Economic Analysis
Japan

Japan

Population 126,981 million
GDP per capita 32478 US$
A2
Country risk assessment
A1
Business Climate
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Synthesis

Major macro economic indicatorS

  2014 2015  2016 (f) 2017 (p)
GDP growth (%) -0.1 0.6 0.8 0.8
Inflation (yearly average) (%) 2.7 0.8 -0.3 0.3
Budget balance* (% GDP) -6.2 -5.4 -5.2 -5.2
Current account balance (% GDP) 0.8 3.3 3.8 3.8
Public debt (% GDP) 249.1 248.0 250.2 252.6

*(f): Forecast

STRENGTHS

  • Privileged location in a dynamic region
  • Very high level of national savings (around 23% of GDP)
  • Public debt 90% owned by local investors
  • Advanced technology products and diversified industrial sector

WEAKNESSES

  • Difficulty of consolidating public finances and bringing an end to deflation
  • Reduction of the workforce and increasing share of precarious workers
  • Political instability
  • Low productivity of small and medium companies 

Risk assessment

Growth will not take off in 2017

In 2016, growth remained sluggish, driven by public consumption and to a lesser extent, by private consumption and external trade. The Abenomics policies have not given the expected results: the risk of deflation persists, the level of public debt is still very high. Growth prospects in 2017 remain limited. Indeed governmental support measures for the activity have been reduced. Private consumption will always support business, but its dynamics remain modest, wages still have not taken off despite a tight labour market (unemployment rate at the lowest around 3%). Wage growth is still hampered by the tendency of companies to insufficiently redistribute their profits, and by the rigid structure of the Japanese labour market (low mobility and marked duality). Also the same slight rise in inflation has a negative effect on real wages. Indeed inflation, after failing to return to positive territory in 2016, could be slightly greater than zero in 2017 due to the gradual rise in oil prices, but remain well below the Central Bank's 2% target. 

Foreign trade is expected to be sluggish, and would increase slightly under the effect of a more favourable business partners environment while being hampered by the past appreciation of the yen. Private investment will remain sluggish due to significant investors’ wait and see attitude, although profits, corporate liquidity and financial conditions are still favourable. The still accommodative monetary policy would support the activity (deposit rate at -0.1% and asset purchase program of 80,000 billion yen per year). In September 2016, the monetary policy framework evolved by introducing rate curve control, including a long-term interest rate target: the government is committed to buying as many bonds as necessary to maintain the 10-year sovereign interest rate at around 0% and will increase the monetary base as much as necessary in order to reach the inflation target of 2% (which appears very ambitious).

 

The country is far from the consolidation of public finances, which remains a crucial issue

The public deficit should stabilise at a high level in 2016. The increase in social spending significantly weighs on the state budget while revenues are insufficient. However, the government decided to postpone the VAT rise again from 8% to 10% until October 2019. While in 2016 the stimulus packages have multiplied (the last of which was 1.5% of GDP for the 2016/2017 fiscal year), their effects would be lower in 2017. The current trajectory of the debt does not appear sustainable, especially as health costs continue to increase with the ageing population. The prospect of the 2020 Olympics and the increase of expenditures brought as a result thereof is not expected to foster a recovery path. The government's goal of achieving a primary surplus by 2020 would appear unrealistic.
The current account surplus would remain the same in 2017: although exports may be hampered by the yen's appreciation against the dollar, they would withstand this effect due to relatively favourable demand from its trading partners. In addition, while the US election reversed the trend of yen appreciation, downward pressures are expected given the expected strengthening of the dollar and global risk aversion environment. Improved exports would be offset by rising imports related to the moderate growth of domestic demand and higher energy costs. The services account will continue its consolidation as a result of the rise of tourism, in particular Chinese tourists (the target of 20 million tourists would be reached before 2020) and the income balance will remain significant.

 

The Trans-Pacific Partnership (TPP) at risk

In September 2015, Shinzo Abe was reappointed to head the LDP (Liberal Democratic Party in power) and his party now holds half of the seats in the Senate following the senatorial elections held in July 2016. The party should dominate the political scene in 2017.
US President-elect Donald Trump announced the rejection of the TPP which aimed to harmonise standards by reducing tariffs and to counteract the growing influence of China. Although the Japanese Parliament had ratified the agreement on 9 December, the TPP cannot be implemented without the United States. While the country wants to maintain close relations with this country so as to avoid being isolated in Asia, this is bad news for Japan, this defender of free trade. China would have more free rein regarding the implementation of the Comprehensive Economic Regional Partnership (RCEP) which excludes the United States.
Also new nuclear tests carried out by North Korea in 2016 were condemned by Japan, which called on the international community to adopt new sanctions.

 

Last update : January 2017 

Payment

 

 

 

 

Japan has ratified the International Conventions of June 1930 on Bills of Exchange and Promissory Notes and of March 1931 on Cheques. As a result, the validity of these instruments in Japanis subject to the same rules as in Europe.

 

The bill of exchange (kawase tegata) and the much more widely used promissory note (yakusoku tegata), when unpaid, allow creditors to initiate debt recovery proceedings via a fast-track procedure, subject to certain conditions.

Although the fast-track procedure also applies to cheques (kogitte), their use is far less common for everyday transactions.

 

Clearing houses (tegata kokanjo) play an important role in the collective processing of the money supply arising from these instruments. The penalties for payment default act as a powerful deterrent.

A debtor failing twice in six months to honour a bill of exchange, promissory note, or cheque collectable inJapan, is barred for a period of two years from undertaking business-related banking transactions (current account, loans) with financial establishments attached to the clearing house. In other words, the debtor is reduced to a defacto state of insolvency.

 

These two measures normally result in the calling in of any bank loans granted to the debtor.

 

Bank transfers (furikomi), sometimes guaranteed by a standby letter of credit, have developed greatly throughout the economy in recent decades thanks to widespread use of electronic systems in Japanese banking circles.

 

Various highly automated interbank transfer systems are also available for local or international payments, like the Foreign Exchange Yen Clearing System (FXYCS, operated by the Tokyo Bankers Association) and the BOJ-NET Funds Transfer System (operated by Bank of Japan).

 

Payment made via the Internet site of the client’s bank is also increasingly common.

 

Debt collection

 

In principle, to avoid certain disreputable practices employed in the past by specialised companies, only lawyers (bengoshi) may undertake debt collection.

However, the law of 16 October 1998, which came into force on 1st February 1999, established the profession of “servicer” to foster debt securitisation and facilitate collection of non-performing loans (NPL debts) held by financial institutions.

 

Servicers are debt collection companies licensed by the Ministry of Justice to provide collections services but only for certain types of debt: bank loans, loans by designated institutions, loans contracted under leasing arrangements, credit card repayments, and so on.

 

Out-of-court settlement is always preferable to avoid a lengthy and costly legal procedure and involves obtaining, where possible, a signature from the debtor on a notarised deed that includes a forced-execution clause, which, in the event of continued default, is directly enforceable without requiring a prior court judgement.

 

The standard practice is for the creditor to send the debtor a recorded delivery letter with acknowledgement of receipt (naïyo shomeï), the content of which must be written in Japanese characters and certified by the post office.

 

The effect of this letter is to set back the statute of limitation by six months (which is five years for commercial debts).

If the debtor still fails to respond, the creditor must start legal action during that period to retain the benefit of interruption of the limitation period.

 

Summary proceedings intended to allow creditors to obtain a ruling on payment (tokusoku tetsuzuki), applies to uncontested monetary claims and effectively facilitates obtaining a court order to pay (shiharaï meireï) from the judge within about six months.

Court fees, payable by the claimant in duty stamps, vary according to the size of the claim.

If the debtor contests the order within two weeks of service of notice, the case is transferred to ordinary proceedings.

 

Ordinary proceedings are brought before the “summary court” (kan-i saibansho) for claims under 1,400,000 yen (JPY) and before the “district court” (chiho saibansho) for claims above this amount.

 

Those proceedings, partly written (with submission of arguments and exchanges of type of evidence) and partly oral (with respective hearings of the parties and their witnesses) can take from one to three years as a result of the succession of hearings and generate significant legal costs.

Court fees, payable in duty stamps, depend on the size of the claim.

 

With the 1st January 1998 revision of the civil procedure code undertaken to reduce the duration of legal proceedings, the new amendment adopted on 1st April 2004 is notably intended to speed up submission of evidence to both the adverse party and judge during the preliminary examination phase.

 

The distinctive feature of the Japanese legal system is the emphasis given to civil mediation (minji chôtei). Under court supervision, a panel of mediators, usually comprising a judge and two neutral assessors,attempt to reach, by mutual concessions of the parties, a negotiation on civil and commercial disputes.

In practice, the litigants often settle the case at this stage of the procedure, before a judgment is delivered.

 

While avoiding lengthy and costly legal proceedings, any transaction obtained through such mediation becomes enforceable once approved by the court.

 

Similarly, disputes can be resolved via arbitration (chusai), an approach recently well appreciated and not involving excessive formalism, due to the adoption in August 2003 of the Arbitration Law and the updated rules in 2004 under the Japan Commercial Arbitration Association.

Insolvency trend Japan
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