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EconomicPoliticalStructural

Euromoney Country Risk editor’s view

Japan is the world’s third largest economy, behind the US and China. The current prime minister is Natao Kan. Japan is classed as a high income country and is a member of the OECD. One of the first Asian nations to industrialize, Japan achieved incredible levels of growth during the second half of the 20th century. The industrial sector in Japan is highly dependent on imports of raw materials and fuels.  Agriculture is the smallest economic sector in Japan and mainly involves fishing and farming, which is highly subsidized. Japan imports nearly 60% of its food. Japan’s growth slowed in the 1990’s following a severe financial crisis. In the aftermath of the Global Financial Crisis, government stimulus spending led to a moderate economic recovery, but the impact of the 2011 Japanese earthquake and tsunami has been far reaching, with the estimated cost of the damage ranging between $235 billion to $310 billion.

Japan – Quick View
ECR score74.66 (Mar 2011)
ECR rank25 (Mar 2011)
Economic
GDP (2010)USD 6,049.91 billion
GNI per capita PPP (2009)USD 33,470
FDI inflow (2009)USD 37.29 billion
Inflation (2009)-1.4%
Central bank assets (2011)USD 1,551.04 billion
Unemployment rate (2010)5%
Tax revenue (2010)USD 447.46 billion
Political
Government typeConstitutional monarchy
Recent political crisisNA
Economic freedom score (2011)6th
Freedom of information score (2010)11th
Corruption perception index (2010)17th
Structural
Birth rate (2009)8.5 (per '000)
Population balance (2010)Under 14 years - 12.96%
Population balance (2010)Above 64 years - 23.13%
Life expectancy years (2010)Males - 79.6 years
Life expectancy years (2010)Females - 86.4 years
Mortality rate (2009)9.1 (per '000)
Literacy rate99%
Internet access (June 2010)78.2%

[Top] Economic Overview

Japan has the third largest economy in terms of GDP at Purchasing Power Parity (PPP), coming after the US and China.  However, deflation and the growing value of the Yen are affecting the country’s economy.

 

Gross domestic product (GDP)

 

The average GDP amounted to JPY 541,431 billion up until 2010 Q3. The real GDP growth rate sharply declined to 6.3% in 2009 because of a drop in the wages of employees and rising job insecurity.  Furthermore, in 2010, real GDP recovered increasing to 1.6% in Q1, and then to 0.9% in Q3, due to higher domestic demands. 

 

(Source: guardian.co.uk)

 

Japan Average GDP and growth rate

(Source: National Statistics)

 

GDP per capita

 

In 2009, GDP per capita increased by 5.9%, and was estimated to be JPY 3,747,610 and JPY 3,762,909 for 2010 and 2011 respectively.

 

Japan GDP per capita (JPY)

E=Estimated

 

(Source: IMF)

 

GDP at PPP

 

In 2009, GDP at PPP was registered at USD 4,152.3 billion, decreasing 4.35% over the previous year.  However, it is estimated to increase by 3.76% in 2010.

 

Japan GDP at PPP (USD billion)

E=Estimated

 

(Source: IMF)        

 

Gross National Income (GNI)

 

GNI has declined by 6.4% over the past three years.

 

Japan GNI (JPY billion)

(Source: National Statistics)

 

GNI per capita at PPP amounted to USD 33,470 in 2009, as compared to USD 34,920 in previous year.

 

(Source: World Bank)

 

Income tax rate

 

In 2010, the income tax rate levied on an individual varied from 5% to 40%.

 

Tax Base (JPY)

Tax Rate (%)

0 - 1,950,000

5

1,950,001 - 3,300,000

10

3,300,001 - 6,590,000

20

6,950,001 - 9,000,000

23

9,000,001 - 18,000,000

33

18,000,001 and above

40

(Source: taxrates.cc)

 

Corporate tax rate

 

The corporate tax rate 40.87%. The Value-Added Tax (VAT) rate is 5%.

 

(Source: taxrates.cc)

 

Inflation rate

 

In 2008, inflation increased to 1.4%, due to a rise in the core consumer prices, but in 2009 the inflation rate dropped to 1.4%.   This deflation was due to unemployment, as there were only 43 jobs available per 100 job seekers.  Furthermore, the inflation rate is estimated to be -1% and -0.3% in the years 2010 and 2011 respectively.

 

(Source: guardian.co.uk)

 

Japan Inflation rate (%)

(Source: World Bank)

 

Foreign direct investment (FDI)

 

The foreign direct investments in Japan were JPY 3,486 billion, whereas direct investments abroad were JPY 9,313 billion.

 

Year

Inflow (JPY billion)

Outflow (JPY billion)

Direct investment abroad (by residents)

2009

9,313

16,302

2008

8,502

21,734

2007

9,126

17,787

2006

8,059

13,905

2005

6,788

11,834

Direct investment in Japan (by non-residents)

2009

3,486

2,369

2008

7,541

5,016

2007

7,996

5,341

2006

5,303

6,060

2005

3,318

3,012

 

(Source: National Statistics)

 

Banking sector assets

 

The total bank assets as of January 2011 were JPY 127,999 billion.

 

Central bank assets as on January 31st, 2011 (JPY billion)

Gold

441.2

Cash

354.00

Japanese government securities

76,884

Commercial paper

116.56

Corporate bonds

102.12

Pecuniary trusts

1,550.60

Loans

42,758.30

Foreign currency assets

5,222.62

Deposit with agents

17.28

Others

552.42

Total Assets

127,999

 

(Source: Central Bank)

[Top] Financial Indicators & Government Financial

Consumer Price Index (CPI)

 

CPI in 2010 was recorded at 99.6, increasing 0.1% over the previous year.

 

Consumer Price Index (CPI)

Major Group Index

2010

2009

Food

103.6

103.6

Housing

99.2

99.8

Fuel, light and water charges

106.3

106.1

Furniture and household utensils

88.8

93.9

Clothes and footwear

103.5

101.0

Medical care

98.9

99.3

Transportation and communication

98.0

97.4

Education

89.7

103.0

Reading and recreation

92.2

94.3

Miscellaneous

108.3

101.7

 

Base year: 2005=100

 

(Source: National Statistics)

 

Japan Consumer Price Index

 

CPI decreased in October 2008, due to weak demand and a decrease in core CPI by 1%.

 

(Source: National Statistics,Reuters)

 

Wholesale price index (WPI)

 

The Wholesale Price Index, known as the Domestic Corporate Goods Price Index in Japan was 103 in November 2010, increasing by 0.9% over the previous year. The increase was due to an upsurge in the prices of commodities such as crude oil and non-ferrous metal, and an increase in the tobacco tax rate.

 

Japan Wholesale price index

Base year: 2005=100

 

(Source: National Statistics, Nikkei.com)

 

Interest rates on savings deposits

 

The interest rate on savings deposit was 0.05% in 2009.

 

Rates on Savings deposit (%)

Amount (JPY)

2009

2008

Less than 0.3 million

0.05

0.08

0.1 million to 0.3 million

0.05

0.07

(Source: National Statistics)

Interest rate on time deposits

 

Rate on Time deposits (%)

Period

2009

2008

Deposits of JPY 10 million or more

3 months-6 months

0.27

0.46

6 months-1 year

0.32

0.49

1 year- 2 years

0.22

0.42

2 years-3 years

0.36

0.66

Deposits of JPY 3 million or more but less than JPY 10 million

3 months-6 months

0.44

0.33

6 months-1 year

0.12

0.31

1 year- 2 years

0.15

0.32

2 years-3 years

0.31

0.63

Deposits of less than JPY 3 million

3 months-6 months

0.42

0.28

6 months-1 year

0.08

0.18

1 year- 2 years

0.12

0.27

2 years-3 years

0.23

0.41

(Source: National Statistics)

Money supply (currency in circulation)

 

In February 2011, total money supply (M3) in Japan was JPY 1,085,323 billion.

 

(Source: National Statistics)

 

Money Supply (JPY billion)

Month

M1

M2

M3

Feb-11

502,395

784,415

1,085,323

Jan-11

499,449

781,700

1,082,256

Dec-10

501,349

782,328

1,082,940

Nov-10

493,482

778,905

1,078,623

Oct-10

493,382

778,470

1,078,411

Sep-10

490,855

778,863

1,078,948

Aug-10

491,634

778,966

1,079,738

Jul-10

493,759

778,807

1,079,911

Jun-10

493,499

778,333

1,078,360

May-10

497,478

777,319

1,076,675

Apr-10

496,719

775,879

1,075,148

Mar-10

488,071

766,175

1,065,154

Feb-10

482,769

763,507

1,063,106

Jan-10

486,927

766,797

1,066,462

 

(Source: National Statistics)

 

Government expenditure

 

In 2010, the government expenditure was higher in the sectors of social security (29.5%), national debt service (22.3%) and local allocation of tax grants (18.9%). 

 

 

Government Expenses

2010

2009

(JPY billion)

Social security

27,269

24,834

Education and science

5,586

5,310

Pensions

714

787

National defence

4,790

4,774

Public works

5,773

7,070

Economic cooperation

582

630

Small and medium sized business promotion

191

189

Energy measures

842

856

Food stable supply

1,160

866

Others

7,265

6,414

National debt service

20,649

20,244

Local allocation tax grants

17,478

16,573

Total Expenses

92,299

88,548

 

(Source: National Statistics)                

 

Official exchange rate

 

In 2009, the value of JPY decreased by 10.4%, as compared to 2008.

 

Japan Exchange rate (JPY/USD)

(Source: National Statistics)

 

 

Government finances

 

Total revenue

 

The total revenue collected in 2010 was registered at JPY 92,299 billion, decreasing 10% over the previous year. 

 

Japan Total revenue, 2010

 

Tax Revenue

 

The total tax revenue for 2010 was JPY 39,216 billion, increase of 2.4% over the previous year. The tax revenues collected from the Income tax and Consumption tax accounted for 32.6% and 25.9% of the total tax revenue.

 

Tax revenue (JPY billion)

Type of tax

2010

2009

Income tax

12,808

12,914

Corporation tax

7,489

6,356

Inheritance tax

1,271

1,349

Consumption tax

10,155

9,807

Liquor tax

1,383

1,416

Tobacco duties

827

822

Gasoline tax

2,576

2,715

Petroleum and coal tax

480

486

Automobile weight tax

447

635

Customs duties

756

732

Stamp revenues

1,024

1,067

 

(Source: National Statistics)

 

Current account balance

 

The current account balance as of October 2010 was JPY 14,362 million.

 

Current Account Balance (JPY million)

Oct-10

14,362

Sep-10

19,598

Aug-10

11,142

Jul-10

16,759

Jun-10

10,578

May-10

12,226

Apr-10

13,312

Mar-10

25,564

Feb-10

15,933

Jan-10

8,819

 

(Source: National Statistics)

 

Current account balance - surplus/deficit

 

The current account balance in 2009 was JPY 2,671 billion, as compared to JPY 2,063 billion in 2008.

 

Japan Current account balance (JPY billion)

(Source: National Statistics)

 

Balance of payments

 

Balance of Payments (JPY billion)

Year

Trade in goods

Trade in services

Total trade

Total Income

Current transfers

Current account

Capital account

2009

2,125

-1,913

4,038

12,325

-1,164

13,287

-12,179

2008

1,890

-2,138

4,028

15,842

-1,352

16,380

-17,831

2007

9,825

-2,497

12,322

16,327

-1,358

24,794

-22,065

2006

7,346

-2,118

9,464

13,746

-1,243

19,849

-11,913

2005

7,693

-2,642

10,335

11,382

-816

18,259

-13,458

(

 

 

 

 

 

 

 

 

 

 

 

Source: National Statistics)

[Top] Labour Force and Employment Overview

Labour force

 

The total labour force in 2010 was 65.9 million, out of which 62.5 million were employed, and the remaining people were unemployed, creating a total employment rate was 56.6%.

 

(Source: National Statistics)

 

Labour force participation rate

 

The Labour force participation rate till November 2010 was 59.4%, decreasing 0.5% over the previous year. Specifically, the participation rate for those age 15 to 64 was 74%. Furthermore, the labour force participation rate for males was 71.2%, while for females it was 48.5%.

 

(Source: National Statistics)

 

Unemployment Rate

 

In 2010, the total unemployment rate was almost 5%.  Specifically, the rate for males and females was 5.2% and 4.3% respectively.

 

Age Group

Unemployment Rate (%)

2010

2009

15-24

8.7

9.3

25-34

6.3

6.4

35-44

4.5

4.6

45-54

3.4

3.9

55-64

4.7

4.7

65 and above

2.3

2.6

 

(Source: National Statistics)

 

Employment in agriculture

 

The total number of people employed in the agriculture and forestry industry was 232,000 in 2010, showing a decrease of 4.1% over the previous year.

 

(Source: National Statistics)

 

Employment in industries

 

The total number of employees decreased by 2% from 2007 to 2009.  

Japan Employee in Industry (million)

(Source: National Statistics)

 

Level of unionisation

 

The three major trade unions in the country are: Rengo, with 6.6 million members, Zenroren, with 654,000 members, and Zenrokyo, with 132,000 members.

 

(Source: National Statistics)

 

Minimum wage

 

In 2009, the average monthly wage for a full time employee was JPY 355,000. Furthermore, the monthly wage was highest in December 2009, when it was JPY 655,000.

 

Japan Monthly wage (JPY '000)

(Source: National Statistics)

[Top] Political Stability

Government stability

 

After the Second World War in 1945, Japan has been a democratic country. The nation operates under a constitutional monarchy, with a parliamentary form of government. The Emperor has little involvement in the political system and is valued mainly for national ceremonial duties and functions.

 

The political parties active in the country include:

 

·         Liberal Democratic Party

·         The Democratic Party of Japan (DPJ)

·         New Komeito

·         Japanese Communist Party

·         and Social Democratic Party

 

The Liberal Democratic Party has been ruling the country for the past four decades. Currently, The Democratic Party of Japan is the ruling party with Naoto Kan as prime minister.

 

The Japanese Legislature Diet is the bicameral parliament, comprising of the upper house and the lower house, which are known as the House of Councillors and the House of Representatives respectively.

 

The Executive power rests with the cabinet, which consists of the prime minister and the Mmnister of state. The prime minister is a member of the Diet and serves a term of four years.

 

(Source: mofa, wa-pedia)

 

Regulatory environment

 

The country’s economic freedom score is 72.8 (out of 100), ranking it the 6th most free economy out of the 41 countries in Asia Pacific region.

 

(Source: heritage.org)

 

Japan Economic Freedom Index

(Source: heritage.org)

 

Corruption perception

 

Japan is ranked 17th on the World’s Corruption Perception Index, with a score of 7.7 (out of 10).

 

(Source: transparency.org)

 

Freedom of information

 

The World Press Freedom Index 2010 ranks Japan at 11th with a score of 2.50.

 

(Source: rsf.org)