- Basic data
- Public finances and the state budget
- Banking system
- Tax system
The Japanese economy, despite its indisputable strength and ability to overcome fairly regular natural and other consequential disasters (frequent earthquakes, typhoons, devastating tsunamis and the resulting nuclear accident in Fukushima in 2011, etc.), during the second decade of the 21st century recorded only moderate growth – since 2012 an average of 1% per year. Japan’s long-term stagnant economy, near-zero inflation and the largest public debt in the world (245% of GDP) are serious challenges that the Japanese government cannot cope with. In addition, Japan’s economy faces a rapidly shrinking and aging population. The share of the population older than 65 years is 28% and there are already more than 70,000 people over 100 years old living in the country, while the birth rate has been declining for a long time. It is assumed that in 2021, people over the age of 50 will make up half of the country’s population. The government plans to implement several social security reforms by 2023, which should contribute to the growth of employment, especially among women. Human resource development is part of the government’s broader goal of achieving a “supersmart” society, or the so-called “Society 5.0”, mainly through the development of robotics, artificial intelligence and other cutting-edge technologies. Check ebizdir for economical facts of Japan.
In Japan, the structure of promising manufacturing industries with high added value (automotive industry, electrical engineering, advanced engineering, robotics, etc.) has been building for a long time. Considering environmental impacts and especially decarbonization plays a growing role in the technological development of industry and its restructuring. However, Japan has gradually become a country with a predominance of services (trade, transport, entertainment, social care, finance, telecommunications, tourism), in which the majority of the workforce is employed. The situation surrounding the global spread of the new coronavirus COVID-19 at the beginning of 2020 only deepened the already unfavorable economic situation of Japan. The immediate effect is a dramatic drop in the number of tourists from China, of whom almost 10 million came to Japan in 2019 alone, which was a full 30% of the total number of foreign visitors to the country. But tourism is not the only sector affected, transport, retail and the automotive industry also report large losses.
|GDP growth (%)||0.3||-4.8||1.7||2.9||1.3|
|Export of goods (billion USD)||705.6||641.4||756||772.3||767.3|
|Import of goods (billion USD)||721||634.5||769||817.5||811.2|
|Trade Balance (Billion USD)||3.5||28.8||16.7||-13.5||-12.5|
|Industrial production (% change)||-3||-10||5.8||4.5||2|
|OECD export risk||ON||ON||ON||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-6.4|
|Public debt (% of GDP)||242|
|Current account balance (billion USD)||141.1|
Japan’s national budget is compiled for a fiscal year that begins on April 1 and ends on March 31 of the following year. The draft state budget is submitted by the government to the Lower House of Parliament for approval. The proposal is then sent to the Upper House for approval. The state budget enters into force even if it is not approved by the Upper House, 30 days after its approval by the Lower House. Japanese budgetary practice is characterized by the frequent acceptance of so-called supplementary budgets. These are usually approved in the second half of the budget year as a form of increasing the original budget.
For 2022, Japan adopted a budget of 107.6 trillion. yen (about 900 billion USD). This is the largest state budget in the history of the country. It is thus a continuation of the expansionary fiscal policy that the government is applying in response to the coronavirus crisis. However, its basic structure has not changed much compared to previous years. One third is intended to finance the social system, incl. pensions and healthcare, with these costs increasing significantly every year due to a rapidly aging population. Another item that has been increasing in recent years is defense spending. The reason is China’s increasingly assertive foreign policy in the region as well as the ongoing threats from North Korea. The cost of servicing the state debt rose to 2 billion. JPY, representing 22.3% of spending.
Japanese banking has the largest volume of deposits in the world. The central bank, the Bank of Japan (BOJ), acts as an independent institution, answerable only to the Japanese parliament. The BOJ is headed by a governor appointed for a five-year term. An important part of the Japanese financial system is the Japan Post, which manages approximately a quarter of all personal savings of the population. In addition to commercial banks, the banking system also consists of several specific government financial institutions (the Development Bank of Japan, the Japan Bank for International Cooperation and specialized state financial corporations). Japanese banks are united in the Japan Banking Association (Zenginkyo), which has a total of 249 members.
The reliability and seriousness of Japanese banks was proverbial in post-war Japan. However, in the 1990s there were a number of banking scandals that cast doubt on the good reputation of the Japanese banking sector. In 1996–1999, the government took measures to clean up the banking sector through bank recapitalization, deregulation and liberalization of financial services. This reform, sometimes referred to as the “Big Bang” in Japanese banking, brought fundamental changes especially to its structure. As part of the reform of the financial sector, laws were passed in 1998-2000 aimed at creating a comprehensive legal framework for the transformation of individual parts of the Japanese financial sector into a unified modern financial system. The reform of the late 1990s thus enabled the reorganization and restructuring of the banking sector and the influx of foreign capital.
The five largest private banks are:
– Mitsubishi UFJ Financial Group
– Chuo Mitsui Trust Holdings
– Resona Holdings
– Sumitomo Mitsui Financial Group (SMFG)
– Mizuho Financial Group
Japan is still among the countries with a relatively low tax burden. The tax system in Japan is stable, is not subject to radical changes and is based on the self-assessment method, where each entity calculates its own taxes. For larger companies, the involvement of an external accountant or an internal auditor is assumed for these purposes. The tax return must be submitted to the local tax office within two months after the end of the accounting year. Tax evasion and late payments are severely punished with heavy fines.
Personal income tax is progressive and ranges from 5-45%. The tax burden on the income of natural persons, including local taxes, is one of the highest in the world and, in aggregate, amounts to over 50%. In addition, it is necessary to add social security payments, which include pension insurance, health insurance and unemployment insurance. The payment is divided between the employer (12.9%) and the employee (12.0%).
The corporate income tax rate varies according to the company’s income: If the company’s annual income is less than 100 million JPY, the tax rate is 15% for the first 8 million JPY of income, and for income above 8 million JPY, the rate is set at 23.2%. If the company’s annual income is more than 100 million JPY, the tax rate on the entire income is 23.2%.
Consumption tax / VAT
The current rate of tax on all goods and services sold is 10% (from 1 October 2019), with the exception of food and non-alcoholic beverages, for which the original rate of 8% remained in force. No changes in the tax system are planned in the foreseeable future. However, in the long term, the change in the tax system will be part of the steps to restore public finances.
More information can be found on the English website of the Tokyo Metropolitan Bureau of Taxation.