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Overseas Business Risk - Japan

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Overseas Business Risk - Japan

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This guidance provides information on important security and political risks which UK businesses may face when operating in Japan.

1.Political

Japan is a constitutional monarchy. The power of the Emperor is limited to ceremonial duties, though he acts as head of state on diplomatic occasions. The government is composed of the Executive, the Legislature and the Judiciary, with separation of powers. Executive power is vested in the Cabinet, led by the Prime Minister as head of government. Legislative power is vested in the National Diet, a bicameral parliament, consisting of a House of Representatives (Lower House) with 465 seats, elected by popular vote every four years or when dissolved; and a House of Councillors (Upper House) of 248 seats, whose popularly elected members serve six-year terms, with elections every three years for half of the members.

In Lower House elections during October 2017, the centre-right Liberal Democratic Party (LDP) retained the largest number of seats. Then-leader Shinzo Abe was replaced as Prime Minister by Yoshihide Suga in September 2020, following Abeís resignation and a party internal election. The government remains a coalition government of the LDP and the centrist Komeito party.

Prime Minister Sugaís current focus is on tackling the economic and health impacts of Covid-19 on Japan, which includes robust border controls (see ourtravel advicefor the latest). Wider domestic policy platforms include economic and structural reform, digitalisation, cutting bureaucracy and tackling issues arising from a low birth rate and ageing population. .

2.Regional and international issues

Japan is a member of the G7, G20, APEC, and ASEAN+3, and is a strong supporter of the current rules-based international system. Japanís alliance with the United States is the cornerstone of its foreign and security policy. The US maintains a significant military presence in Japan, and is committed through the alliance to guaranteeing Japanís security. In a phone call with Prime Minister Suga in January 2021, President Biden reaffirmed the US commitment to the defence of Japan and its commitment to provide extended deterrence to Japan.

Although Japan and China remain major trading and investment partners, relations remain strained by disagreements over the sovereignty of a group of uninhabited islands in the East China Sea, over which Japan has administrative control. They are known as the Senkaku islands in Japan (the Diaoyu islands in China, and the Diaoyutai in Taiwan, which also claims the islands). The Japanese and Chinese Coast Guards have operated in close proximity around the islands in recent years, leading to fears of an accidental clash. Some measures have been put in place to manage tensions, although the potential for miscalculation remains high.

Japan and Russia contest the sovereignty of four islands located between the Japanese island of Hokkaido and Russiaís Kamchatka Peninsula, known as the Northern Territories in Japan and the Southern Kuriles in Russia. Japan also disputes the sovereignty of a group of islets between South Korea and Japan, known as Dokdo in South Korea and Takeshima in Japan. Neither of these disagreements is currently the cause of direct security confrontations, although they have strained political ties between the claimant countries. Prime Minister Suga has continued former Prime Minister Abeís policy of pursuing negotiations to conclude a peace treaty with Russia, resolving the dispute over the Northern Territories. However there has been little progress to-date.

Japanís 2020 Defence White Paper noted continued North Korean development of missile technology, including short range ballistic missiles which make early detection of launch and interception more difficult, alongside the continued threat from nuclear weapon development. Japan supports continued pressure on the DPRK, including by pressing China to use its influence on Pyongyang, and through enforcement of UN Security Council Resolutions.

Prime Minister Suga has continued to emphasise Japanís focus on a free and open order based on the rule of law in the Indo-Pacific region, working with the US and others including Australia, India, ASEAN states and Europe to realise Japanís concept of a Free and Open Indo-Pacific (FOIP). Japanís FOIP framework aims to promote free trade, support multilateral organisations and underpin the international rule of law. T Some observers see it as a response to Chinaís Belt and Road Initiative, though Japan insists both frameworks are not in competition. Domestically PM Suga has outlined his intention to enhance Japanís deterrence capabilities, including through procurement of Aegis equipped vessels. The Government of Japan is also paying closer attention to economic security, including measures to prevent inappropriate foreign ownership or use of Japanese territory.

3.Economic

Japan is the third largest economy in the world. It is the UKís largest export market after Europe, the US and China, and one of the leading inward investors in the UK. With a GDP more than one and a half times the size of the UK and GDP per person about four times that of China, Japan remains the high-tech powerhouse economy of Asia Ė with the second highest spend worldwide on R&D, a keen appetite for developing intellectual property and new trends, and an increasingly globalised outlook. Japanís households hold financial assets of 1,618 trillion yen (more than 300% of GDP). Japanís major growth driver is exports, despite external demand accounting for only 17.4% of its GDP. Average annual economic growth since 2012 has been around 1%. The IMF expects the economy to grow by 1% in 2019 and 0.5% in 2020.

A crucial long term challenge for Japan is its rapidly ageing and declining population, projected to drop from 127 million people to below 100 million in 2053 and to 88 million people in 2065.

To help address these issues, drive growth and combat deflation the Japanese government initiated in 2012 an economic policy known as ĎAbenomicsí, deploying the three Ďarrowsí of monetary easing, a flexible fiscal policy, and structural reforms. These were augmented by additional Ďarrowsí in 2015, which included measures to address population decline. The government has deployed initiatives in pursuit of these objectives and the central bank adopted bold and unconventional monetary policy, embarking on large-scale quantitative and qualitative easing.

Japanís public sector debt, the worldís largest, currently stands at over 245% of GDP. The consumption tax is planned to rise from the current 8% to 10% in October 2019, having increased from 5% to 8% in 2014. Some progress has been made with structural reforms, notably energy market liberalisation, agricultural co-operatives, and corporate governance. In retrospect, Abenomics has succeeded in providing stability to the Japanese economy, but has not so far realised its headline 2% inflation target. With Prime Minister Abe expected to continue in office until 2021, the fundamentals are anticipated to remain as policy, though now more as business-as-usual than a high profile initiative.

Japan has also focussed on progressing free trade agreements. Despite US withdrawal, the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP) entered into force at the end of 2018 for the remaining members, including Japan, while the EU-Japan Economic Partnership Agreement (EPA) came into force in February 2019. Both agreements should help raise Japanís economic growth.

As a country with limited natural resources, Japan is dependent on imports, especially oil and gas, food and raw materials for industrial production. This dependence increased in the aftermath of the 2011 tsunami that resulted in the closure of all nuclear reactors in Japan causing a massive increase in energy imports. Some nuclear reactors have since resumed operation, with nine now restarted.

Japanís economy was ranked highly in a pair of recent major global economic studies:

  • Japan was ranked 5th in the 2018 World Economic Forumís Global Competitiveness Report which gives significant attention to Japanís current economic environment
  • Japan ranked 39th in the 2019 World Bankís Ease of Doing Business report

4.Human rights, transparency and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national nor resident in the UK nor a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Japan rates highly in personal freedoms. Japan has an independent judiciary and a strong commitment to the rule of law. Japan meets the majority of international standards on civil and political rights, although periodic reports by the UN Human Rights Committee amongst others continue to raise concerns surrounding issues like gender equality, hate speech and racial discrimination, media freedom, Japanís application of the death penalty, very high conviction rates and accusations of the use of forced confessions during interrogation.

In 2019 Japan was ranked 20 out of 180 countries and territories in Transparency Internationalís corruption perception index (CPI). However, it lags behind many western countries in terms of civil service governance and anti-corruption law, in public procurement and whistleblower protection. Business gifts are exchanged in Japan much more than in Europe, and this can cause unease among newcomers to the Japanese market. Visit the Business Anti-Corruption portal page providing advice and guidance about corruption and some basic effective procedures you can establish to protect your company from them and see the information provided on the GOV.UK ]Bribery and corruption page*https://www.gov.uk/anti-bribery-policy).

5.Crime

Crime levels in Japan are low. It is generally safe to walk about at night and travel on public transport, but you should maintain the same level of vigilance as you would at home and take sensible precautions. Personal attacks, including sexual assault and rape are rare, but do happen. Reports of inappropriate touching of female passengers on commuter trains are fairly common. Police advise victims to shout out to attract attention and ask fellow passengers to call train staff.

The entertainment districts of Tokyo (chiefly Roppongi and Shinjuku) are considered higher risk areas for crime, in particular at night. British nationals have been arrested following disputes with bar staff and doormen. There have also been reports of drink spiking, credit card fraud, extortion, robbery, assault and sexual assault in clubs and bars. Victims have described waking up, often in an unknown location, with no memory of the preceding hours and finding out that large amounts have been billed to their credit card.

6.Terrorism and protective security

Despite no recent history of terrorism, attacks canít be ruled out. You should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by foreigners. There is considered to be a heightened threat of terrorist attacks globally against UK interests and British nationals, from groups or individuals motivated by conflicts in the Middle East. You should continue to be vigilant.

There are regular small-scale public demonstrations about the United States presence in Okinawa and the governmentís restart of nuclear power plants, but these have been peaceful, with the peopleís right to peaceful protest respected. Trucks with mounted loudspeakers are occasionally seen in urban areas espousing a variety of, usually right-wing, political positions, but these are not usually associated with violent acts.

7.Intellectual property

The intellectual property framework in Japan is based on similar principles to the UK. Legislation is relatively clear and well enforced.

The Japan Patent Office website contains useful information in English. The average waiting time in Japan for first actions on patent applications was reported in 2019 to be less than 10 months.

Please refer to the World Intellectual Property Organisation (WIPO), and the Madrid Protocol for the international registration of marks, to which Japan is a party.

Further information is provided on the GOV.UK intellectual property page.

8.Natural disasters

8.1 Earthquakes and tsunamis

Japan is in a major earthquake zone, and visitors should familiarise themselves with safety procedures in the event of an earthquake or tsunami, and take note of instructions in hotel rooms.

8.2 Tropical cyclones

Japanís tropical cyclone (typhoon) season runs from June to December with most activity between July and September. Southern parts of the country are particularly at risk.

Typhoons that hit Japan are often accompanied by damaging high tides. People living in coastal areas are particularly at risk. Landslides and flooding can occur anywhere. The dangers increase when an earthquake occurs shortly after a typhoon has saturated an area.

8.3 Nuclear incident in Fukushima in 2011

Based on guidance from UK government scientists, the FCDO advise against all travel to the exclusion zones around the Fukushima Dai-ichi Nuclear Power Plant identified by the Japanese authorities. These exclusion zones are kept under review, and anyone entering illegally is liable to be fined.

Japanese authorities carry out comprehensive checks to monitor radiation in the area surrounding Fukushima and possible contamination of water,food and produce. Strict controls are imposed where necessary. Reports continue about leaks of contaminated water from the site. These are being monitored by UK government scientists.

While the situation at Fukushima will remain of concern for some time, risks are declining.

gov.uk

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