Japan: Market Profile
02 February 2018
Major Economic Indicators
- The Japanese economy is estimated to grow by 1.8% in real terms in 2017 on the back of healthy global demand, and the growth is projected to slow down to 1.2% in 2018. Inbound tourism has been one of the bright spots in recent years, supporting local retailers, hotels and restaurants.
- The Bank of Japan (BOJ) has introduced “QQE with yield curve control” (YCC) which includes interest rates controls and a commitment to overshoot the 2% inflation target. The Japanese government has announced to postpone the planned consumption tax increase from April 2017 to October 2019.
- Japan is Hong Kong’s fourth largest export market and fourth largest source of imports. In the first 11 months of 2017, exports to Japan increased 10% YOY to US$15 billion and imports from Japan raised 2.4% to US$29.4 billion.
- Hong Kong is the largest export destination for Japanese foodstuff. In January-November 2017, Japan’s exports of food and live animals to Hong Kong amounted to US$996 million, accounting for over 23% of Japan’s exports under such category.
Current Economic Situation
Japan is the world’s third largest economy, and its service sector contributes about 70% of the country’s GDP, with wholesale and retail trade, real estate services, and professional, scientific and technical activities as the major service pillars. With the declining importance of agricultural and mining sectors, which contribute collectively less than 1% of GDP, the manufacturing and construction sector accounts for the rest of GDP. Transport equipment, food and beverages are the major manufacturing industries of Japan.
Following the sluggish growth of less than 1% in 2016, Japan’s economy continued to expand moderately in 2017, with an estimated growth of 1.8% in real terms. The solid growth performance was mainly supported by the robust growth in exports and private sector capital investment on the back of healthy global demand. The Japanese economy is, however, projected to slow down to 1.2% in 2018.
Japan’s exports grew by 8.0% YoY to US$632 billion in the first eleven months of 2017, following the rise of 3.1% in 2016. Over the same period, imports increased by 9.9% YoY to US$608 billion, and this led to a trade surplus of about US$24 billion. The US was Japan’s largest export market, recording a growth of 3.5% YoY during that period. Exports to China, Japan’s second largest export market, expanded by 16.5% YoY.
Inbound tourism has been one of the bright spots for the Japanese economy in recent years, supporting local retailers, hotels and restaurants. In 2017, total visitor arrivals reached 28.7 million, a strong yearly growth of 19.3% on the heels of the impressive growth of 21.8% in 2016. About 7.4 million inbound tourists in 2017 came from the Chinese mainland, an increase of 15.4% from the previous year. This was followed by tourists from Korea (7.1 million), Taiwan (4.6 million) and Hong Kong (2.2 million). The US was the fifth largest source, rising by 10.6% to 1.4 million in 2017.
Since 2012, Japan’s government has adopted a “three arrows” strategy to reinvigorate the Japanese economy. The so-called “Abenomics” comprises expansionary monetary policy, flexible fiscal policy and structural reform. The 2020 Tokyo Olympics is considered the “fourth arrow” of Abenomics.
In view of sluggish domestic demand and a challenging external environment, the BOJ has adopted a negative interest rate policy since February 2016 on top of quantitative and qualitative easing (QQE). In September, the BOJ introduced “QQE with yield curve control” (YCC) which includes interest rates controls and a commitment to overshoot the 2% inflation target.
On the fiscal policy front, the Japanese government announced in June 2016 to postpone the planned consumption tax increase from April 2017 to October 2019. During 2016-2017, a series of supplementary budgets were approved to provide various fiscal supports to the private sector, including grants for R&D schemes, aids for disaster recovery projects and accelerate infrastructure developments.
To further develop inbound tourism and tap the potential of the 2020 Tokyo Olympics, the parliament passed the bill to legalise casino gambling in Japan in December 2016.
Trade Policy and Development
Most goods can be freely imported without import licences, except certain items covered by the Import Restriction System (e.g. chemical products and weapons). Most of Hong Kong’s exports to Japan, such as garments, toys, jewellery, housewares, watches, clocks and the majority of electronic items are not subject to import restrictions.
Japan's tariff schedule has five columns of applicable rates: General, WTO, Generalised System of Preferences (GSP), LDC and Temporary. Goods originating from Hong Kong are charged at WTO rates unless a lesser "Temporary" rate exists. Japan's GSP grants lower or duty-free rates to products imported from developing countries. However, Hong Kong fully graduated from Japan's GSP in February 2000.
In October 2015, the Trans-Pacific Partnership (TPP) agreement was concluded with Japan among the 12 Pacific-Rim signatory countries, covering some 40% of the global economy. However, the US notified its intent to not ratify the TPP in January 2017. Following the withdrawal of the US, the remaining eleven countries reached a board agreement on the core elements of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in November 2017.
As of January 2018, Japan had concluded 15 free trade agreements (FTA) and economic partnership agreements (EPA), including those with Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei, the Philippines, Switzerland, Vietnam, India, Peru, Australia, Mongolia. Its comprehensive economic partnership with ASEAN went into force in 2008. In December 2017, negotiations on the Economic Partnership Agreement (EPA) with the EU have been concluded.
Beside, Japan has embarked on bilateral FTA negotiations with eight other economies, including Canada, Colombia, Korea and the Gulf Cooperation Council (GCC), and on regional FTA talks including TPP, Regional Comprehensive Economic Partnership (RCEP) and trilateral FTA among Japan, China and Korea.
Hong Kong and Japan signed a double taxation treaty in 2010, which was last updated in 2014.
Hong Kong's Trade with Japan
Japan is Hong Kong’s fourth largest export market. In first 11 months of 2017, Hong Kong’s exports to Japan increased by 10% YOY to US$15 billion. Major export items included telecom equipment & parts (with a share of 18.9%), semi-conductors, electronic valves & tubes, etc. (9.3%), toys, games & sporting goods (7.7%), computers (7.3%) and watches and clocks (4.2%).
Japan is Hong Kong's fourth largest source of imports. Hong Kong's imports from Japan grew by 2.4% YOY to US$29.4 billion in the first 11 months of 2017. Major import items included semi-conductors, electronic valves & tubes (with a share of 23.6%), telecom equipment & parts (9.7%), electrical apparatus for electrical circuits (6.9%), electrical machinery & apparatus (5.3%) and office machines (3.4%).
Hong Kong is the largest export destination for Japanese foodstuff. In January-November 2017, Japan’s exports of food and live animals to Hong Kong amounted to US$996 million, accounting for over 23% of Japan’s exports under such category.
Japan's Involvement in the Hong Kong Economy
Japanese companies have a substantial involvement in the Hong Kong economy. In particular, many Japanese companies are using Hong Kong as their regional headquarters (RHQs) or regional offices (ROs) to oversee their business activities in other Asian economies, in particular, the Chinese mainland. As of June 2017, there were 233 Japanese companies with RHQs in Hong Kong, while another 428 had ROs here. Japanese banks are also well represented here, including Bank of Tokyo-Mitsubishi UFJ and Sumitomo-Mitsui Bank.
Japan was the ninth largest source of foreign direct investment (FDI) in Hong Kong with a total stock of HK$220.7 billion as at end-2016, trailing British Virgin Islands, the Chinese mainland, Cayman Islands, the Netherlands, Bermuda, the US, Singapore and the UK.
In light of Hong Kong's position as a regional trade centre, most leading Japanese trading companies and manufacturers, including Itochu, Marubeni, Mitsubishi Electronic, Sojitz, Bandai and Citizen have set up purchasing/distribution offices in Hong Kong. A number of chained retailers and food and beverage companies, such as Muji, Aeon, Uniqlo, A-1 Bakery and Saizeriya Italian Restaurant operate in Hong Kong.