World gdp, int trade, international investments, migration of labor force, tourism, the effect of the

pandemic

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1. Japan is the third-largest economy in the world, with its GDP crossing the $5 trillion mark in
2019. The financial crisis of 2008 rocked the Japanese economy and it has been a challenging
time for its economy since then. The global crisis triggered a recession, followed by weak
domestic demand and huge public debt. When the economy was beginning to recover, it
suffered a massive earthquake that hit the country socially and economically. While the
economy has broken the deflationary spiral, economic growth remains muted.
Its economy will get some stimulus with the 2020 Olympics keeping the investment flow strong,
which is backed by a lax monetary policy by the Bank of Japan. Japan slips to the fourth spot
when GDP is measured in terms of PPP; GDP (PPP) is $5.75 trillion in 2019, while its GDP per
capita is $40,850 (24th spot).

2. Japan’s economy was the worlds’ second largest (behind the US) from 1968 until 2010, when it
was overtaken by China. Its gross domestic product (GDP) in 2016 was estimated to be USD 4.7
trillion, and its population of 126.9 million enjoys a high standard of living, with per capita GDP
of just below USD 40,000 in 2015.
From the 1960s to the 1980s, Japan achieved one of the highest economic growth rates in the
world. This growth was led by:
 High rates of investment in productive plant and equipment
 The application of efficient industrial techniques
 A high standard of education
 Good relations between labor and management
 Ready access to leading technologies and significant investment in research and development
 An increasingly open world trade framework
 A large domestic market of discerning consumers, which has given Japanese businesses an
advantage in their scale of operations.

Manufacturing has been the most remarkable, and internationally renowned, feature of Japan’s
economic growth. Today, Japan is a world leader in the manufacture of electrical appliances and
electronics, automobiles, ships, machine tools, optical and precision equipment, machinery and
chemicals. In recent years, however, Japan has ceded some economic advantage in manufacturing to
China, the Republic of Korea and other manufacturing economies. Japanese firms have countered this
trend to a degree by transferring manufacturing production to low-cost countries. Japan’s services
sector, including financial services, now plays a far more prominent role in the economy, accounting for
about 75 per cent of GDP. The Tokyo Stock Exchange is one of the world’s foremost centers of finance.

3. The Japanese economy advanced 5 percent on quarter in the three months to September 2020,
partially recovering from a record slump of 8.2 percent in the previous period and beating
market consensus of 4.4 percent, a preliminary estimate showed. This was the first quarterly
growth rate in a year, as activity and demand rebounded from the severe damage caused by the
COVID-19 crisis. Private consumption rose for the first time in four quarters (4.7 percent vs -8.1
percent in Q2), while capital expenditure contracted at a softer pace (-3.4 percent vs -4.5
percent). In addition, net external demand added 2.9 percentage points to the GDP as exports
grew for the first time in three quarters (7 percent vs -17.4 percent) while imports tumbled (-9.8
percent vs 2.2 percent). On an annualized basis, the economy grew at a record 21.4 percent in
Q3, after a record plunge of 28.8 percent in Q2.

Japan is a significant export economy and exports in excess of $700 billion of goods annually,
making it the fourth-largest export economy in the world. The country enjoys a positive trade
balance of $59.2 billion, with total annual exports of $713 billion exceeding imports of $653
billion.
4. Japan recorded a trade surplus of JPY 872.9 billion in October of 2020, compared with a JPY 11.2
billion surplus a year earlier and market expectations of a JPY 250 billion surplus. It was the
fourth straight month of surplus and the largest since February, as exports fell by 0.2 percent
year-on-year to JPY 6.57 billion while imports dropped at a faster 13.3 percent to JPY 5.69
billion. Considering the first ten months of the year, Japan posted a trade gap of JPY 420.5
billion, narrowing from a JPY 1,420.3 billion shortfall in the same period of 2019.

5.
International trade contributes significantly to the Japanese economy, with exports equivalent
to approximately 16% of GDP. Key exports include vehicles, machinery and manufactured goods.
In 2015-16, Japan’s major export destinations were the United States (20.2 per cent), China
(17.5 per cent) and Republic of Korea (7 per cent). Despite a weaker yen as a result of
stimulatory economic initiatives, export growth remains sluggish.

6. Japan has few natural resources and its agricultural sector remains heavily protected. Japan’s
main imports include mineral fuels, machinery and food. In 2015, leading suppliers of these
goods were China (25.6 per cent), the United States (10.9 per cent) and Australia (5.6 per cent).
Recent trends in Japanese trade and foreign investment have reflected a much greater
engagement with China, which overtook the United States as Japan’s largest trading partner in
2008.
FDI
7. 8.FDI flows to Japan remain low compared to most other developed nations across the world
and relatively unstable. According to UNCTAD's 2020 World Investment Report, FDI reaching
USD 14,5 billion in 2019, up from USD 9,8 billion in 2018. FDI stocks in Japan were estimated in
2019 at about USD 222,5 billion. Japan remained the largest investor in the world. Japanese
multinationals' investments grew by 58%, reaching a record $227 billion, due to an increase in
cross-border mergers and acquisitions. Japanese multinationals have doubled their investments
in Europe and North America. The united States, the united Kingdom, France, and South Korea
were the main investing countries and represented nearly 85% of the FDI inflows. Investments
are mainly oriented towards electric machinery, finance and insurance, chemicals and
pharmaceuticals, transportation equipment production and real estate.
Finally, Japan ranked 29th out of 190 countries in the World Bank's 2020 Doing Business report,
an increase from 2019, when it ranked 39th. The country has a solid net foreign creditor position
and external indicators are generally robust. Japan is actively opening its doors to foreign
business, as it's aiming to create the best possible environment for overseas investors, backed
by Prime Minister Shinzo Abe’s pro-global business policy known as Abenomics. The country's
key strengths are its position as a leader in advanced technology and R&D. The potential barriers
to investment are essentially demographic, linguistic and cultural. The disaster that hit Japan in
2011 (the devastating earthquake and tsunami), as well as the environmental and health
concerns related to the situation at the Fukushima Daiichi nuclear power plant, continue to hold
back future foreign investment. Nevertheless, Japan remains a key market for investors.
Moreover, the Japanese economy has been financing the reconstruction of the country without
too much difficulty, thanks to a surplus of savings accumulated in recent years. Prime Minister
Shinzo Abe's growth strategy aims to double the value of FDI by 2020 compared to the end of
2012. The government has been incorporating rules for corporate governance, gradually
reducing the effective corporate tax, and has established R&D centers and special economic
zones in order to become the world’s most business-friendly nation.

9. The rapid ageing of Japan’s population is set to reduce the size of the workforce and tax
revenues, while placing increasing demands on health and welfare expenditure. Labor-market
reforms to increase participation are among the measures being used to counter this trend.
Japan enjoyed a sharp uptick in growth in 2013 on the basis of Prime Minister Shinzo Abe’s
‘Three Arrows’ economic revitalization agenda of monetary easing, ‘flexible’ fiscal policy and
structural reform.

With its phenomenal economic revival from the ashes of World War II, Japan was one of the first
Asian countries to climb the value chain from cheap textiles to advanced manufacturing and
services – which now account for the majority of Japan’s GDP and employment. Primary
industries, including agriculture, account for just 1 per cent of GDP.

Labor migration
In 2019, Japan began to set aside the decades-old distinction in its migration regime between “un-/low-
skilled” work and highly skilled professional employment, hoping to bring in as many as 350,000
medium-skilled foreign workers over five years to fill labor market gaps in a rapidly aging society.
The changes ushered in with legislation passed by Japan’s Diet in December 2018 make possible labor
migration for two categories of medium-skilled workers in 14 labor-shortage sectors. One category is for
temporary workers who can remain a maximum of five years; the second allows unlimited visa renewals
and accompaniment by family members, inherently opening a path to permanent settlement.

The system is intended to flexibly adjust admissions in response to economic conditions, setting a
maximum cap of 350,000 migrants over five years. There has been strong interest in this new
employment pathway, particularly from workers in Vietnam, the Philippines, Cambodia, and Thailand.
Yet while a projected 32,800 to 47,500 worker visas were expected to be granted in fiscal year 2019
(April 1, 2019 – March 31, 2020), just 1,621 foreign residents held this visa ten months into the fiscal
year. This small number undoubtedly reflects a lag required to establish the organizational and
procedural infrastructure.

Despite the 2008-09 global financial crisis and the triple disasters (earthquake, tsunami, and nuclear
breach) experienced by northeastern Japan in 2011, the total noncitizen population increased by about
20 percent between 2007 and 2017, from about 2.1 million in 2007 to nearly 2.6 million in 2017.

Tourism
Japan is an important global hub of commerce, technology, cuisine, popular culture, and shopping. In
recent years, it has been riding a wave of rising tourism. After relative stagnation from 2006 to 2010,
Japan's inbound tourism grew by 33 percent a year from 2011 to 2015.11 In 2014, Japan was ranked
22nd among all destinations by number of inbound tourists,12 and it should move up several notches
when 2015 figures are released.

Given the exponential growth in tourism income over the same period, the Japanese government
recognizes that inbound tourism could be an important engine of economic growth and regional
revitalization. However, the impact of tourism on Japan's GDP is still relatively low: tourism income
represents just 0.5 percent of GDP, significantly lower than popular destinations in Asia such as Thailand
(10.4 percent) and developed countries such as France (2.4 percent) and the United States (1.3 percent).

Economic challenges facing Japan in 2021

1. The Corona virus pandemic - Japan was preparing to host the 2020 Olympics, which would have
been an economic boost, but then the Coronavirus hit, and the decision was made to postpone
the Olympics to the summer of 2021. As the coronavirus spread, Japan’s economy was on the
brink of a recession because of a slump in Chinese demand for Japanese exports and reduced
consumer spending. While Japan has lifted the state of emergency in 39 out of its 47
prefectures, as of May 2020, the economic outlook remained gloomy. Reuters' analysts
expected the country's economy to shrink 5.6% in the current fiscal year ending in March 2021.
A $1 trillion stimulus package was instituted by the Japanese government and, in April, the Bank
of Japan expanded its stimulus measures for the second straight month. Prime Minister Shinzo
Abe has continued to fund spending initiatives to mitigate the economic damage caused by the
pandemic.
2. Sales tax hike - In addition to the pandemic, consumers in Japan were also subjected to a sales
tax hike from 8% to 10% in October 2020.3 The government increased the sales tax to fund
social welfare programs including pre-school education and to pay down the nation's massive
public debt load. Of course, higher sales taxes cause people to spend less. Therefore, to mitigate
the negative effects on spending, the government introduced measures, including rebates
purchases made using electronic payments. Consumers were eligible for a 5% rebate on
purchases made using electronic payments at some smaller retailers, negating the 2% tax rise.
The government also hoped that the rebates would encourage electronic payments and lessen
the nation's reliance on cash.
3. Dwindling Exports - Japan has been experiencing less global demand for its exports. For
example, electronic equipment and car parts. Japan relies heavily on exporting and many of its
biggest brands, such as Toyota and Honda, have seen global sales slump. Global consumer
demand has been severely impacted by coronavirus lockdowns worldwide. Japanese
manufacturers are falling behind because they rely on foreign demand. According to Deloitte
Insights, exports and manufacturing production are highly correlated in Japan. "In May,
manufactured goods exports fell 23.8% from a year earlier, while manufacturing production was
down 25.9% over the same period," said Deloitte. 4 Unfortunately, the pickup in global demand
that Japanese manufacturers so desperately need seems unlikely any time soon. Tourism is a
large part of the Japanese economy, but this industry has also been hit hard as the pandemic
keeps foreign visitors away. The outlook for Japanese international trade is influenced by a wave
of protectionism that risks lowering global trade volumes. There are also heightened geopolitical
tensions that further threaten Japanese exports and foreign direct investments.
4. The outlook for Japan - As is the case for most countries' economies, the global pandemic
means that the outlook is bleak for the Japanese economy in the short term. There is also
increasing tension between Japan and China over disputed islands in the East China Sea where
previous conflict over the islands resulted in anti-Japanese protests and boycotts.
However, despite tensions with China and being the first of the world's top three economies to
officially fall into recession, the country actually appears to be doing better than other major
economies.
Overall, Japan’s policymakers have provided ample fiscal and monetary stimulus to cushion the
fall in demand and support the economic during the worst times of the pandemic. However,
consumer spending will remain low as the risks from the pandemic linger. Manufacturers will
continue to struggle with weak global demand, a strong currency, and geopolitical risks. Japan’s
economy should improve from here, but growth is likely be slow.