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A fascinating and complex country steeped in history and rich in culture, Japan honors its traditions while serving as an economic and demographic trend setter. Driven by its large middle class consumer base, Japan is a leading consumer and producer of goods and services and exerts significant commercial influence in global markets. In particular, Japan’s technology and manufacturing-related industries play a leading role in the global economy and global supply chains.
As the only Asian representative of the G-7, Japan is the second largest source of foreign direct investment (FDI) in the United States with a cumulative stock of $414 billion. Over the past several years, Japan has been the single largest source of foreign direct investment into the U.S. market, with an inflow over $31 billion in 2015. These investments, in turn, support U.S. jobs and contribute to U.S. economic output and exports.
U.S. companies engage with the Japanese market through a variety of strategies. In addition to the market’s size and wealth, Japanese business partners expose American companies to new technology, rigorous competition, and – in some cases – the opportunity to partner with Japanese firms in third markets.
Why Do Business With Japan?
Japan is the third largest economy in the world after the United States and China. It is the fourth largest importer of U.S. products after Canada, Mexico and China. Japan is a key member of the international trade system, and its market 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. As a percentage of its population, Japan’s middle class is similar to the United States. Per capita income of $38,900 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. The United States is the leading supplier of its agricultural imports, as well as agricultural capital equipment and related technologies. Total U.S. food, agricultural, and fishery exports to Japan were worth more than $12.5 billion in 2016. Japan is the world's largest importer of liquefied natural gas (LNG), second-largest coal importer, and second-largest net importer of crude oil and oil products.
Japan’s rapidly aging population 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 role as host of the 2020 Olympic and Paralympic Games may present related opportunities for U.S. firms as economic activity expands in anticipation of the Games.
Japan’s strategic alliance and deep economic integration with the United States continue to present opportunities for cutting edge and evolving sectors including space, defense, and security. Japan is a leading importer of U.S. aerospace and defense equipment and, increasingly, an integrated co-developer. Related growth sectors include defense procurement, advanced manufacturing, and cyber security solutions.
With global reach and deep knowledge of Japan’s economic, political, cultural, and commercial landscape, the U.S. Commercial Service is uniquely positioned to help U.S. companies engage with Japanese companies at home or abroad.
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. Reforms to Japan’s agricultural landholding system and corporate governance disciplines aimed at increasing transparency and unlocking shareholder value have attracted particular attention, as has liberalization of the electrical and energy sectors.
Japan continues to experience a trend of population decline and a rapidly aging society. Some researchers project a population decrease by as much as one third by 2060, from 127 million to 87 million, and the share of individuals over the age of 65 projected to rise from 27% today to 40% by 2060. The Japanese government, healthcare industry, and business community are actively engaged in seeking to ameliorate negative consequences of this population decline, and are taking measures to offset its impacts on macroeconomic growth. Although an aging population is often seen as a drag on the economy, it also presents business opportunities in various segments:
- Medical devices and equipment
- Healthcare facilities and infrastructure, including in-home care
- Healthcare information technology
- Safety-related products and services
- Leisure and travel
- Educational services
- Home delivery services
- Inheritance related services
Japan looks to external factors, including U.S. policy and economic indicators, as it engages the international community on trade-related matters. As the United States introduces measures boost its economy, address trade imbalances, and raise interest rates, economists predict the yen is likely to remain weak in the near term, further bolstering Japanese exports. Despite five consecutive quarters of economic growth at the start of 2017— the longest stretch of growth in more than a decade—consistent and sustained growth is has not been achieved as Japan continues to struggle with large government debt and stagnation.
In the aftermath of a series of national natural disasters which have impacted commercial activity as well as the national psyche, Japan has made notable steps toward economic healing.
In July 2017, Japan and the European Union reached agreement on a broad Free Trade agreement, or Economic Partnership Agreement (EPA), taking a step closer to an economic bloc that would account for nearly a third of all global trade. Both sides announced that many of the details remain to be negotiated, but the result is expected to remove tariffs on more than 95% of goods traded between Japan and the EU member states. Products such as European cheese and Japanese automobiles will see tariffs reduced to zero over 15 years (cheese) and seven years (autos). Japan is also advocating for modifications to the Trans-Pacific Partnership (TPP) that would allow it to enter into effect without the United States. Japan EPAs will exert pressure on the competitiveness of some American exporters to Japan absent a modified TPP or comparable successor arrangement. Some American exporters may need to revisit and perhaps adjust their market strategy in order to build market share.
- National Capital: Tokyo
- Population: 126.7 million (July 2016)
- Land Area: 364,485 sq. km
- GDP (official exchange rate): $4.73 trillion (2015 )
- Real GDP Growth: 0.5% (2016 est.)
- GDP per Capita (Purchasing Power Parity): $38,900 (2015)
- Household Consumption Percent of GDP: 58.3% (2016)
- Unemployment Rate: 3.36% (2015, IMF)
- 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: $641.4 billion f.o.b. (2016 est.)
- Leading Export Destinations: U.S. 20.2%, China 17.5%, South Korea 7.1%, Hong Kong 5.6%, Thailand 4.5%
- Value of Imports (2016): $629.8 billion
- Major Import Categories: Petroleum, liquid natural gas, clothing, semiconductors, coal
- Leading Sources of Imports: China 24.8%, U.S. 10.5%, Australia 5.4%, South Korea 4.1%,
- Trade Balance +$11.6 billion
- Services Balance: - $15.8 billion
- U.S. Exports to Japan: $63.3 billion (2016)
- U.S. Imports from Japan: $132.2 billion (2016)
- U.S. Trade Balance with Japan: -$68.9 billion (2016)
U.S. Department of Commerce, Select U.S.A
U.S. Department of Commerce, Travel and Tourism Office
CIA - The World Factbook
Trade Stats Express, U.S. Dept. of Commerce
U.S. Census Bureau, Foreign Trade Statistics
U.S. Relations with Japan Fact Sheet, State Department
Library of Congress Japan Country Study
World Trade Organization
2016 World Economic Outlook Database, The International Monetary Fund
2016 Country Profiles, Economist Intelligence Unit
Government of Japan Statistics Bureau
Government of Japan Statistics WSDB
World Economic Outlook Database, October 2016, The International Monetary Fund
2016 Country Profiles, Economist Intelligence Unit
Government of Japan Statistics Bureau
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.