Country Profile: Japan

• The Japanese economy, the world’s second largest developed economy, is also the third-largest in the world in terms of nominal GDP and fourth largest in terms of purchasing power parity.
• It has the world’s second-largest foreign-exchange reserves worth US$ 1.3 trillion and ranks 39th on Ease of Doing Business index a1nd 5th on Global Competitiveness Report. Japan is also the world’s third-largest consumer market
• Japan bilateral trade with India totalled US$ 17.63 billion during FY 2018-19. India’s imports from Japan during this period were US$ 12.77 billion and exports were US$ 4.86 billion.
• India has been ranked as one of the most attractive investment destinations in recent years’ survey of Japanese manufacturing companies, conducted by the Japan Bank for International Cooperation (JBIC).

The Japanese economy, the world’s second largest developed economy, is also the third-largest in the world in terms of nominal GDP and fourth largest in terms of purchasing power parity. The country is one of the world’s most innovative economies, being third largest in patent filings. Japan is also the world’s biggest creditor with the leading public debt ratio at 236% relative to GDP as per IMF figures. It has the world’s second-largest foreign-exchange reserves worth US$ 1.3 trillion and ranks 39^th on Ease of doing business index and 5^th on Global Competitiveness Report. Japan is also the world’s third-largest consumer market.

When it comes to manufacturing and trade activities, Japanese economy is the world’s third largest automobile manufacturer and has the largest electronics goods industry. The Japanese economy faces considerable challenges posed by a declining population, which peaked at 128 million in 2010 and has fallen to 126.5 million as of 2019. Projections suggest the population will continue to fall to potentially lower than 100 million by the middle of the 21st century. Japan has a mixed economy based on capitalism. But its government works closely with industry. And its central bank works closely with the government.

Recently, the economy grew faster than initially estimated in the third quarter, according to the GDP figures. The enhancement was due to advanced estimates for the domestic economy, notably fixed investment. The trade sector, however, continued to be sluggish due to trade tensions with Korea and between the US and China. Exports are plummeting, consumption is slowing and Japanese companies are facing a weak dollar, which erodes their profits and makes their products more expensive overseas. To boost the economy, the government recently announced a US$ 120 billion spending package, around 20% of which will be spent from December to March, and the rest from April 2020 to March 2021.

Macroeconomic Indicator of Japan

Source: World Bank

The weakness of business spending is evident in the latest purchasing managers’ index and from the plummeting industrial production. There were sharp declines in the production of iron, steel, and non-ferrous metals, machinery and vehicles. The weakness of Japan’s industrial sector is, in part, related to the trade war between the US and China. Indeed, Japanese exports to China have fallen sharply, in part, due to weaker Chinese demand for inputs used in products that are re-exported to the US. Adding to the pain, a large number of South Korean consumers have boycotted Japan’s economy after Tokyo tightened controls on a wide array of exports to the country, citing national security concerns.

Source: ITC Trade Map

Main Exports of Japan: Japan exports goods worth an estimated US$ 738.1 billion and the country’s main exports are motor vehicles, auto parts, power generating machinery, iron and steel products, semiconductors, and plastic materials. Japan is the third largest automobile manufacturing country, and they form the leading export of goods for the country.

Major Export Partners of Japan: The major export destinations for Japan are China, accounting for 19.55% of all exports, the United States, accounting for 18.9% of all exports, South Korea, accounting for 7.1% of all exports, Hong Kong, accounting for 5.6% of all exports and Thailand, accounting for 4.5% of all exports.

Main Imports of Japan: Japan spends an estimated US$ 748.3 billion on imports of goods such as petroleum, liquefied natural gas, coal, audio and visual apparatus, semiconductors, and clothing. Japan is the third-largest importer of agricultural products and liquefied natural gas, and the largest importer of coal.

Main Import Partners of Japan: Japan imports its products from China, which accounts for 23.3% of all imports followed by the US, accounting for 11.1%, Australia, accounting for 6%, Saudi Arabia, which accounts for 4.4% and South Korea, accounting for 4.2% of all imports.

India-Japan Trade Relations

Economic relations between India and Japan have enormous potential for growth, given the obvious complementarities that exist between the two Asian economies. Japan’s interest in India is surging due to eclectic reasons including India’s big and burgeoning market and its resources, especially human resources. The signing of the historic India-Japan Comprehensive Economic Partnership Agreement (CEPA) and its implementation from August 2011 has accelerated economic and commercial relations between the two countries.

Figure: India-Japan

Source: MOCI, Government of India

Japan bilateral trade with India totalled to US$ 17.63 billion during FY 2018-19. India’s imports from Japan during this period were US$ 12.77 billion and exports were US$ 4.86 billion. Japan’s exports to India were 2.48% of India’s total imports and India’s exports to Japan were 1.47% of India’s total exports. This underlines that there remains a big potential.

India’s primary exports to Japan have been petroleum products, chemicals, elements, compounds, non-metallic mineral ware, fish & fish preparations, metalliferous ores & scrap, clothing & accessories, iron & steel products, textile yarn, fabrics and machinery etc. Similarly, India’s primary imports from Japan are machinery, electrical machinery, iron and steel products, plastic materials, non-ferrous metals, parts of motor vehicles, organic chemicals, and manufactures of metals

India has been ranked as one of the most attractive investment destinations in recent years’ survey of Japanese manufacturing companies, conducted by the Japan Bank for International Cooperation (JBIC). Japanese FDI in India has escalated in recent years but it still remains small compare to Japan’s total outward FDI. Japanese FDI for FY 2017-18 reached US$ 1.6 billion and for FY 2018-19 reached US$ 2.965 billion. Cumulatively, from 2000 till June 2019 investments to India have been around US$ 30.746 billion (Japan ranks third now among major investors). Japanese FDI into India has mainly been in automobile, electrical equipment, telecommunications, chemical, financial (insurance) and pharmaceutical sectors. Sectors for mutual interest for India and Japan are energy, yoga, steel, automobiles, telecommunications, processed food/marine food and financial services.

Both countries agreed to work together for energy security, energy access & climate change issues, agreed to initiate discussion on Electric Vehicles (EVs) and committed to work together in promoting well-functioning energy markets. Strengthening cooperation between Japan, the world’s largest importer of LNG, and India, a potential leader in the expanding demand for LNG worldwide, the two sides signed an MOC on “Establishing a Liquid, Flexible and Global Liquefied Natural Gas Market”

India-Japan Digital Partnership (IJDP) and Start-up Hub: An “India-Japan Digital Partnership” (I-JDP) was launched in October 2018, furthering existing areas of cooperation as well as new initiatives within the scope of cooperation in Science & Technology/ICT, focusing more on “Digital ICT Technologies”. This also incorporates setting up “Start-up Hub” between India and Japan.