Japan

Originally published: Sep-26-2006

Government

The Japanese government is a constitutional monarchy with a parliamentary government. It consists of three branches: executive – the prime minister (head of government), emperor (chief of state), cabinet; legislative: a bicameral Diet (House of Representatives and House of Councillors); and judicial.

Legal System

The legal system is a civil law system based on the model of Roman law. The chief justice of the Supreme Court is appointed by the monarch after designation by the cabinet. All other justices are appointed by the cabinet.

People

Population: 127,463,611 (July 2006 estimate)
Population growth rate: 0.02% (2006 estimate)
Languages: Japanese

Economy

Japan is the second most technologically powerful economy in the world, after the United States, and the third-largest economy, after the U.S. and China, measured in purchasing power parity (PPP). Its economy is highly efficient and competitive in areas linked to international trade. Throughout the 1960s through 1980s, Japan achieved one of the highest economic growth rates in the world. In the early 1990s, the economy slowed dramatically, but growth has been improving since 2004. Today, Japan’s long-term economic prospects are good and the economy is expected to achieve a 2%-plus growth rate in 2006 and 2007.

Economic Indicators

(e) estimate (f) forecast

Currency: Japanese Yen (JPY)

• JPY per US dollar: 117.011
• JPY per euro: 148.916

Leading Markets (2005): US 22.9%, China 13.4%, South Korea 7.8%, Taiwan 7.3%, Hong Kong 6.1%

Leading Exports-commodities: transport equipment, motor vehicles, semiconductors, electrical machinery, chemicals

Leading Suppliers (2005): China 21%, US 12.7%, Saudi Arabia 5.5%, UAE 4.9%, Australia 4.7%, South Korea 4.7%, Indonesia 4%

Leading Imports-commodities: machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials

Top Industries: among world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods

Business Climate

Conversion and transfer of currency: generally, freely permitted
Openness to foreign investment: few formal restrictions
Right to private ownership: secure for foreign businesses
Expropriation and compensation: virtually no risk
Political violence: rare to unknown

Protection of intellectual property rights: Obtaining and protecting patent and trademark risks in Japan can be time-consuming and costly.

Patents, Trademarks, Utility Models and Designs: Unlike U.S. patent law, patents are granted to the first to file an application, rather than the first to invent. Therefore, prompt filing in Japan is crucial as a printed description of the invention anywhere in the world, or knowledge or use of the invention in Japan prior to the filing date of the Japanese application would preclude the grant of a patent.

Transparency of the regulatory system: Over-regulation in Japan continues to restrain economic growth, raise the cost of doing business, restrict competition, impede market entry and exit, and slow investment.

Corruption: While corruption usually involves the exchange of moneys, Japanese business methods can often lead to what some foreign Japan-watchers have described as "institutionalized corruption." For example, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been said to foster an inwardly-cooperative business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. The penal code of Japan covers crimes of official corruption. However, while there have been some high profile exposures of officials having either given or accepted bribes, the Japanese government has not taken an aggressive record of criminal prosecution.

Business Practices

Knowing the right people: Connections are very helpful, but choose your intermediaries carefully. Select someone of the same rank as the person with whom he/she will have dealings. Never select an intermediary who is part of either company involved with the deal.

Addressing businesspeople: First names are reserved for family and close friends. Wait to be invited before presuming to use a first name, and don’t invite others to call you by your first name until you know the person well.

Business cards - “meishi”: These are a very important part of doing business in Japan, helping to establish the status of the parties relative to each other. Be sure to have a plentiful supply on hand. One side should be in English, the reverse in Japanese. It is an asset to include your credentials on the card.

Punctuality: The Japanese consider it rude to be late; therefore, always be on time for business and social meetings.

Gift giving: This is an important part of Japanese business protocol. Never give the same gift to two or more Japanese of unequal rank; don’t give a gift to one person in the presence of others unless you have a gift for everyone.

Business attire: Business casual attire is still uncommon in Japan. Dress conservatively and appropriately.

Seating arrangements: Never take any seat at a conference table but wait to be directed to the appropriate seat. In general, the highest-ranking person from the host side will sit at the head of the table. The others are arranged according to their respective status. Stand at your seat and wait until the host is seated. When the meeting is finished, wait until he stands up before standing yourself.

Speaking the language: Although many Japanese businesspeople read and write English, they expect visitors to bring an interpreter if truly serious about doing business.

Maintaining harmony: Japanese society is complex with a strong emphasis on avoiding direct confrontation.

Credit and Collections

• Collection Experience: Good to Fair
• Exchange Delays: 2 months
• Preferred Credit Terms: sight draft
• Minimum Credit Terms: open account

Payments: Japan has ratified the International Conventions on Bills of Exchange and Promissory Notes and Cheques. Thus, these instruments hold the same validity and are subject to the same rules in Japan as in Europe. Bills of exchange, as well as promissory notes (yakusoku tegata), allow creditors to initiative fast-track debt recovery proceedings. The penalties for default are severe. A debtor who has twice in six months failed to honor a bill of exchange, promissory note or check is barred for two years from undertaking business-related banking transactions, and de facto reduced to insolvency. Bank transfers have also become a popular means of making payments as there is widespread use of electronic transfer systems by Japanese banks.

Collections: In principle, only lawyers (bengoshi) are allowed to undertake debt collection. Out of court settlement is preferable to legal action, which is lengthy and costly. A chief characteristic of the Japanese legal system is the importance attached to conciliation. Two procedures are commonly utilized for settlements: conciliation (chotei), whereby a panel of mediators, under court supervision, attempt to resolve the dispute amicably; and arbitration (chusai). Summary proceedings on undisputed claims can be obtained within approximately six months.

Risk Assessment

Coface Country Risk Rating: A1 - The steady political and economic environment has positive effects on an already good payment record of companies. Very weak default probability.

Ducroire Delcredere Political Risk Rating: 1 – low risk
Ducroire Delcredere Commercial Risk Rating: A – low risk

Japan’s large government debt, totaling 160% of GDP, and the aging of the population are two major long-term problems. A slight economic slowdown is anticipated in 2007, partially due to the economic slowdown in the U.S. and the appreciation of the yen. However, bankruptcies have been declining for the last four years, and the current account surplus reflects a competitiveness in export sectors, and the high level of consumer savings constitutes a spending reserve. According to Coface, company solvency, on balance, should remain generally good in the coming months.

Sources for further information on doing business in Japan

Doing Business in Japan: A Country Commercial Guide, U.S. Department of Commerce – 103-page document of the U.S. Commercial Service providing information from political and economic environment to trade regulations and standards, and business travel. (PDF)

Business in Japan, Eurotechnology.com – Interesting insights into the difficulties of doing business in Japan

Japan External Trade Organization (JETRO) – Japanese government-related organization providing information on investing in Japan, business opportunities, market information, statistics and surveys.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Japan. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," September 2006.