You are on page 1of 7

INTERNATIONAL BUSINESS ASSIGNMENT

Country analysis, Economic, Political risk And Investment Opportunities in Japan


Kunal Gupta (07503853)

ECONOMIC OVERVIEW OF JAPAN


Japan has inadequate natural resources to support its growing economy and large population. Although many kinds of minerals were extracted throughout the country, most mineral resources had to be imported. Still the economy of Japan is the third largest in the world after the United States and the People's Republic of China, and ahead of Germany at 4th. In 2010 GDP Growth in the final three months was -2.9% but total GDP Growth for 2010 was 4.0%, one of the highest growth rates for about 20 years. But Japan's economy was disrupted in March 2011 due to the earthquake and the effect of the tsunami. Growth contracted by 3.5% in Q1 of 2011. As Japan's economy has suffered two quarterly contractions in a row, Japan reentered recession. In 2008-09 the economy had contracted 6.4%. The earthquake hit when Japans expansion appeared to be back on track following the economic slowdown in the latter part of 2010. The immediate impact of the horrendous disaster is likely to be large, extending beyond the areas devastated by the earthquake and tsunami.

COUNTRY ANALYSIS BASED ON ECONOMIC PARAMETERS


ANNUAL GROWTH RATE The Gross Domestic Product (GDP) in Japan contracted 1.00 percent in the second quarter of 2011 over the same quarter, previous year. Unlike the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of seasonal adjustment. Historically, from 1981 until 2011, Japan's average annual GDP Growth was 2.15 percent reaching an historical high of 9.37 percent in March of 1988 and a record low of -10.30 percent in March of 2009.

GROSS DOMESTIC PRODUCT Japan Gross Domestic Product is worth 5498 billion dollars or 8.87% of the world economy, according to the World Bank. Historically, from 1960 until 2010, Japan's average Gross Domestic Product was 2266.10 billion dollars reaching an historical high of 5497.81 billion dollars in December of 2010 and a record low of 44.31 billion dollars in December of 1960. Japan's industrialized, free market economy is the second-largest in the world. Its economy is highly efficient and competitive in areas linked to international trade, but productivity is far lower in protected areas such as agriculture, distribution, and services. Japan's reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy. SECTORIAL CONTRIBUTION TO GDP Services Sector: 75.9% Japan's service sector accounts for about three-quarters of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries Agriculture Sector: 1.1% Only 12% of Japan's land is suitable for cultivation. Due to the lack of arable land a system of terraces is used to farm in small areas. This results in one of the world's highest levels of crop yields per unit area, with an overall agricultural self-sufficiency rate of about 50% on fewer than 56,000 km (14 million acres) cultivated. Industry Sector: 23% Japanese manufacturing is much diversified, with a variety of advanced industries that are highly successful.

UNEMPLOYMENT RATE The unemployment rate in Japan was last reported at 4.7 percent in July of 2011. From 1953 until 2010, Japan's Unemployment Rate averaged 2.60 percent reaching an historical high of 5.60 percent in July of 2009 and a record low of 1.00 percent in November of 1968. The labour force is defined as the number of people employed plus the number unemployed but seeking work. The non labour force includes those who are not looking for work, those who are institutionalized and those serving in the military. INTEREST RATE The benchmark interest rate in Japan was last reported at 0.00 percent. In Japan, decisions on interest rates are made by the Bank of Japan's Policy Board in its Monetary Policy Meetings. The BoJ's official interest rate is the discount rate. Monetary Policy Meetings produce a guideline for money market operations in inter-meeting periods and this guideline is written in terms of a target for the uncollateralized overnight call rate. From 1972 until 2010, Japan's average interest rate was 3.50 percent reaching an historical high of 9.00 percent in December of 1973 and a record low of 0.00 percent in February of 1999. JAPAN GDP PER CAPITA (PURCHASING POWER PARITY PPP) Japan GDP Per Capita, when adjusted by purchasing power parity, stands at 34129 US dollars, according to the World Bank. The GDP per capita is obtained by dividing the countrys gross domestic product, adjusted by purchasing power parity, by the total population. From 1980 until 2008, Japan's GDP Per Capita adjusted by Purchasing Power Parity averaged 21167.72 dollars, reaching an historical high of 34129.00 dollars in December of 2008 and a record low of 8955.00 dollars in December of 1980. FOREIGN DIRECT INVESTMENT The Foreign direct investment; in Japan was reported at 24551812047.48 in 2008. Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term

capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors. TAX RATE The Total tax rate (% of profit) in Japan was last reported at 48.60 in 2010. The Total tax rate (% of profit) in Japan was 55.70 in 2009. The Total tax rate (% of profit) in Japan was reported at 55.40 in 2008, according to the World Bank. Total tax rate is the total amount of taxes payable by businesses (except for labor taxes) after accounting for deductions and exemptions as a percentage of profit. HUMAN DEVELOPMENT INDEX The HDI represents a push for a broader definition of well-being and provides a composite measure of three basic dimensions of human development: health, education and income. Between 1980 and 2010 Japan's HDI rose by 0.5% annually from 0.768 to 0.884 today, which gives the country a rank of 11 out of 169 countries with comparable data. The HDI of OECD as a region increased from 0.723 in 1980 to 0.853 today, placing Japan above the regional average. The HDI trends tell an important story both at the national and regional level and highlight the very large gaps in well-being and life chances that continue to divide our interconnected world.

ECONOMIC AND POLITICAL RISK OF JAPAN


ECONOMIC RISK The Economic Risk of Japan is low due to the following reasons: Japan, an industrialized and advanced country, is home to the second largest economy in the world behind that of the United States. Gross domestic product (GDP) growth, which has been weak over the past 20 years, fell sharply in 2009 as domestic demand and exports con-tract. The government responded to the crisis with aggressive expansionary fiscal policies that succeeded in producing short term growth in early 2010. Price inflation, however, is expected to remain negative through 2011.

POLITICAL RISK Japan is under pressure to keep his Democratic Party's campaign promises while cutting huge debt and trying to keep the economy from tipping back into recession. He is also under pressure to resolve a feud with the country's top security ally, the United States, over a military base in Japan and to clear the air over a funding scandal ahead of an election for parliament's upper house in mid-2010. But still the political risk in low due to the following reasons. The Japanese government is democratic and advanced, with a long his-tory of stability. There has been significant turnover in leadership as the populace expressed its dissatisfaction with the state of the economy. The legal system is credible and the business infrastructure is efficient, though somewhat closed to foreign participants given the tradition of keiretsu networks.

INVESTMENT OPPORTUNITIES IN JAPAN


FDI OPPORTUNITIES IN JAPAN The Great East Japan Earthquake placed a heavy toll on the Japanese economy. Various policies and measures will be needed for the economy to recover, and also encouraging foreign corporations to invest in Japan is one important approach. A major trend during this period has been the increased investment by foreign firms in green industries that compliment the strengths of Japanese industries, such as in the area of lithium ion batteries. The support from a government subsidy program has encouraged their establishment of bases in Japan. There has also been investment that takes the form of global alliances with capital tie-ups between companies in the same industry, to survive tough international competition. Traditionally, Japanese corporations have found such partners mainly among American and European firms, but recently there have been a growing number of partnerships with Asian firms. In particular, there has been increased investment from Chinese firms that recognize the value of the technologies, brands and expertise held by Japanese firms and is aiming to obtain these business resources. This can be seen in the aggressive investment, targeting the Japanese markets of expanding elderly population with generic drugs and nursing homes. There has been the expansion of largescale retail outlets based on "fast fashion" and other new business models. Increased inflows of tourists to Japan have been accompanied by increased investment (new discount airlines, resort facilities). There have also been partnerships with Japanese trading companies in the area of real estate investment. PORTFOLIO INVESTMENT OPPORTUNITIES IN JAPAN In order to sustain the growth of Japan's economy as the population is aging, it is essential that the countrys financial and capital markets provide good investment opportunities to the financial assets held by Japan's household sector that amount to more than 1,500 trillion yen (about 14 trillion US dollars), and to supply domestic and foreign companies with adequate amount of capital for growth.

It is also expected that, with such markets, Japan's financial services industry will be able to generate high value added, thereby contributing to sustainable economic growth. Better Market Initiative centers on the following four pillars. 1. Creating reliable and attractive market: Creating markets for professional investors; diversifying exchange-traded funds (ETFs); reviewing the administrative monetary penalty system in accordance with the Financial Instruments and Exchange Act (FIEA) 2. Enhancing the business environment: revamping the firewall regulations among banking, securities and insurance businesses; broadening the scope of businesses permitted to banking and/or insurance groups. 3. Improving the regulatory environment (better regulation): Enhancing dialogue with the industry; increasing transparency and predictability of regulation and supervision. 4. Improving the broader environment surrounding the markets: Nurturing and securing financial experts; upgrading urban functions as an international financial center.

You might also like