The UK-Japan Comprehensive Economic Partnership Agreement (CEPA) has highlighted the opportunities for trade and investment between the two countries. The UK and Japan have a strong trade and investment relationship. Japan is the world’s third-largest economy and the UK’s fourth-largest non-EU export market.
Sovereign hosted a well-attended Webinar on ‘Enhancing International Trade & Investment: Insight into Japan & UK Market Entry’ on 1 March, which featured in-depth insights from Samuel Rosen, Managing Director of Japan Transnational Business & Consulting (JTBC) Services.
London-based JTBC Services provides translation, interpreting and representative services to business from the UK seeking to offer their products/services in Japan, and to Japanese businesses looking expand into or invest in the UK. For this issue of Asia Focus, Samuel has kindly agreed to contribute the article below on Japan’s welcome re-emergence.
With its significantly larger continental neighbour consistently dominating the headlines over the past few years, it is easy to forget that Japan is the world’s third largest economy, with GDP of around USD5 trillion and a well-heeled population of almost 126 million people, writes Samuel Rosen.
Despite the ‘Bubble Burst’ of the 1990s and the so-called ‘Lost Decade’ that followed, Japan remains the world’s largest creditor, with over USD3 trillion overseas investments and, on a national level, Japanese people have among the highest levels of median wealth per household and disposable income in the world. Nevertheless, Japan remains largely under the radar, both as a destination for investment and as an export market.
Perhaps the main reason for this is that the barriers to entry are consistently perceived as simply being too high. With few exceptions, Japan businesses, particularly at the SME level, are seen as conservative, overly focused on the domestic market, and unwilling to engage with non-Japanese entities. And it is fair to say that this perception is not completely unfounded.
Beyond decision-making processes that, like the tea ceremony or bonsai cultivation can seem esoteric, unnecessarily complex and glacially slow, there is the barrier of a language and culture that are unique, notoriously nuanced and difficult to master. In the public sector too, the regulatory environment in Japan is seen as complex and xenophobic, overburdened by unfathomable rules and red-tape bureaucracy.
Against this backdrop, it is fair to ask why any company or investor, particularly one in the UK, might look to Japan now for new opportunities. To shed some light of this, we need to look back to the early 2000s, and the gradual shift in ideology that began under the charismatic neoliberal economic reformer Prime Minister Junichiro Koizumi, who led a drive to encourage more modern ideas in the workplace.
This was augmented by his immediate successor, Shinzo Abe, who serves as Prime Minister from 2006 to 2007 and again from 2012 to 2020. His premiership was known internationally for his economic policies, nicknamed ‘Abenomics’, which pursued monetary easing, fiscal stimulus and structural reforms. His government encouraged change in many areas of corporate life, pushing back against some of the more traditional practices, opening up jobs to people who would previously been excluded and flattening hierarchies.
More recently, however, the Covid pandemic has provided a powerful catalyst; accelerating change in corporate Japan at a pace not seen since the 1970s and early 1980s. While the travel restrictions on entry to Japan have been perceived from outside as draconian, they have proven tremendously popular inside the country. Arguably more significant for Japanese society, however, have been the domestic lockdown measures, which at the time of writing are still in place in 29 out of the 47 prefectures.
One aspect of these policies has been to force the temporary closure of many izakaya (traditional Japanese pubs) and bars, which has pushed business discussions into the office and, even more challengingly for older people in senior management positions, online. Further down the company hierarchy, workers who would previously have been expected to swipe in daily and sit at their desks from 08:00 to 18:30 (or later), were suddenly allowed to work from home.
In an even more ground-breaking move, corporations have begun to discuss a shift from remuneration based on time-served to more competitive structures based on skills and performance. Here in the UK, we are seeing how the dynamics of work-from-home have been changing the way business is conducted, but in Japan these shifts are seismic in the effect they have been having on workplaces and the modern Japanese way of life.
Beyond these changes that have been thrust onto Japan by the pandemic, the new Prime Minister Fumio Kishida has already begun to put his stamp on Japan’s post-covid economic policies, affirming his commitment to build on the legacy of ‘Abenomics’, and kicking off his tenure with a raft of new measures, such as putting together a ground-breaking committee of entrepreneurs to create a ‘New Capitalism’.
Similar committees are being called together from all walks of Japanese life to work on new economic projects, under banners such as DX (Digital Transformation), GX (Green Transformation) and Society 5.0. And in line with Abe’s ‘womenomics’ policies, Kishida is seeking to ensure that key positions on these committees are not all taken up by men, as historically would have been the case. More reports on drivers for economic growth will be published over the summer and the findings of these committees look set to shape Japanese government policies for years to come.
Internationally, businesses in the UK are in a particularly strong position to benefit from these changes since the ratification of the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), which came into force on 1 January 2021. Designed to smooth trade between the UK and Japan following Brexit, a key area is the digital-trade provisions of the deal with the UK government describing the CEPA as containing “cutting-edge digital and data provisions that go far beyond the EU-Japan deal”.
Just as the arrival of Commodore Perry’s Black Ships in 1853 famously precipitated the end of the Sakoku or ‘closed country’ period in Japan, heralding the rapid economic growth and unprecedented internationalisation of the Meiji Period, so the covid pandemic has shaken up Japanese societal norms and forced a re-evaluation of long-held ways of doing business.
As the country opens up again under its new leader, more than two decades of stagnation has ended, property prices are back above the pre-bubble levels of the 1990s, and economic activities such as the creation of start-ups, mergers and acquisitions are already at record levels. Japan Inc. is well and truly opening for business once more.
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