Overseas Business Risk - Japan

Information on key security and political risks which UK businesses may face when operating in Japan.

Political and Economic

The Democratic Party of Japan (DPJ) won a majority in the election for the House of Representatives in August 2009. They campaigned for a manifesto including governmental reform and the elimination of wasteful projects, child support policies, support to the agricultural sector and the abolition of motorway tolls. In September 2009, president of the DPJ, Yukio Hatoyama was elected as Prime Minister. However, in June 2010, Hatoyama resigned due to lack of fulfilments of his policies, both domestically and internationally and soon after, Naoto Kan succeeded the post. Kan suffered an early setback in the  House of Councillors election in 2010. Despite falling popularity, Kan rejected calls to step down while the country continued to suffer from the earthquake, tsunami, and nuclear crises of 11 March 2011. With passage of three bills (second supplementary budget, bond issuance and renewable energy) which he made final conditions for his departure, Kan finally resigned in August after just over a year in office.

DPJ’s new president and former finance minister of Kan’s cabinet, Yoshihiko Noda was cleared and elected by the Diet as 95th Prime Minister (Japan’s sixth new Prime Minister in five years) on 30 August 2011. The formation of a new government offers some glimmer of hope of more stable governance. A low-key pragmatist and deficit hawk, Noda has restored some authority to the bureaucracy, tried to forge party unity and sought to cooperate with the oppositions. In his policy speech, Noda signalled a strong sense of continuity with the policies of the preceding Kan government. Noda said that reconstruction would be his government’s top priority. The government would prepare a new growth strategy by the end of the year and a new energy policy by summer 2012 to address the impact of the March disaster and radiation crisis on the economy. He promised to restart nuclear plants following safety checks, but also echoed in general terms Kan’s pledge to reduce Japan’s reliance on nuclear energy over the long term.

After two months since his appointment, Noda is still relatively highly regarded among both public and bureaucrats. His current support rate has slipped but is still about 50%. Senior officials speak well of him, which is different from recent prime ministers. However, PM Noda has various challenges in front of him to drive forward a sustainable recovery. Such challenges include the TPP (Trans-Pacific Partnership) negotiations and tax increases for financing reconstruction efforts. The fate of the administration could hinge on its ability to achieve these goals.

Economic and UK/Japan Trade & Investment overview

Japan is the third largest economy in the world, after the US and China. Although Japan has recently fallen behind China in GDP terms and growth is much faster in China, GDP per capita is still 10 times that of China and Japan has a much higher quality business environment. One crucial long term challenge for Japan is its ageing and declining population, projected to be 117 million people in 2030 and below 90 million people in 2055 (currently 128m).

UK total trade with Japan in 2009 was 18 billion pounds, with Japan the largest export market outside of Europe and the US, although it is likely that China is now a larger export market for the UK. China and the US account for similar shares of exports of goods and services from Japan, but China is by far the largest export market for goods.

Financial services continue to be the biggest UK export to Japan at nearly 35% of the total, despite the Lehman crisis. Medical and pharmaceutical products, power generating machinery and equipment and travel services also remain key export sectors. Machinery and transport equipment made up 36% and chemicals and related products made up 30% of UK goods exports to Japan in 2010. (56)

Nearly 70% of Japan’s 21.3 billion pounds of direct investment into the UK is in non-manufacturing industries, mainly finance and insurance and wholesale and retail. Among the manufacturing industries, which are 30% of Japan’s investment into the UK, glass and ceramics and machineries occupy half the share.

Recent events

Man looking at computer screen

Japan’s steady recovery path was suddenly disrupted by the massive earthquake in northeast Japan on 11th March. It was the fourth largest earthquake on record and more than 23,000 people are either confirmed dead or still missing. Lifelines and infrastructure were heavily damaged in Tohoku region.

The earthquake caused a serious tsunami and nuclear accident in Fukushima, about 150 miles northeast from Tokyo. The Japanese Government made an initial estimate of the damage to be between 3 to 5% of GDP, which is up to £190bn, the most expensive natural disaster in history. But the full extent of the damage is not yet clear and the cost could be adjusted in the future.

Japan is open for business

This includes Tokyo and surrounding areas, as well as Western Japan which was not directly affected by the earthquake and its aftermath.  There are some localised exceptions, primarily around the Fukushima Daiichi Nuclear Power Plant, and coastal areas in north-east Japan.

Japanese business is eager to play its part in the recovery and is eager to trade with the UK and other countries. We have organised several large UK trade missions to Tokyo and Osaka in recent months, and the number of UK companies seeking our assistance to enter the Japanese market since the summer is actually higher than at the same time last year.

It is therefore a good time for UK companies and business to enter or further explore the Japanese market. Japanese companies are looking for assistance in meeting the considerable challenges posed by the disaster and its aftermath. There are therefore a number of opportunities for UK companies with particular expertise in areas such as: computing, low carbon technologies, energy generation, nuclear decommissioning, business continuity and life sciences/healthcare

More information on political risk, including political demonstrations is available in FCO Travel Advice.

Bribery 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 or resident in the UK or 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.

In 2010 Japan was ranked joint 17, with the United Kingdom, out of 180 countries in Transparency International’s corruption perception index (CPI) and received a “strong” rating in the 2008 Global Integrity Index. It lags behind many western countries however in terms of civil service governance and anti-corruption law, and 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 in China and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Read the information provided on our Terrorism threat page

Protective Security Advice

Read the information provided on our Protective security advice page

Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, you should consider registering your IP rights in your export markets.

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.

Read the information provided on our Intellectual Property page.

Organised Crime

Japan has a number of organised crime syndicates, yakuza. These groups tend to operate in the entertainment and construction industries in particular. Companies operating in Japan should be prepared for approaches from the yakuza and develop appropriate contingency plans.

Read the information provided on our Organised crime page.