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Japan: Market Profile

Picture: Japan factsheet
Picture: Japan factsheet

1. Overview

Japan is the world's third largest economy, with its service sector contributing about 70% of the country's GDP, while wholesale and retail trade, real estate services, and professional, scientific and technical activities complementing its major service pillars. Transport equipment, food and beverages are the major manufacturing industries of Japan. Since 2012, Japan's government under Prime Minister Shinzō Abe has adopted a three-pronged strategy to reinvigorate the economy. The so-called Abenomics (the name given to Abe's economic policies) comprises expansionary monetary policy, flexible fiscal policy and structural reform. Abenomics has evolved over the years into a broader blueprint for pro-growth socio-economic change that aims to lead Japan in tackling its current challenges head-on. The changes are designed to benefit all parts of Japan's economy: the people, companies and investors. In 2018 Japan enjoyed the largest annual increase in employee compensation since 1995, as well as enhanced GDP, low unemployment, increased corporate profits and growing tax revenue. However, several headwinds in 2019 threaten to slow the economy: an increase in consumption tax looms later in the year, and there are risks associated with the banking sector's increased exposure from loans to small firms as the banks have looked for returns in a negative interest rate environment.

Sources: JapanGov, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

June 2017
The Diet (the Japanese legislature) passed a landmark bill that allowed Emperor Akihito to abdicate.

October 2017
Japan's ruling LDP-Komeito coalition retained its two-thirds majority in the lower house elections held on October 22.

March 2018
Japanese Minister of Foreign Affairs Taro Kono made an official visit to Hong Kong to discuss import restrictions. This is the first time a Japanese foreign minister had visited Hong Kong since 1997.

July 2018
The fifth Regional Comprehensive Economic Partnership (RCEP) inter-sessional ministerial meeting was held in Tokyo (the first to be held outside ASEAN - countries). The parties agreed on the importance of an early conclusion to the proposed RCEP free trade agreement (FTA), an alternative to the TPP. The 16 RCEP member states represent 38% of global GDP and 29% of world trade.

October 2018
Prime Minister Shinzō Abe met with Chinese President Xi Jinping in Beijing, the first official visit to China by a Japanese leader for seven years. Abe was accompanied by 500 business leaders. The visit was accompanied by an announcement of numerous collaborative infrastructure projects involving Chinese and Japanese companies.

November 2018
The government approved a bill intended to revise immigration laws to help Japan replenish its ageing workforce, especially in agriculture, nursing, construction and transport. The number of foreign workers in Japan has doubled to 1.3 million.

January 2019
Japan-based beer group Asahi agreed to the purchase of the traditional London brewer Fuller, Smith & Turner. The deal was the latest in a series that has turned Tokyo-based Asahi into the seventh largest brewer in the world.

April 2019
Emperor Akihito abdicated in favour of Crown Prince Naruhito.

September–November 2019
Japan's hosting of the Rugby World Cup, the third largest sports event in the world, should help Japan to set a new record for foreign tourist visitors to the country – more than the 31 million tourists in 2018. The government has also targeted 40 million by the Tokyo Olympics in 2020.

Sources: BBC Country Profile – Timeline, The Guardian, The Japan Times, Fitch Solutions

3. Major Economic Indicators

Graph: Japan real GDP and inflation
Graph: Japan real GDP and inflation
Graph: Japan GDP by sector (2017)
Graph: Japan GDP by sector (2017)
Graph: Japan unemployment rate
Graph: Japan unemployment rate
Graph: Japan current account balance
Graph: Japan current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: May 31, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Japan merchandise trade
Graph: Japan merchandise trade

Source: WTO
Date last reviewed: May 31, 2019

Graph: Japan major export commodities (2018)
Graph: Japan major export commodities (2018)
Graph: Japan major export markets (2018)
Graph: Japan major export markets (2018)
Graph: Japan major import commodities (2018)
Graph: Japan major import commodities (2018)
Graph: Japan major import markets (2018)
Graph: Japan major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: May 31, 2019

4.2 Trade in Services

Graph: Japan trade in services
Graph: Japan trade in services

e = estimate
Source: WTO
Date last reviewed: May 31, 2019

5. Trade Policies

  • Japan has been a World Trade Organization (WTO) member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since September 10, 1955. Japan's tariff schedule has five columns of applicable rates: general, WTO, generalised system of preferences (GSP), least developed countries 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.

  • Most goods can be freely imported without import licences, except certain items covered by the import restriction system (for example, chemical products and weapons). Most of Hong Kong's exports to Japan, such as garments, toys, jewellery, houseware, watches, clocks and the majority of electronic items, are not subject to import restrictions.

  • As of February 2019 Japan had a total of 18 economic partnership agreements (EPAs) in force or signed with the following countries and regions: Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei, ASEAN, the Philippines, Switzerland, Vietnam, India, Peru, Australia and Mongolia. The TPP and the EPA with the European Union (EU) have also both come into force. Agreements are being negotiated with Colombia and Turkey, as well as the RCEP and a trilateral FTA between Japan, China and South Korea. Discussions with Canada, the Gulf Cooperation Council and South Korea are ongoing.

  • The overall orientation of Japan's trade policies has remained broadly unchanged since its previous WTO review in 2015. Japan has several systems in place to expedite the release and clearance of goods, including an authorized economic operator (AEO) programme. It has mutual recognition arrangements on AEO programmes with some of its trading partners.

  • Japan makes relatively little use of trade contingency measures although the number of anti-dumping measures implemented by Japan has increased. On June 18, 2018 Japan requested a consultation with South Korea about the latter's imposition of duties on stainless steel bars, and on November 6, 2018 Japan initiated an investigation into South Korea over the trade in commercial vessels.

  • Regarding Japan's intellectual property rights framework, the main changes during the 2017 review period included the implementation of stand-alone legislation on geographical indications for food, beverages, and agricultural and marine products; the strengthening of the protection of trade secrets; and various amendments to the Patent Act, the Trademarks Act, the Design Act and the Act on International Applications under the Patent Cooperation Treaty.

  • Access to the medical profession in Japan is regulated through qualification and language requirements. A few bilateral agreements allow easier access conditions, but the language and the detailed documentary requirements of the application processes (which are entirely in Japanese) present significant barriers to entry. Nurse and care worker examinations are accessible to foreigners and this regime is covered in some regional trade agreements. The Ministry of Health, Labour and Welfare is considering relaxing bilateral agreements of mutual accreditation of doctors' licences, but only within six national strategic special zones.

  • The services sector, a key component in Japan's economy, is broadly open to competition, except in selected areas, such as certain broadcasting and medical services. The main changes to the regulatory framework for financial services during the review period included several amendments to the Banking Act. These amendments have partially relaxed requirements in respect to agency services and intermediary services for foreign banks and introduced a series of new and stricter rules regarding licencing standards, information obligations, maintenance of assets in Japan and supervisory powers in case of bankruptcy or reorganisation proceedings, essentially for prudential reasons.

Sources: WTO – Trade Policy Review, Ministry of Foreign Affairs of Japan, Japan's Ministry of Economy, Trade and Industry, Acumen magazine – British Chamber of Commerce in Japan, Fitch Solutions

6. Trade Agreements

6.1 Multinational Trade Agreements

Active

  1. Japan-India Economic Partnership Agreement (EPA): This comprehensive EPA between Japan and India was signed on February 16, 2011 and came into force on August 1, 2011.

  2. Association of South East Asian Nations (ASEAN)-Japan Comprehensive EPA (AJCEPA): ASEAN is a regional intergovernmental organisation, comprising 10 South East Asian countries, which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational and socio-cultural integration among its members and other Asian countries, as well as globally. The AJCEP was signed on March 26, 2008 and came into effect on December 1, 2008; it enhances trade in goods between the two areas.

  3. The Japan-Thailand EPA (JTEPA): JTEPA is a FTA between Thailand and Japan. The deal is expected to eliminate tariffs on more than 9% of bilateral trade. It was signed on April 3, 2007 in Tokyo by then Prime Minister Shinzō Abe, and the visiting prime minister of Thailand, Surayud Chulanont, and came into force on November 1, 2007.

  4. Japan-Australia EPA (JAEPA): This EPA was concluded in November 2014 and took effect on January 15, 2015. A number of concessions were secured for Australian agricultural exporters, while Australian tariffs on electronics, white goods and cars were lowered.

  5. The Comprehensive and Progressive Agreement for TPP (CPTPP): The agreement – comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – is in effect. The agreement was ratified in Q418, with the deal representing 13.4% of global GDP, making it the third-largest trade agreement after the United States-Mexico-Canada Agreement (USMCA) and the EU. The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards and intellectual property protections.

  6. EU-Japan EPA (EUJEPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. The result of four years of negotiation, the EUJEPA was finalised in late 2017 and came into force on February 1, 2019. According to the European Commission, EUJEPA will create a trade zone covering 600 million people and nearly a third of global GDP. The total trade volume of goods and services between the EU and Japan is EUR86 billion, and EUJEPA is expected to increase total exports by EUR13 billion by 2035 and to boost sectors such as agri-food, textiles and leather products. The key parts of the agreement will cut duties on a wide range of agricultural products and seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Negotiations with Japan continue on investment protection standards and investment protection dispute resolution. As of February 1, 2019 a large part of another agreement – a strategic partnership agreement between the EU and Japan – applies on a provisional basis.

Under Negotiation

  1. RCEP: Japan has held ongoing negotiations for the RCEP FTA with several countries, including Australia, ASEAN members, China, India, South Korea and New Zealand, since 2012.

  2. Other EPAs are currently being negotiated with Canada, Colombia, South Korea and Turkey, as well as an FTA with the GCC and a trilateral FTA between Japan, China and South Korea.

Sources: WTO Regional Trade Agreements database, Ministry of Foreign Affairs of Japan, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Japan FDI stock
Graph: Japan FDI stock
Graph: Japan FDI flow
Graph: Japan FDI flow

Source: UNCTAD
Date last reviewed: May 31, 2019

7.2 Foreign Direct Investment Policy

  1. The Japanese government welcomes foreign investment and has set ambitious goals for increasing inbound foreign direct investment (FDI), which hit a record high in 2017. Despite Japan's wealth, high level of development and general acceptance of foreign investment, inbound FDI stocks as a share of GDP are the lowest throughout the Organisation for Economic Co-operation and Development (OECD). Future changes in Japan's investment climate are largely contingent on the success of structural reforms to the Japanese economy. Recent changes that aim to strengthen corporate governance and increase female labour force participation have the potential to improve Japan's economic condition, but further reforms are likely to be necessary to secure a return to robust economic growth.

  2. The Bank of Japan is at the forefront of the country's efforts to boost private consumption through quantitative and qualitative monetary easing with a negative interest rate. On the fiscal front, a number of economic plans have been adopted with a view to improve the country's public finances, including its debt position, and boost the competitiveness of the economy through large-scale investment, among other things. In April 2014, the government established an FDI Promotion Council consisting of government ministers and private sector advisors. On the fiscal policy front, in June 2016 the Japanese government announced that it had postponed 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 research and development schemes, aid for disaster recovery projects and infrastructure developments.

  3. Japan's legal and regulatory climate is highly supportive of investors. Courts are independent, sophisticated and ostensibly provide equal treatment to foreign investors. The country's regulatory system has improved its level of transparency and looks to develop new regulations in line with international norms. Capital markets are deep and broadly available to foreign investors. Japan maintains strong protection for intellectual property rights with generally robust enforcement. The country is home to world-class corporations, research facilities and technology. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital and repayment of principal, are freely permitted. In June 2018, a law took effect that introduced a regulatory 'sandbox measure', whereby early stage innovatory business models or technology can be evaluated on merit and tested on a case-by-case basis within their 'sandbox' without being subject to existing regulations.

  4. The Japanese government promotes inward FDI and has established formal programmes to attract it. Soon after Prime Minister Shinzō Abe took office, the government announced its intention to double Japan's inward FDI stock to JPY35.0 trillion by 2020 and reiterated that commitment in its revised Japan Revitalisation Strategy issued in August 2016. The Abe administration's interest in attracting FDI is one component of the government's strategy to reform and revitalise the Japanese economy which continues to face the long-term challenges of low growth, an ageing population and a shrinking workforce.

  5. The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have created a one-stop shop for foreign investors, providing a single Tokyo location – with language assistance – where those seeking to establish a company in Japan can process the necessary paperwork. JETRO operates six Invest Japan Business Support Centres across Japan (in Fukuoka, Kobe, Nagoya, Osaka, Tokyo and Yokohama) which provide consultation services on types of Japanese incorporation, business registration, human resources, office establishment and visa or residency issues. By October 2018 the Tokyo one-stop centre had processed more than 10,400 cases.

  6. In March 2015, the Council for Promotion of FDI in Japan adopted the Five Promises for Attracting Foreign Business to Japan and in January 2016 the Japanese government established an Investment Advisor Assignment System, whereby a state minister acts as an advisor to selected foreign companies with important investments in Japan. The system aims to facilitate consultation between the Japanese government and foreign firms. Of the nine companies selected in April 2016, seven are from the United States, one is from France and one is from the Netherlands.

  7. In the post-war period since 1945, the Japanese government has not expropriated any enterprises and the expropriation or nationalisation of foreign investment in Japan is highly unlikely.

  8. As of May 2019, Japan had concluded bilateral investment treaties with 28 countries: Bangladesh, Cambodia, mainland China, Colombia, Egypt, Hong Kong, Iran, Iraq, Israel, Kazakhstan, Kenya, South Korea, Kuwait, Laos, Mozambique, Myanmar, Oman, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, Uruguay, Uzbekistan and Vietnam. Two more – with Armenia and the United Arab Emirates – have been signed but are not yet in force. Japan also has 20 treaties that include investment chapters (with ASEAN, Australia, Brunei, Chile, China, the EU, India, Indonesia, the Philippines, South Korea, Malaysia, Mexico, Mongolia, Peru, Singapore, Switzerland, Thailand and Vietnam).

  9. Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan's former landline monopoly telephone operator, Nippon Telegraph and Telephone, to 33%. Japan's Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20%, or 33% for broadcasters categorised as facility-supplying. Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, programme suppliers or cable television operators.

  10. Japan has no general restrictions on data storage. In September 2015, the Japanese Diet passed an amendment to the Personal Information Protection Act, seeking to enhance the use of personal data for business purposes while protecting privacy. The amendment created new rules for the protection of personal data, including the transfer of personal data over the internet, and established a third-party authority, similar to the EU's privacy commissioner, as regulator. On January 1, 2016 the Personal Information Protection Commission (PIPC) was established. The PIPC issued its guidelines for businesses on the protection of personal data on November 30, 2016. The 2015 amendment to the Personal Information Protection Act has been in full effect since May 30, 2017.

  11. The Foreign Exchange and Foreign Trade Act governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire more than 10% of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include agriculture, aerospace, forestry, petroleum, electric, gas and water utilities, telecommunications, and leather manufacturing.

Sources: WTO – Trade Policy Review, ITA, UNCTAD, US Department of Commerce, Japanese Government, Invest Japan, Japan External Trade Organization

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
The National Strategic Special Zones Advisory Council chaired by the prime minister has established a total of 12 national strategic special zones (NSSZs) to implement selected deregulation measures intended to attract new investment and boost regional growth. The NSSZs exist in Aichi, Kansai Area, Fukuoka/Kitakyusyu, Hiroshima/Imbari, Niigata, Okinawa, Semboku, Sendai, Tokyo Area and Yabu.Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone's master plan, which focuses on a potential growth area, such as labour, education, technology, agriculture and healthcare. Any exceptions approved by the central government can be implemented by other NSSZs in addition to the requesting zone. Foreign-owned businesses receive equal treatment in the NSSZs. Some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the start-up visa adopted by the Fukuoka NSSZ.
Special Zone for ReconstructionThe Japanese government has also sought to encourage investment in the Tohoku (north east) region which was devastated by the earthquake, tsunami and nuclear triple disaster of March 11, 2011. Areas affected by the disaster have been included in a special zone for reconstruction that features eased regulatory burdens, tax incentives and financial support to encourage heightened participation in the region's economic recovery.
The government has established two types of comprehensive special zones (CSZ): for international competitiveness (CSZIC) and for local revitalisation (CSZLR). There are seven CSZICs and 36 CSZLRs.By concentrating national and regional policy resources in these types of CSZs, the Japanese government believes the first can form industry clusters to serve as economic growth engines and that the second can enhance regional competitiveness by maximising the use of regional resources. The incentives include regulatory exceptions, corporate tax reductions, fiscal and financial support.

Sources: US Department of Commerce, Japan External Trade Organization, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: 8%
  • Corporate Income Tax: 23.2%

Source: Ministry of Finance, Japan

8.1 Important Updates to Taxation Information

  • On March 28, 2018 the 2018 Tax Reform Act (TRA) was approved by the Diet. The 2018 TRA introduces tax measures designed to improve corporate productivity via Internet of Things investment and to increase salary income in order to maintain the revitalisation of the economy.

  • On September 26, 2018 the Japanese government deposited its instrument of acceptance for the multilateral instrument (MLI) with the OECD, approved by the Diet on May 18, 2018. As a result, the MLI came into force on January 1, 2019 and will have a fundamental impact on existing double tax treaties (DTTs) concluded by Japan (including jurisdictions such as Hong Kong). The MLI is applied alongside existing tax treaties, replacing or modifying provisions of the tax treaties. The precise date of DTTs affected will vary depending on whether treaty partners have ratified the OECD.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax23.2% (applies to ordinary corporations with share capital exceeding JPY100 million)
Capital Gains Tax23.2% (capital gains are treated as ordinary income)
National Local Corporate Tax (imposed on Standard Corporate Tax liability)10.3%
Withholding TaxesThe following withholding tax rates apply (residents/non-residents)

Dividend Income: 20%/20%
Interest: 20%/20%
Royalties: 0%/20%

Rates for non-residents may be reduced if a double taxation agreement exists. For example, Hong Kong's treaty makes these rates 10%, 10% and 5%.
Value Added Tax (Consumption Tax)Known as consumption tax, the standard rate is 8% and will be maintained until September 30, 2019. From October 1, 2019 the rate will be 10%. Exports and certain services to non-residents are taxed at a zero rate. From October 1, 2019 the lower rate will still apply to food (excluding food purchased in restaurants).
Standard Enterprise Tax (and Local Corporate Special Tax)Enterprise tax, which is deductible, is imposed on a corporation's income allocated to each prefecture. This allocation is generally made on the basis of the number of employees and offices in each location. Local corporate special tax, a rate multiplied by the income portion of enterprise tax, will be abolished from tax years beginning on or after October 1, 2019 and replaced by enterprise tax (including a size-based tax regime). The enterprise tax is 3.4% on the first JPY4 million per annum, 5.1% on the next JPY4 million per annum and 6.7% on over JPY8 million per annum. Local corporate special tax is 43.2% of the current enterprise tax. For utilities and insurance companies the enterprise tax is 0.9%.
Size-based Enterprise Tax (and Local Corporate Special Tax)The size-based enterprise tax (Gaikei Hyojun Kazei) is applied to a company with paid-in capital of more than JPY100 million as of the end of the year. From October 1, 2019, when the local corporate special tax will be abolished, the applicable rates for size-based enterprise tax will be 1.9% on the first JPY4 million per annum, 2.7% on the next JPY4 million per annum and 3.6% on over JPY8 million per annum.
Inhabitant's TaxInhabitant's tax is imposed on a corporation's income allocated to each prefecture and city (municipal borough). The allocation is generally made on the basis of the number of employees, in the same way as enterprise tax. The standard tax rate is determined by each local government and is in the range 3.2-4.2% for prefectural tax, 9.7-12.1% for municipal tax and 4.4% for local corporate tax. For fiscal years beginning on or after October 1, 2019 the rates will be 1.0-2.0% for prefectural tax, 6.0-8.4% for municipal tax and 10.3% for local corporate tax.
Fixed Assets TaxThe annual fixed assets tax is levied by the local tax authorities on real property and depreciable fixed assets used for business purposes. Real property is taxed at 1.7% (standard rate including city planning tax) of the value appraised by the local tax authorities. The depreciable fixed assets tax is assessed at 1.4% of cost after statutory depreciation.
Social security contributionsThe cost of workers' accident compensation insurance is borne entirely by the employer. Employment, welfare (health and nursing care) and pension insurances are paid for by both employer and employee. The employer's contribution consists of these premiums on a monthly salary: employment (0.3%), health (4.95%) and welfare (9.15%).

Source: Ministry of Finance, Japan
Date last reviewed: May 31, 2019

9. Foreign Worker Requirements

9.1 Foreign Worker Permits

Foreign nationals accepting employment in Japan must obtain a work permit (visa) at a Japanese embassy or consulate. To obtain a work permit, foreign nationals must first apply for a certificate of eligibility (CoE) from the Japanese Immigration Authority. The CoE is issued by the Ministry of Justice in Japan. The CoE certifies that the holder has met the criteria established for a certain status of residence in Japan. It is possible for expatriates to be self-employed in Japan; however, it is very difficult and the expatriate must then also obtain a CoE.

A points-based system was introduced in May 2012 to offer preferential immigration treatment to highly skilled foreign professionals. Foreign nationals with a valid passport and residence card may now leave and return to Japan without holding a re-entry permit if the period of absence from Japan is less than one year. The period of stay for those with residential status is for a maximum of five years. The Japanese government has made additional changes to labour and immigration law to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. The activities of the highly skilled foreign professionals are classified into three categories: advanced academic research activities, advanced specialised or technical activities and advanced business management activities. Points are awarded for each item, such as academic background (for example, a bachelor's degree is worth 10 points, whereas a Master's degree is worth 20 points), professional career, annual salary etc. If the total points reach 70, preferential immigration treatment will be granted.

On November 2, 2018 the Japanese Cabinet approved legislation to create two visa categories that would admit more foreign workers. Abe told the Diet that the measures are strictly to address the serious labour shortage in 14 identified sectors and that the number of workers will be restricted, but it is unclear whether that relates to numbers or permissible areas of work. Under the envisioned legislation, a new Type 1 five-year visa category will be created for non-professional foreign workers who have adequate knowledge and experience in a specific field. They will not be allowed to bring their family members to Japan. The new Type 2 visa will be for those with higher-level work and the government will not set a limit on how many times this status can be renewed, effectively allowing holders of such visas to stay in Japan permanently. They will be able to bring their family members. Those who have qualified for the first type of resident status will be able to switch to the second category.

9.2 Localisation Requirements

Permanent residence may be granted by the minister of justice only if a foreign national fulfils all of the following conditions, which are generally difficult to meet. The applicant has adequate moral standing, the applicant has sufficient assets or skills to be able to make an independent living and the applicant's permanent residence is in accordance with the interests of Japan. Regarding the third condition, the applicant is generally required to reside in Japan for 10 years or longer, with a few limited exceptions. In April 2017, new exceptions to the 10-year rule were enacted. According to the guidelines concerning permanent residence, if the applicant's points calculated in accordance with the points-based system for highly skilled foreign professionals total 70 or more, applicants only have to reside in Japan for three years. In addition, if the applicant's points are 80 or more, residing in Japan for one year suffices. The points relate to various criteria, such as academic background, professional career, annual salary and research achievement.

9.3 Visa/Travel Restrictions

Japan has entered into reciprocal visa exemption agreements with various jurisdictions, including regional peers. Before entering Japan, foreign nationals must obtain a visa corresponding to the purpose of their visit from a Japanese embassy or consulate abroad. Foreign nationals from countries that have entered into reciprocal visa exemption agreements are not required to obtain visas if they intend to stay in Japan for a specified time period for the purpose of limited activities.

Sources: Immigration Bureau of Japan, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sA1 (Stable)06/12/2017
Standard & Poor'sA+ (Positive)16/09/2015
Fitch Ratings
A (Stable)23/01/2019

Sources: Moody's, S&P Global, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
34/19034/19039/190
Ease of Paying Taxes Index
70/19068/19097/190
Logistics Performance Index
N/A5/160N/A
Corruption Perception Index
20/18018/180N/A
IMD World Competitiveness26/6325/6330/36

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A39/20234/202
Short-Term Economic Risk Score
63.161.066.5
Long-Term Economic Risk Score68.168.171.3
Political Risk Index RankN/A17/20216/202
Short-Term Political Risk Score86.586.086.0
Long-Term Political Risk Score87.387.387.3
Operational Risk Index RankN/A16/20115/201
Operational Risk Score75.374.175.1

Source: Fitch Solutions
Date last reviewed: May 31, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Japan's economic expansion will continue, as the combination of accommodative monetary and fiscal policy will likely boost investment in the near term at a time when corporate profits are at a high. Nonetheless, the long-term growth outlook remains dampened by demographic challenges.

OPERATIONAL RISK
Although the working-age population in Japan is projected to shrink at a slower pace over the next 10 years (an average of 0.7% per year) relative to the last decade (0.9%), the demographic drag will still come from the ageing population and the impact that this will have on the country's savings rate.

Source: Fitch Solutions
Data last reviewed: June 2, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Japan short term political risk index
Graph: Japan short term political risk index
Graph: Japan long term political risk index
Graph: Japan long term political risk index
Graph: Japan short term economic risk index
Graph: Japan short term economic risk index
Graph: Japan long term economic risk index
Graph: Japan long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: May 31, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Japan Score75.172.465.577.984.7
Developed States Average73.564.671.376.3
81.8
Developed States Position (out of 27)13623
1510
Global Average49.750.349.8
49.0
49.8
Global Position (Out of 201)15743
16
12

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Japan vs global and regional averages
Graph: Japan vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk
Index
Crime and Security Risk Index
Denmark80.874.876.288.384.0
Netherlands80.365.978.288.688.4
Switzerland79.975.077.675.191.8
Sweden
79.367.778.187.583.8
New Zealand77.773.775.772.189.4
United Kingdom77.671.479.0
78.581.3
United States77.581.375.382.970.5
Norway77.364.072.280.892.3
Canada77.174.375.476.782.1
Finland
76.155.874.183.491.2
Austria75.460.871.980.588.3
Luxembourg75.254.277.680.088.9
Japan75.172.465.577.984.7
Ireland74.866.878.072.082.5
Germany74.365.569.081.281.7
Australia73.167.872.168.384.3
Spain72.659.468.980.981.3
France72.560.171.183.275.5
Belgium72.458.272.883.275.3
Portugal71.051.766.580.985.0
Iceland71.060.667.269.686.6
Liechtenstein70.559.878.161.582.6
Israel67.471.464.671.162.4
Malta66.254.969.060.880.1
Isle of Man65.869.162.449.382.3
Italy64.854.559.776.268.7
Greece58.954.249.268.963.2
Regional Averages73.564.671.376.381.8
Emerging Markets Averages46.048.146.544.744.8
Global Markets Averages49.750.349.849.049.8

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: May 31, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Japan

Graph: Major export commodities to Japan (2018)
Graph: Major export commodities to Japan (2018)
Graph: Major import commodities from Japan (2018)
Graph: Major import commodities from Japan (2018)

Note: Graph shows the main Hong Kong exports to/imports from Japan (by consignment)
Date last reviewed: May 31, 2019

Graph: Merchandise exports to Japan
Graph: Merchandise exports to Japan
Graph: Merchandise imports from Japan
Graph: Merchandise imports from Japan

Note: Graph shows Hong Kong exports to/imports from Japan (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: May 31, 2019


2017
Growth rate (%)
Number of Japanese residents visiting Hong Kong1,230,01012.6
Number of Japanese residing in Hong Kong14,406
1.6

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5
Number of developed state citizens residing in Hong Kong65,6801.5

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions
Date last reviewed: May 31, 2019

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Japanese companies in Hong Kong1,378
0.3
- Regional headquarters233-2.5
- Regional offices4281.9
- Local offices7170.0

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

11.3 Treaties and Agreements between Hong Kong and Japan

  • Double taxation agreement (entered into force on August 14, 2011 and July 6, 2015).
  • Japan has bilateral investment treaties with both Hong Kong (entered into force on June 18, 1997) and mainland China (entered into force on May 14, 1989).
  • An investment promotion and protection agreement (entered into force on June 18, 1997)

Sources: UNCTAD, Hong Kong Trade and Industry Department, Hong Kong Inland Revenue Department, Fitch Solutions

11.4 Chamber of Commerce or Related Organisations

The Hong Kong Japanese Chamber of Commerce and Industry
Address: Unit 902, 9/F, Tower 535, 535 Jaffe Road, Causeway Bay, Hong Kong
Tel: (852) 2577 6129

Source: The Hong Kong Japanese Chamber of Commerce and Industry

The Japan Hong Kong Society

The Japan Hong Kong Society
TelEmailWebsite
National
(more information)
(81) 3 5210 5901
national@jhks.gr.jp www.jhks.gr.jp
Chukyo
(more information)
(81) 50 3620 2517chukyo.jhks@pearl.ocn.ne.jp
Hiroshima
(more information)
(81) 82 248 1400hiroshima@jhks.gr.jp
Hokkaido
(more information)
(81) 11 261 4288hokkaido@jhks.gr.jp
Kansai
(more information)
(81) 6 4705 7030kansai@jhks.gr.jp
Kochi
(more information)
(81) 88 855 9570kochi@jkhs.gr.jp
Hongkong-kochi@altru.co.jp
Kyushu
(more information)
(81) 92 451 8610kyushu@jhks.gr.jp
Miyagi
(more information)
(81) 22 226 7025miyagi@jhks.gr.jp
Niigata
(more information)
(81) 25 365 0001niigata@jhks.gr.jp
Okinawa
(more information)
(81) 98 868 3758okinawa@jhks.gr.jp
Tokyo
(more information)
(81) 3 5210 5870tokyo@jhks.gr.jp
Yamagata
(more information)
(81) 23 665 1310yamagata@jhks.gr.jp

Source: Federation of Hong Kong Business Associations Worldwide

Consulate-General of Japan in Hong Kong
Address: 46-47/F, One Exchange Square, Central, Hong Kong
Email: infojp@hn.mofa.go.jp
Tel: (852) 2522 1184

Source: Protocol Division Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

Hong Kong residents enjoy visa-free access to Japan for the purpose of short-term visits of up to 90 days. This exemption does not apply when the visit is for purposes other than a short-term visit, such as working or seeking employment. Where a visa is required, visa fees will be waived.

Source: Hong Kong Immigration Department
Date last reviewed: May 31, 2019

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