Market – Japan

Opportunities in Japan

Canada and Japan share many common values, such as promoting the rules-based international order, and actively engaging in the multilateral system.  Both Canada and Japan are members of the G7, G20, Asia-Pacific Economic Cooperation, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Asian Development Bank, International Monetary Fund, Association of Southeast Asian Nations and Organisation for Economic Co-operation and Development. Canada and Japan are strong allies in supporting the rules-based multilateral system and are key partners in ongoing WTO reform efforts, including through the Ottawa Group.

Trade and economic relations between Canada and Japan have been steadily expanding. With a gross domestic product of $6.78 trillion in 2019, Japan is the world’s third-largest national economy, one of Canada’s most important economic and commercial partners and Canada’s largest source of bilateral foreign direct investment (FDI) in Asia. FDI stock from Japan into Canada was valued at $29.6 billion in 2017, coming from approximately 450 Japanese subsidiaries and affiliate companies operating in Canada and employing tens of thousands of Canadians.

Canadian investment in Japan is significant and diverse with over 100 companies that have a permanent Japanese presence, primarily in the automotive, information and communications technologies, financial services and forestry sectors. The stock of Canadian direct investment in Japan in 2017 stood at $4.7 billion. Japan is also Canada’s fourth-largest partner in two-way merchandise trade (second in Asia after China).

Canada’s exports of goods to Japan totalled $12.6 billion in 2019, while imports from Japan were $16.5 billion. Canola, coal, copper ores, pork, lumber and wheat were Canada’s largest exports to Japan, while autos, auto parts, industrial machinery, and information and communications technologies were Canada’s largest imports from Japan in 2019.

Canada and Japan are partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP entered into force for the first six countries to ratify the Agreement – Australia, Canada, Japan, Mexico, New Zealand, and Singapore – on December 30, 2018, and for Vietnam on January 14, 2019. Once fully implemented, the CPTPP will form a trading bloc representing over 500 million people and 13.5% of global GDP, providing Canada with preferential access to key markets in the Asia-Pacific. The CPTPP eliminates or reduces tariffs on most key Canadian exports to Japan, including for agriculture and agri-food, seafood, forestry and metals and mineral products. The CPTPP is a demonstration of Canada and Japan’s shared commitment to furthering the principles of an effective, open, inclusive and rules-based trading system.

Canada and Japan have a long history of diplomatic relations dating back to 1928 when Japan established a diplomatic mission in Ottawa. Canada’s own diplomatic mission to Japan was established in Tokyo on May 21, 1929, formally completing the process of establishing full bilateral diplomatic relations between the two countries. Canada and Japan have long shared strong political ties, but in recent years, these relations have spread into new areas and become more substantive. One important area of growth is peace and security cooperation. On April 21, 2018, Canada and Japan signed the Acquisition and Cross-Servicing Agreement, which will facilitate cooperation between Canadian and Japanese forces.

The 2010 Canada-Japan Joint Declaration on Political, Peace and Security Cooperation is the basis for deepening the partnership between Canada and Japan on regional and global security issues. The declaration’s centrepiece is the creation of the Political, Peace and Security Subcabinet “2+2” Dialogue, which commits Canada and Japan to undertake regular bilateral meetings between deputy minister-level officials responsible for foreign affairs and defence. The most recent meeting took place in Tokyo in December 2018. Japan also hosted the 16th Canada-Japan Symposium on Peace and Security Cooperation, on December 11 and 12, 2018, which brought academics and policy-makers from both countries together to discuss important regional security and bilateral cooperation topics.

Moreover, Canada and Japan are working closely together on promoting security and stability on the Korean Peninsula. Japan participated in the Vancouver Foreign Ministers’ Meeting on Security and Stability on Korean Peninsula, co-hosted by Canada and the United States, on January 16, 2018.  Since then, Canada has participated alongside Japan in a multilateral initiative to counter North Korea’s maritime sanctions evasion.

Regular exchanges between Canadian and Japanese parliamentarians are another important pillar of the Canada-Japan relationship. The Canada-Japan Inter-Parliamentary Group, established by Parliament in 1989, and its Japanese counterpart, the Japan-Canada Diet Friendship League, have held regular consultations since 1989, alternating the location of the meetings between the two countries. The latest session was held in Tokyo in January 2017 and included discussions of trade policy and regional security, as well as energy issues.

Canada and Japan enjoy rich cultural and people-to-people linkages. There are over 120,000 people of Japanese origin residing in Canada. Approximately 300,000 Japanese and Canadians travel to each other’s country annually. Japanese manga and anime have many fans in Canada, and Canadian musicians of all genres have an active following in Japan, due in part to the legacies of Oscar Peterson, Glenn Gould and other international artists, such as Shawn Mendes, Justin Bieber, Ron Sexsmith, Matt Dusk and Monkey Majik. There are 25 friendship associations and 73 sister city/sister province relationships between Japanese and Canadian communities.

In education, Canada remains a popular destination for Japanese students interested in studying abroad at all levels. As of December 31, 2018, a total of 8,365 Japanese nationals had a study permit valid for a period of six months or more. Japan ranked second in terms of source country for international language students to Canada in 2017 with 20,589 Japanese students enrolled in Languages Canada schools. In addition, at any one time, some 500 Canadians participate in the Japan Exchange and Teaching Programme, teaching English in schools across Japan or working with local governments. Canadians are long-standing supporters of this program, with approximately 10,000 alumni. Our International Experience Canada (Working Holiday) programs are also very popular, allowing thousands of Japanese and Canadian youths to enjoy short-term travel and work opportunities in each other’s country.

Why do business in Japan

  • Japan is the third largest economy in the world after the United States and China. Japan is a key member of the international trade system with a market that respects the rule of law and provides strong protections for intellectual and real property rights.
  • Japan’s consumer economy is large, broad-based, and sophisticated.  Per capita income of $43,118 underpins its strength as a consumer market.
  • Japan is highly dependent upon the import of natural resources.  For example, it is the world’s largest net buyer of food products in the world.
  • Japan’s rapidly aging population, which has begun to decrease overall, continues to send ripple effects through its society and economy, shaping present and future demand in economic spheres as disparate as robotics and pharmaceuticals, franchise and real estate.
  • Japan’s strategic alliance and deep economic integration with the Canada presents opportunities in advanced sectors such as space, cybersecurity, biotechnology, autonomous mobility and artificial intelligence.

Economic Policy and International Trade
Prime Minister Abe’s economic revitalization plan (“Abenomics”) consists of a three-pronged strategy that combines expansive fiscal policy, monetary easing, and structural reform with the aim of lowering corporate taxes, increasing wages, and increasing consumption. Japan has gradually reduced its support to the agricultural sector, but structural change and productivity growth remain limited.

Demographics
Japan’s population is declining as it ages rapidly.  The population may decrease by as much as one third by 2060, from 127 million to 87 million.  The proportion of the population older than 65 will rise from 27% today to 40% by 2060.  The Japanese Government and business community seek to offset its effects on economic growth and government budget resources.  The aging population shapes demand and opportunities in various segments:

  • Medical devices and equipment
  • Pharmaceuticals
  • Healthcare facilities and infrastructure, including in-home care
  • Biotechnology
  • Healthcare information technology
  • Safety-related products and services
  • Robotics
  • Leisure and travel
  • Educational services
  • Home delivery services
  • Financial services

Recent Developments
Japan’s economy has enjoyed steady albeit slow growth since Prime Minister Abe came to power in 2012.  Starting in December of that year, Japan has seen the longest economic expansion since the end of World War II.  But consistent and sustained growth may continue to be a challenge as Japan deals with large government debt and a declining and aging population.  Decreasing exports, especially to China, as well as the scheduled October 2019 consumption tax hike (from 8 to 10 percent), are other headwinds.

Entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor to TPP without the United States, in December 2018, as well as the Japan-EU Economic Partnership Agreement in February 2019, has placed some U.S. exporters at a competitive disadvantage.

Key Facts ($US)

  • National Capital: Tokyo
  • Population: 126.2 million (May 2019)
  • Land Area: 364,485 sq. km
  • GDP (official exchange rate): $4.96 trillion (2018)
  • Real GDP Growth: 0.9 % (2018)
  • GDP per Capita (Purchasing Power Parity): $43,118 (2018)
  • Household Consumption Percent of GDP: 55.5% (2017)
  • Unemployment Rate: 2.4% (May 2019)
  • Key Industries: among world’s largest and most technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, and processed foods
  • Exports: $814.7 billion (2018)
  • Leading Export Destinations:  Leading Sources of Imports: China 19.5%, U.S. 19.0%, South Korea 7.1%, Taiwan 5.7 % Hong Kong 4.7% (2018)
  • Value of Imports: $827 billion (2018)
  • Major Import Categories: Petroleum, liquid natural gas, clothing, semiconductors, coal
  • Leading Sources of Imports: China 23.2%, U.S. 10.9 %, Australia 6.1%, Saudi Arabia 4.5%, South Korea 4.3% (2018)