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
Our real GDP growth forecast of 0.6%, compared with consensus expectations of 1.1%, reflects our bearish view on external demand amid a continued unravelling of the Chinese economy and renewed recession risks in the US, which look set to compound domestic structural economic woes. That said, lower energy prices pose upside risks to growth, should businesses use windfall profits to boost investment.
The BoJ's latest monetary policy tweaks mark an incremental easing amid already extremely loose monetary policy in Japan. As debt continues to be monetised, the money supply will rise, feeding through into higher consumer price inflation following years of stagnating prices.
The FY2016 budget intends to narrow Japan's fiscal deficit to 6.6% of GDP, but continued supplementary budgets and weak real GDP growth suggest...
Japan Industry Coverage (23)
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 due to increased demand for vehicles ahead of an increase in the national sales tax and the implementation of a new tax system in 2017. The increase in production will be stronger based on company export strategies.
|Heavy Taxation Weighing On Vehicle Market|
|Vehicle Sales (2014-2020)|
|f= BMI forecast. Source: BMI, JAMA|
Japan Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Japan Consumer Electronics
BMI View: The Japanese consumer electronics has been a challenging competitive environment for vendors in the half decade to 2015 - with a combination of economic challenges and negative device trends (LED/LCD TV sets, desktops, notebooks and digital cameras) acting as drags on market value. The market is however expected to stabilise and return to growth over the medium term, albeit at a very subdued CAGR of 0.6% over 2015-2019. The drop-off in units in key product categories after rapid proliferation of ownership or cannibalisation by new devices has largely run its course, but at the same time economic weakness and the increased saturation of the smartphone and tablet markets will limit the potential for sales growth. There is however some upside should...
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: After a contraction in the Japanese IT market in 2015 due to a decline in hardware spending, particularly in the PC market, we expect growth to return over the medium term. The upturn will however be subdued as spending growth is constrained by a weak medium-term economic outlook, and a declining and ageing population. This informs our forecast for IT market growth at a CAGR of just 1.9% over 2015-2019. There are areas of the IT market where prospects are much brighter, allowing vendors with targeted strategies to perform well even in a sluggish overall market. The largest opportunities are in emerging technologies such as cloud computing and the Internet of Things, where adoption rates are still low, and our household income analysis highlights the fact...
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. Following a 1.6% contraction in 2014, we expect the construction industry to recover only slightly in 2015, with a forecast real...
BMI View: Home to large numbers of wealthy - and ageing - households that have long valued the advantages of life insurers' offerings, Japan is a rare example of a life insurance market that is enormous in absolute terms, well developed by most metrics and still expanding faster than the economy as a whole. It is also profitable for most of the long-established (and enormous) players, notwithstanding that earnings have been crimped by very low interest rates. Conversely, the non-life segment faces headwinds - in particular, contracting volumes for motor insurers, who account for over half of the premiums written in the segment.
Japan Medical Devices
BMI View: We expect the market to return to growth in US dollar terms in 2016, following the devaluation of the yen against the dollar. We expect the market to grow at a marginally faster pace than the economy, at just over 1% in US dollar terms to 2019. The current trend of Japanese manufacturers seeking acquisition opportunities abroad to expand their footprint and seek new growth opportunities will continue to play out. The opening up of markets under the TPP deal will serve to reinforce this strategy.
|Total (USDmn)||Per Capita (USD)||Total (Local Currency mn)||...|
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 economic growth remains below consensus, as we currently forecast real GDP...
BMI View : Japan will remain one of the smaller mining markets we monitor, with a lack of miner wealth and limited diversity combining with the downturn in commodity prices to limit the growth of the sector. We forecast the country's mining industry value to reach USD3.7bn in 2019, growing at just 0.3% a year on average over the interim.
The development of Japan's mining sector is being held back by an intrinsic lack of metals reserves, with the gold mining segment one of few exceptions to this landscape. However, even here the outlook is hardly dynamic: Japan has one major commercially active gold deposit: Hishikari, which is responsible for the vast majority of the country's total output. Until recently, this has provided Japan with the platform to be a net gold exporter; however, slowing demand from key export markets such as China and the US saw...
Oil & Gas
Japan Oil & Gas
BMI View: We retain our bearish outlook towards Japan's long-term refined fuels and natural gas demand, which we forecast to fall by 7.1% and 3.5% over 2016-2025. This decrease will be a result of the gradual return of nuclear generation in the power sector, efficiency gains in the automotive and shipping sectors, as well as increasing emphasis on alternative energy sources such as renewables and biofuels.
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: Japan's developed pharmaceutical market will see heightened levels of competition ahead. As a highly saturated market with all major multinational pharmaceutical firms present, the degree of rivalry will be further catalysed by the increasing generic drug penetration in the country. This puts pressure on long-listed medicines in the country, requiring research-based firms to constantly introduce new patented drugs to sustain growth. Competition within the generic drug sub-sector is also likely to intensify as more foreign-based generic drugmakers enter the market and domestic firms expand.
Headline Expenditure Projections
Pharmaceuticals: JPY11.24trn (USD106.14bn) in 2014 to JPY11.49trn (USD96.96bn) by 2015 with a y-o-y growth of 2.2% in local currency terms and -8.6% in USD terms....
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 will remain one of the three largest renewables market in the Asia region over our 10-year forecast period, despite our projection that growth rates will slow over the coming years. Difficulties integrating solar projects into the electricity system and the government's focus on nuclear power underpin our view that the market will undergo a slowdown.
BMI View: Japan's economy has had a mild recovery after a turbulent post-crisis period, however, it will struggle to pick up a more robust growth. Despite is affluence, the country's middle class will see little income growth, while deep-rooted demographic issues will prevent the expansion of customer base. Increased taxation will add to the challenges of retail sector, however, the retail sector will register expansion both in absolute and relative terms during 2016-2019.
Japan is currently the third largest retail market in the world, after the US and China. However, a weak economic climate, characterised by two decades of deflation and a depreciating currency have weighed on its growth outlook over recent months. These pressures have weighed on consumer demand and, despite seeing a slight uptick last quarter, growth in the retail sector remains moderate. Another factor that...
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, there are considerable downside risks to this strategy, which relies on high levels of disposable income, amidst the country's economic slowdown.
|Vast Opportunity For VAS|
|Japan Mobile Market Forecasts|
BMI View: Japan's tourism market continues to benefit significantly from the weak yen, which is attracting a large number of tourists from the region and an increasing number particularly from China. Visitor numbers are therefore set to continue increasing by 2.73% in 2016, reaching 24.1mn. The weak yen is also contributing to an increase in the total value of tourism receipts, of which travel items receipts represent the largest part, showing that tourists are spending. Supporting growth in both inbound and domestic tourism is Japan's well-developed hotel market and extensive transport network, which ensure the country is well placed to keep up with growth...
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...