhere. Japan is seen as a safe haven for investment, and is attracting attention from international firms and institutional investors alike, as well as domestic operators. The country has a mature real estate investment trust market.

With a focus on the three principal cities of Tokyo, Yokohama and Osaka, the Q1 2015 Japan Real Estate report covers the property fundamentals of the commercial real estate market rental market and examines the office, retail, industrial and construction segments throughout the country.

Japan's economy continues to struggle, and we expect growth to be slow over the next few...

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Renewables

Japan Renewables

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BMI View: After years of sizeable growth, Japan's renewables expansion is slowing, as the government reigns in its support for renewable energy - in light of the government's continued commitment to nuclear power and the limitations with integrating renewables into the national grid. This is likely to have a knock-on effect on the country's place in our Asia regional renewables index, as Japan's leading position is vulnerable to slippage over the coming quarters.

Japan's renewables industry has been one of the fastest growing, and most attractive - in terms of investment - over the last two years, owing primarily to the lucrative financial incentives on offer to developers, particularly for solar. Feed-in...

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Shipping

Japan Shipping

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Ports To Do Moderately Well In 2015, Despite Low GDP Growth

In terms of the shipping picture in Japan, 2015 will see the port of Nagoya leading the way with tonnage growth of 3.0% and containers handled growing by 2.8%, both numbers significantly ahead of domestic GDP. Among the other seaports, Tokyo will also fare well, with tonnage growth of 2.0% and box handling up by 3.8%. The improvement will come despite a slight slowdown in foreign trade growth, to 4.1% in 2015 after an estimated 4.7% in the preceding year.

BMI is bearish on Japan's economic prospects in 2015, with aggressively below-consensus projections for the economy. While some predict 3.0% GDP growth our forecast is for expansion of only 0.8%, down on an estimated 0.9% in 2014. We attribute this disappointing outlook to the steep fall of the Yen versus the currencies of Japan's main trading partners and the...

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Telecommunications

Japan Telecommunications

Tourism

Japan Tourism

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Japan's dynamic tourism sector reported healthy growth in 2014, with a sharp increase in arrivals attributed to a range of factors including the country's increased affordability, a wider range of international flight routes and a relaxation of foreign visa requirements from major source markets. This growth is set to continue in 2015 and throughout the remainder of the forecast period, with Japan set to capitalise upon its rising global profile in the run-up to the 2020 Olympic and Paralympics Games.

In 2014 Japan eased the visa regulations for inbound tourists from a range of countries, including China, Indonesia, Vietnam and the Philippines. Arrivals from China in particular saw a sharp increase in the first few months of 2014, and Japan is now rated as the top destination for Chinese travellers. This is likely to continue in 2015, particularly as Japan has announced it would further ease visa restrictions for affluent Chinese visitors -...

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Water

Japan Water

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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...

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