Starting a Business in Japan

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Starting a Business in Japan

Japan is one of the most Westernized nations in Asia. Doing business in Japan has the added benefit of working in the showroom for the rest of Asia. Highly educated workforce The presence of over 600 universities in Japan means that university education is all but taken for granted.

Economy of Japan

The economy of Japan is a highly developed free-market economy. It is the third-largest in the world by nominal GDP and the fourth-largest by purchasing power parity (PPP). and is the world’s second largest developed economy.

Japan is the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings. Facing increasing competition from China and South Korea,manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical instruments, hybrid vehicles, and robotics.

Japan GDP Economic Sectors

Japan Economic Indicators

Japan GDP Growth Rate

Japan’s industrialized, free market economy is the fourth biggest in the world. Japan has the largest electronics industry and the third largest automobile industry in the world. Japan’s economy is well-known by its efficiency and competitiveness in exports oriented sectors, but productivity is lower in areas such as agriculture, distribution, and services.Japan’s industrialized, free market economy is the fourth biggest in the world. Japan has the largest electronics industry and the third largest automobile industry in the world. Japan’s economy is well-known by its efficiency and competitiveness in exports oriented sectors, but productivity is lower in areas such as agriculture, distribution, and services.

Japan GDP Growth Rate
Source: Cabinet Office, Japan
Japan Interest Rate
Japan Interest Rate
Source: Bank of Japan
Japan Inflation Rate

In Japan, the most important categories in the consumer price index are Food (25 percent of total weight) and Housing (21 percent). Transportation and communications accounts for 14 percent; Culture and recreation for 11.5 percent; Fuel, light and water charges for 7 percent; Medical care for 4.3 percent; Clothes and footwear for 4 percent. Furniture and household utensils, Education and Miscellaneous goods and services account for the remaining.

Japan Inflation Rate
Source: Ministry of Internal Affairs & Communications
Unemployment Rate Japan

In Japan, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force. Unemployment Rate in Japan remained unchanged at 3 percent in September from 3 percent in August of 2020.

Unemployment Rate Japan
Source: Ministry of Internal Affairs & Communications
Japan Government Dept to GDP

Japan recorded a government debt equivalent to 236,60% of the country’s Gross Domestic Product in 2019.

Japan Government Dept to GDP
Source: Ministry of Finance, Japan
Japan Balance of Trade

Between 1980 and 2010 Japan had been recording trade surpluses every year due to rising exports. However, the trade balance swung to deficit in 2011, as the Fukushima nuclear disaster forced the country to increase its purchases of fossil fuels and gas in the wake of weaker yen. The surplus was back in 2016 and 2017, but in 2018 and 2019 Japan’s trade balance shifted back into deficit amid persistent trade tensions between the US and China, and sluggish global growth. In 2019, Japan reported the biggest trade surpluses with the US, Hong Kong, South Korea, Taiwan, Singapore and the Netherlands. The biggest trade deficits were recorded with China, Australia, Saudi Arabia, the UAE and Qatar.

Japan Balance of Trade
Source: Ministry of Finance, Japan
Japan Currency Yen

The USDJPY spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the JPY.

Japan Currency Yen

Japan Stock Market Nikkei

The Nikkei 225 Stock Average Index is a major stock market index which tracks the performance of 225 top rated companies listed in the First Section of the Tokyo Stock Exchange. It is a price-weighted index. The Nikkei 225 has a base value of 176.21 as of May 16, 1949.

Japan Stock Market Nikkei

Japan Ease of Doing Business

Japan is ranked 29 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Japan improved to 29 in 2019 from 39 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Ease of Doing Business in Japan
Source: World Bank
Japan Business Confidence

The Bank of Japan’s Tankan index for big manufacturers’ sentiment rose to -27 in the third quarter of 2020 from an eleven-year low of -34 in the previous period, but still came below consensus of -23, as the coronavirus pandemic continued to hit activity and global demand. Sentiment remained sharply weak among firms producing motor vehicles (-61 vs -72 in Q2), lumber & wood products (-59 vs -53), iron & steel (-55 vs -58), production machinery (-43 vs -37), nonferrous metals (-36 vs -39), shipbuilding (-34 vs -46), textiles (-33 vs -38), pulp & paper (-26 vs -33), chemicals (unchanged at -19), business-oriented machinery (-18 vs -29), general-purpose machinery (-16 vs -26), and electrical machinery (-15 vs -28). Among non-manufacturing large firms, sentiment recovered to -12 from a 10-1/2-year low of -17, and compared with expectations of -9.

In Japan, the quarterly Tankan Index of Sentiment at Large Manufacturers covers about 1,100 companies with capital over 1 billion Yen. The survey is done by mail or e-mail and asks participants to evaluate current trends and conditions in the business place and their respective industries as well as their expected business activities for the next quarter and year. The indicator is calculated by subtracting the percentage share of enterprises responding on the negative side from the share giving positive assessments. The index varies on a scale of -100 to 100 such that a value above zero indicates business optimism, a value below zero pessimism and 0 indicates neutrality.

Japan Business Confidence
Source: Bank of Japan
Japan Consumer Confidence

The Consumer Confidence Index in Japan increased to 33.6 in October 2020, the highest since February but below pre-pandemic levels. All of the main sub-indices improved: overall livelihood (up 1.1 points to 36.2); income growth (up 0.5 points to 35.3); employment perceptions (up 1.1 points to 27.1); and willingness to buy durable goods (up 0.8 points to 35.7).

In Japan, the Monthly Consumer Confidence survey data is collected by direct visit and covers about 4,700 households consisting of more than two persons. The questionnaire covers four subjects: consumer perceptions of overall livelihood, income growth, employment and willingness to buy durable goods. For each subject an index based on the respondents’ evaluation of what they consider the prospects to be over the next six months is created. The Consumer Confidence Index is the simple average of the four consumer perception indexes. A score above 50 indicates optimism, below 50 shows lack of confidence and 50 indicates neutrality.

Japan Consumer Confidence
Source: Cabinet Office, Japan
Japan Bank Lending Rate

Bank Lending Rate in Japan remained unchanged at 1 percent in October from 1 percent in September of 2020.

In Japan, the Long Term Prime Rate is the average rate of interest charged on loans by commercial banks to private individuals and companies. The Long Term Prime Rate is adopted and released by Mizuho Corporate Bank.

Japan Long Term Prime Rate
Source: Bank of Japan
Japan Corruption Rank

Japan is the 20 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.

Japan Corruption Rank
Source: Transparency International
Japan Credit Rating

Standard & Poor’s credit rating for Japan stands at A+ with stable outlook. Moody’s credit rating for Japan was last set at A1 with stable outlook. Fitch’s credit rating for Japan was last reported at A with negative outlook. DBRS’s credit rating for Japan is A (high) with stable outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Japan thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for Japan as reported by major credit rating agencies.

Taxation in Japan

Taxation in Japan is based primarily upon a national income tax and a residential tax based upon one’s area of residence. There are consumption taxes and excise taxes at the national level, an enterprise tax and a vehicle tax at the prefectural level and a property tax at the municipal level.

Corporate tax Personal income tax VAT or sales tax Social Security Rate for Companies
Social Security Rate for Employees
30,62% 15,105% (5.105% national + 10% local) – 55,945% (45,945% national + 10% local) 10% (standard rate)
8% (groceries and takeout food)
14,75% 14,45%

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