Opportunities Japan

Extract from The New Asia--Business Strategies for the Economic Region That Is Shaking Up the World

By David James and Rajeev Merchant

The New Asia - link to book

As the world’s third largest economy (after the United States and China), and the second largest in Asia (after China), Japan will continue to be the source of many opportunities for years to come.  As a result of spectacular growth economic growth in the 1960s, 1970s and 1980s, when its economy grew at average rates of 10 percent, 7 percent and 4 percent, respectively, Japan developed a broad array of industries.  Its large population of 127 million people now has substantial disposable income.  The country is closely allied with other developed countries like the United States and European nations.  Decades of international business activity have honed the capabilities of its government and business communities in dealing with foreign companies.  Its consumers, while strongly adhering to Japanese culture, are sophisticated and welcoming of other cultures, including Western.

While opportunities in Japan will continue to emerge, largely because of the size and sophistication of the country’s economy and population, there are a number of hindrances that will constrain growth and opportunities.  First, there is the history of Japan’s brutal occupation of China and other Asian countries during the 1930s and World War II (1941-1945).  Memories and records of those times will hamper governmental and business relations between Japan and those countries for a very long time.  An example is the flare-up between Japan and China in 2012 over territorial possession of the Senkaku Islands (called the Diaoyu Islands in China) in the East China Sea.  The Chinese government took offence when the Japanese government purchased these islands from their owner, a Japanese national.  Violent protests erupted across China when the news appeared.  Demonstrators smashed storefronts of Japanese businesses, and they smashed or overturned Japanese vehicles, despite the fact that these vehicles were undoubtedly manufactured in China and owned by Chinese nationals.  The Chinese government acted to quell the protests only after the demonstrators’ point was made in the news media.  While governments and businesses will suppress reactions such as this that might harm their own economic interests, history will continue to hamper Japan’s economy and opportunities in a number of Asian countries for some time to come.

A second constraint to opportunities in Japan is the dismal condition of its economy.  Starting in the early 1990s with the bursting of bubbles in real estate and stock market prices, the Japanese economy fell into a long decline that is now being referred to as Japan’s “Lost Two Decades.”  In the five-year period 2007-2011, its growth averaged a minus 0.6 percent.  Today, its economy is burdened with massive debt, persistent deflation, and the cost of recovery from the Fukushima Daiichi nuclear disaster that occurred in March 2011 in the wake of an earthquake and tsunami.

A third constraint on Japan’s economy is its ageing population, which necessitates that an increasing portion of the country’s economic resources be devoted to the care and maintenance of its older generations.  However, opportunities may lie in serving the needs of these generations.

On a scale of 1 to 10, the chances are 2 that Japan’s economy will grow at an average rate of more than 3 percent during the period 2013-2023.

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