Japan ranks as the second most technologically-powerful economy in the world after the US and third-largest economy after the US and China, measured on a purchasing power parity (PPP) basis. Using market exchange rates, Japan's economy is larger than China's.
For three decades, overall real economic growth in Japan had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. From 2000 to 2003, the government’s efforts to revive economic growth met with little success and were further hampered by the slowing of the US, European, and Asian economies. In 2004, growth improved and the lingering fears of deflation in prices and economic activity lessened.
Japan's huge government debt, which totals more than 160% of GDP, and the aging of the population, are two major long-run problems.
2003 | 2004 est. | |
---|---|---|
GDP (annual % change) | 0.8 | 2.1 |
Consumer Price Index (annual rate of inflation) | -0.2 | -0.1 |
Unemployment rate (annual %) | 5.1 | 4.7 |
Trade balance (billion CAD) | 123 | 144 |
Average exchange rate (100 ¥ / CAD) | 12.09 | 12.04 |
(Source: U.S. Department of State, Cabinet Office Japan, Bank of Canada, World Trade Atlas)
Sector | GDP Percent |
Agriculture | 1.3% |
Industry | 24.7% |
Services | 74.1% |
(Source: U.S. Department of State)
Japan’s industry sector is heavily dependent on imported raw materials and fuels. The tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan must import about 50% of its requirements of other grain and fodder crops.
1996 | 3.5% |
1997 | 1.8% |
1998 | -1.1% |
1999 | 0.7% |
2000 | 2.4% |
2001 | -0.5% |
2002 | 0.9% |
2003 | 0.8% |
(Source: Cabinet Office, Japan)
Japan's economic structure is essentially domestically oriented. Trade accounts for 18% of GDP.
In 2004, the trade surplus came to US$111 billion, up from US$88 billion the previous year. Exports grew by 19.98% to US$566 billion, following an increase in 2003. Imports also increased by 18.86% to 456 billion.
The United States is Japan’s largest export destination receiving 22.5% of Japan’s exports. The share has been gradually declining however since 2001, when it was 30%. The United States ranked as the number two source by providing 14% of Japanese imports, down by 1.4% compared with the previous year.
Imports from China have been increasing in the recent years, with double digit increase in the last three years, 18% in 2002, 20% in 2003 and 21% in 2004. China has replaced the United States as the number one import source for Japan.
Country | Share (%) |
---|---|
United States | 22.45 |
China | 13.06 |
Korea, South | 7.83 |
Taiwan | 7.42 |
Hong Kong | 6.27 |
Thailand | 3.58 |
Germany | 3.35 |
Singapore | 3.18 |
United Kingdom | 2.65 |
Netherlands | 2.37 |
Country | Share (%) |
---|---|
China | 20.7 |
United States | 13.76 |
Korea, South | 4.85 |
Australia | 4.27 |
Indonesia | 4.11 |
Saudi Arabia | 4.04 |
United Arab Emirates | 4.02 |
Germany | 3.75 |
Taiwan | 3.67 |
Malaysia | 3.1 |
(Source: World Trade Atlas)
In 2004, 63% of Japanese exports were comprised of electrical machinery, vehicles, and machinery. These three categories, which incurred decreases of 24.8%, 8.4% and 20% respectively in 2001, have been picking up since 2002. All together, the top 10 exports represented 87% of Japan’s total exports.
Product | Value (Billions of CAD) | Share in Total (%) |
---|---|---|
Electrical machinery | 159.84 | 21.75 |
Vehicles (not railway) | 153.20 | 20.85 |
Machinery | 150.03 | 20.42 |
Optical and medical instrument | 47.29 | 6.44 |
Special products | 30.71 | 4.18 |
Iron and steel | 27.51 | 3.74 |
Organic chemicals | 21.40 | 2.91 |
Plastic | 19.96 | 2.72 |
Ships and boats | 15.93 | 2.17 |
Rubber | 10.23 | 1.39 |
(Source: World Trade Atlas)
On the import side, mineral fuel is the most important product representing 22% of total imports, an increase of 13% over 2003. Electrical machinery and machinery came in second and third place, representing 13% and 11% respectively. Electrical machinery imports increased by 12% over 2003 and machinery imports by 10%.
Product | Value (Billions of CAD) | Share in Total (%) |
---|---|---|
Mineral fuel, oil | 128.93 | 21.82 |
Electrical machinery | 75.05 | 12.71 |
Machinery | 63.19 | 10.7 |
Optical and medical instrument | 23.14 | 3.92 |
Vehicles (not railway) | 17.60 | 2.98 |
Wood | 15.05 | 2.55 |
Fish and seafood | 14.95 | 2.53 |
Woven apparel | 14.59 | 2.47 |
Organic chemicals | 13.90 | 2.35 |
Ores, slag, ash | 13.27 | 2.25 |
(Source: World Trade Atlas)
Japan is an attractive investment destination. Its strengths include a huge domestic market that accounts for about 15% of global GDP, skilled human resources and advanced technological capabilities, a safe and comfortable living environment, and the potential to function as a business hub for the entire Asian market. As an investment destination, Japan provides outstanding reliability, security, and predictability. It has an excellent business and economic infrastructure that includes a high level of protection for intellectual property rights.
In January 2003, Prime Minister Koizumi announced the target of doubling the stock of FDI in Japan over the next five years. The government as a whole continues to engage in efforts to improve the investment climate.
Recent indicators on FDI in Japan have been very positive. Foreign buyers were betting that Japan's economy has turned a corner after a decade of stop-and-start growth and depressed asset prices. Although inward FDI remains low given the size of Japan's economy, inflows nearly doubled in the year to March 2005 to a record high of $36.7 billion, surpassing Japanese investment abroad for the first time in postwar history.
A jump in investment by U.S. companies fuelled the expansion, characterised by a major increase in merger and acquisition activity. Examples included the $2 billion purchase of mobile operator DDI Pocket by the Washington-based Carlyle Group in tandem with Japan's Kyocera Corp., and U.S.-based Prudential Financial's acquisition of Aoba Life Insurance Co. Real estate has also attracted foreign investors, such as U.S. investment bank Goldman Sachs Group Inc. It is now one of Japan's largest golf course operators.
In another dramatic shift, China, including Hong Kong, became the top destination for Japanese foreign direct investment, replacing the US for the first time.
While China remains by far Japan’s most favoured and heavily invested country in Asia and will likely stay so for some time, a growing number of Japanese companies are eyeing India as the next crucial investment destination.
1985-1995 (annual average) | 1999 | 2000 | 2001 | 2002 | 2003 | |
---|---|---|---|---|---|---|
Inflows | 675 | 12, 741 | 8, 323 | 6, 241 | 9, 239 | 6, 324 |
Outflows | 24, 584 | 22, 743 | 31, 558 | 38, 333 | 32, 281 | 28, 800 |
Source: World Investment Report 2004
Canadian domestic exports to Japan represented 2.2% of our total domestic exports in 2004, an increase of 5.3% compared to 2003. Canadian imports from Japan amounted to 3.8% of total imports with a drop of 3.2% compared to the previous year.
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |
---|---|---|---|---|---|---|---|---|---|---|
Exports | 11.91 | 11.07 | 11.04 | 8.54 | 8.47 | 9.17 | 8.27 | 8.26 | 7.98 | 8.41 |
Imports | 12.09 | 10.44 | 12.55 | 14.01 | 15.04 | 16.61 | 14.64 | 15.42 | 13.82 | 13.37 |
Source: Trade Data Online
Canadian domestic exports to Japan decreased from CAD 11.9 billion in 1995 to CAD 8.4 billion in 2004. The largest drop in recent history occurred in 1997/98, when exports plunged by 22.7%. Exports increased slightly in 2000 by 8% to reach CAD 9.1 billion only to drop by 9.9% to CAD 8.2 billion in 2001. The situation slightly improved in 2004.
In 2004, the main export categories, in their broadest form (2-digit HS), were: wood (CAD 1.7 billion), grain/seeds/fruit (CAD 980 million), meat (CAD 777 million), woodpulp (CAD 550 million) and ores/slag/ash (CAD 514 million). Exports of wood represented 20% of exports and increased by 10% over previous year.
Exports of mineral fuel (mainly fuels from coal) fell considerably (22%), whereas exports of aluminum increased by over 40%.
Top 10 Products | Value | % change |
---|---|---|
Wood | 1 700.11 | 10.04 |
Grain, seed, fruit | 979.15 | 9.53 |
Meat | 777.08 | 6.53 |
Woodpulp | 550.34 | 7.83 |
Ores, slag, ash | 514.34 | -4.26 |
Fish and seafood | 486.92 | -0.29 |
Aluminum, | 426.87 | 40.47 |
Mineral fuel, oil | 372.89 | -21.54 |
Cereals | 337.66 | 10.72 |
Electrical machinery | 215.99 | 12.27 |
Source: World Trade Atlas
Canadian imports from Japan increased from CAD 12.1 billion in 1995 to CAD 13.4 billion in 2004. The year 2000 marked the highest level of imports from Japan with CAD16.6 billion.
The main import categories, in their broadest form (2-digit HS), were: vehicles (CAD 5.1 billion), machinery (CAD 2.9 billion), electrical machinery (CAD 2.3 billion), optical/medical instruments (CAD 0.9 billion).
In 2004, both imports of vehicles and machinery decreased by 9.3% and 5.7% over 2003. Electrical machinery imports, mainly including integrated circuits and transistor apparel for radio etc., increased by 5.2%. The largest increase in the top 10 imports were imports of aircraft/spacecraft, with an increase of 80% over 2003.
Top 10 Products | Value | % change |
---|---|---|
Vehicles (not railway) | 5,112.06 | -9.34 |
Machinery | 2,868.51 | -5.74 |
Electrical machinery | 2,296.97 | 5.18 |
Optical and medical instrument | 894.88 | 7.76 |
Rubber | 343.02 | 7.27 |
Aircraft, spacecraft | 267.30 | 80.15 |
Iron/steel products | 260.04 | 3.21 |
Plastic | 139.67 | -3.41 |
iron and steel | 115.69 | 4.86 |
base metals | 102.87 | 25.47 |
Source: World Trade Atlas
Department of International Trade
Cabinet Office, Government of Japan
For more information:
Suhong Yang
International Affairs Directorate
Intergovernmental and International Affairs Branch
Industry Canada
613 941-4159