Japan Country Risk Report

Published 29 April 2015 | Quarterly

  • 56 pages
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$1,195.00
Japan Country Risk Report

Core Views

  • Our bearish 2015 real GDP growth forecast of 0.8% (compared with consensus expectations of 1.0%) is facing upside risks as the economy appears to be slowly emerging from recession. The ongoing decline in oil and gas prices should provide significant support for Japan's manufacturing industries, while incipient reforms as part of Prime Minister Shinzo Abe's Third Arrow are boosting corporate profitability. These positive developments could help Japan stave off the worst-case scenario of a fiscal and financial crisis, allowing the economy to 'muddle through' over the coming years. That said, woeful demographics, huge levels of fiscal debt, and excessively easy monetary policy will prevent any sustainable acceleration in real GDP.

  • Despite the ongoing drop in consumer price inflation (CPI) the Bank of Japan (BoJ) is unlikely to expand its quantitative easing programme in 2015, as board members believe that further easing could be counterproductive at this stage, through accelerating the depreciation of the yen and undermining economic confidence. That said, inflation expectations are on the rise, and we maintain that Japan is undergoing a period of transition from deflation to inflation from a medium-term perspective.

  • We maintain that a reduction in government spending will be crucial if Japan is to avoid a fiscal crisis or deep economic stagnation, yet the Bank of Japan's (BoJ) bond buying programme continues to numb the sense of urgency to undertake painful cuts. While the fall in oil prices offers a temporary reprieve to the government bond market, the fiscal accounts continue to head in the wrong direction from a medium-term perspective.

  • We hold a bullish short-term view on the Japanese yen, as the US dollar should come under pressure from a reduction in real interest rate expectations owing to a slightly less hawkish US Federal Reserve. Over the long-term term, though, the risks are evenly balanced. On the positive side, improving terms of...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Long-Term Implications Of Abe's Election Victory
8
Japanese Prime Minister Shinzo Abe's landslide election victory leaves him well positioned to remain in office for several more years
Japanese Prime Minister Shinzo Abe's landslide election victory leaves him well positioned to remain in office for several more years
and enact major reforms
Abe will need to act quickly to convince investors of his sincerity for economic restructuring, for a failure to do
so would raise question marks about whether Japan can reform at all or is doomed to stagnate indefinitely
Tab le: Political Overview
8
Long-Term Political Outlook
10
Abe And LDP Face Colossal Challenges In 2015-2024
10
Prime Minister Shinzo Abe and his Liberal Democratic Party are unlikely to deliver a sustainable recovery of the Japanese economy
Prime Minister Shinzo Abe and his Liberal Democratic Party are unlikely to deliver a sustainable recovery of the Japanese economy
and address the country's structural woes
These include a colossal national debt burden, demographic decline and the loss of
competitiveness of Japan's key industries
There is a high risk of a fiscal crisis before the end of the 2010s and the LDP's eventual
replacement by new political forces
Chapter 2: Economic Outlook
15
SWOT Analysis
15
BMI Economic Risk Index
15
Economic Activity
16
Oil Price Fall Will Support But Not Cure Economy
16
We continue to see real GDP growth coming in at 0
3% in 2014, but disappointing
consensus expectations of 1
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
TABLE : Economic Activit y
16
Monetary Policy
17
More Quantitative Easing Raises Long-Term Stagflation Risks
17
As we previously anticipated, Japanese policymakers are seeking once again to create inflation as a means of boosting economic
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
Table: Monetary Policy
17
Fiscal Policy
19
BoJ Drives A Shift In Risks For The Banking System
19
In an effort to drive down bond yields and spur bank lending, th e Bank of Japan (BoJ)'s extraordinary monetary policy has resulted in
In an effort to drive down bond yields and spur bank lending, th e Bank of Japan (BoJ)'s extraordinary monetary policy has resulted in
a reduction of traditional risks facing banks
Table: Fiscal Policy
19
Exchange Rate Forecast
20
JPY: Still Difficult To Like, Despite The Sell-Off
20
With the yen down 37% over the past three years against the US dollar despite there having been effectively no difference in domestic
With the yen down 37% over the past three years against the US dollar despite there having been effectively no difference in domestic
price growth between Japan and the US, a bullish medium-term case could be made
However, despite the sell-off, the yen is by no
means extremely cheap and the current policy direction will make it difficult for the yen to experience any meaningful appreciation
As
such, we hold a neutral view on the currency
Table: CURRENCY FORECAST
20
Table: Exchange Rate
21
Table: Current Account
22
Chapter 3: 10-Year Forecast
23
The Japanese Economy To 2024
23
Three Barriers To Growth
23
There are three important factors that stand in the way of Japan achieving anything other than meagre real GDP growth over the coming
There are three important factors that stand in the way of Japan achieving anything other than meagre real GDP growth over the coming
decade
A
fiscal crisis, which would lead to rapidly rising interest rates, is by far the most salient threat to growth, although it could be argued that
fiscal crisis, which would lead to rapidly rising interest rates, is by far the most salient threat to growth, although it could be argued that
an economic crisis could be a necessary evil to trigger a boost in private sector growth dynamism
Tab le: Long-Term Mac roeconomic Forecasts
23
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
tABLE : Developed States - Lab our Market Risk
28
Table: Developed States - Logistics Risk
31
Table: Developed States - Crime And Security Risk
33
table: Developed States - Trade And Investment Risk
35
Chapter 5: Key Sectors
39
Autos
39
Table: Autos Total Market - Historical Data And Forecasts
40
Food & Drink
42
Table: Food Consumption Indicators - Historical Data & Forecasts
42
Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts
44
Tab le: Mass Grocery Retail Sales By Format - Hist orical Data & Forecasts
45
Other Key Sectors
47
Table: Oil and Gas Sector Key Indicators
47
Table: Pharma Sector Key Indicators
47
Table: Infrastructure Sect or Key Indicators
47
Table: Telecoms Sector Key Indicators
48
Table: Defence and Security Sector Key Indicators
48
Tab le: Freight Key Indicators
48
Chapter 6: BMI Global Assumptions
49
Global Outlook
49
New Era For Oil
49
Table: Global Assumptions
49
Table: Developed States, Real GDP Growth, %
50
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table: Emerging Markets , Real GDP Growth , %
51

The Japan Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Japan. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Japan's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Japan's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Japan's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Japan, including currency volatility, the commodity price boom and protectionist policies.

The Japan Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Japan' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Japan through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Japan Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Japan and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Japan, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Japan over the next 5-years?

BMI's Japan country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Japan Market - Political Strengths, Weaknesses, Opportunities and Threats facing Japan.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Japan's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Japan’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Japan's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Japan?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Japan against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

Key Sector Outlook*

Which industry sectors in Japan will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Japan's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express