Japan's population problem is a drag on the economy

Which PESTEL factors make Japan attractive / unattractive as an economic area?

Table of Contents

List of figures

List of abbreviations

1 Introduction

2 PESTEL as an analysis method

3 Analysis of Japan
3.1 Political factors
3.2 Economic factors
3.3 Technological factors

4 conclusion

bibliography

List of figures

Figure 1: Real GDP growth from 2017 to 2020 (Statista 2020)

Figure 2: Disposable income Japan (Statistics Bureau 2020)

Figure 3: Export of goods from 2009 to 2019 (Statista, 2020)

Figure 4: Import of goods from 2009 to 2019 (Statista, 2020)

List of abbreviations

ASEAN Association of Southeast Asian Nations for the Promotion of Peace and Prosperity

GDP gross domestic product

BoJ Bank of Japan

EU European Union

R&D Research & Development

G20 Association of 19 countries and the EU. It represents the most important industrial and emerging countries

G4 Germany, Brazil, India and Japan. You are aiming for a comprehensive expansion of the United Nations Security Council from 15 to 25 members

G7 Germany, France, Italy, Japan, Canada, United Kingdom and United States

IMF International Monetary Fund

JPY Japanese yen

RCEP Regional Comprehensive Economic Partnership

USD U.S. dollar

WTO World trade organization

1 Introduction

The present paper examines, on the basis of the PESTEL analysis, a recognized strategic tool of our time, why Japan is attractive / unattractive as an economic area.

Japan is the third strongest economy in the world after the USA and the People's Republic of China and is in its longest growth phase since post-war history. However, the G7 state of Japan is currently struggling with China as a strong competitor in the export sector.

This thesis examines the opportunities and risks of the economic area Japan by means of the political, economic and technological factors using the PESTEL analysis.

2 PESTEL as an analysis method

With the help of the PESTEL analysis, it is possible to describe the company environment with regard to specific market conditions, probable developments and their effects and to create well-founded decision-making bases for management.1 Since the macro environment has a significant influence on the strategy development of companies, the influencing factors of the PESTEL analysis are presented here. PESTEL stands for the political (political), economic (economic), socio-cultural (social), technological (technological), ecological-geographical (environmental) and legal (legal) influencing factors that affect the company when it comes to the Development or processing of markets is possible.2 Often the terms STEEP, STEEP analysis, STEP analysis or PEST analysis are also used. This is the same form of analysis as the PESTEL analysis, only aspects such as environmental and legal are not taken into account in the PEST analysis.

In order to examine the economic area of ​​Japan, the elaboration is limited to the political, economic and technological factors.

3 Analysis of Japan

3.1 Political factors

An important component of Japanese foreign policy is the alliance with the USA and an active multilateral policy. The security treaty of 1960 obliges both countries to defend and maintain the stability of Japan.3

However, the realignment of American foreign policy under President Donald Trump in relation to Japan is creating strains between the two countries. In 2016 and 2017, Japan was not a permanent member of the United Nations Security Council and fought together with the other G4 countries (Germany, Brazil and India) for a permanent seat. An important regional focus of Japan's foreign policy is good relations with neighboring China , Russia, South Korea, India and Australia, as Japan itself has few natural resources. Due to its G7 membership, Japan is a permanent part of the Euro-Atlantic community of values ​​and focuses on the issues of peace, democracy and the rule of law.4 Japan held the G20 presidency in 2019 and has a very stable foreign policy, which is unlikely to change much over the next few years.

Furthermore, Japan assumes great international responsibility and organized, for example, the deployment of blue helmet soldiers from 2011-2017 to South Sudan and promotes reconstruction in countries such as Iraq and Afghanistan. International conferences such as the 6th Tokyo International Conference, which deals with the topic of development in Africa, are a regular occurrence in Japan. The EU and Japan maintain close ties, particularly on the issues of climate protection, food safety and security policy.5 On February 1, 2019, the Strategic Partnership Agreement and the Economic Partner Agreement between the EU and Japan came into force.6 With the up-and-coming state of China, Japan has agreed to mutually benefit from strategic relationships in order to reduce the potential for tension at the same time. The relationship is explicitly burdened by the territorial dispute over the Senkaku Islands.

Japan primarily relies on regional cooperation with countries from Southeast Asia and their regional organization ASEAN and is one of the largest investors for the development and integration of the ASEAN countries. Furthermore, Japan is currently negotiating a multilateral regional free trade agreement, the RCEP, as well as a trilateral free trade agreement with the states of China and South Korea. With Russia and the USA joining the East Asia Summit, Japan is hoping for new ideas for the region in order to ensure good political cooperation.

3.2 Economic factors

Economic growth is defined as the increase in the market value, adjusted for inflation, of the goods and services produced by an economy over time.7 Statisticians and economists traditionally measure such growth as the percentage rate of increase in real GDP.8

Figure not included in this excerpt

Figure 1: Real GDP growth from 1980 to 2021 (Statista 2020)

The statistic shows the growth of the GDP in Japan from 1980 to 2019 and the forecast up to 2021.

In 2020, there is a significant decline in real GDP compared to 2019. The economic consequences of the Corona crisis are not without consequences for Japan, which is illustrated by the decline in GDP. According to evaluations by the World Bank9 Japan is the third strongest economy in the world after the USA and the People's Republic of China and is in its longest growth phase since post-war history.

Japan generated a total of 6% of global GDP in 2018 with a population of 126.7 million. In 2015 and 2016, growth was below 1%, but economic growth already rose to 1.7% in 2017. For the year 2021, GDP growth in Japan is forecast to be around 3 percent compared to the previous year.

Due to a very high per capita income of 43,043 USD (2020)10 Japan counts as a highly developed country with a strongly export-oriented economic structure.

Despite the strong economic growth, Japan is also benefiting from the catching-up processes in the emerging Asian countries. In 2009, China was the strongest buyer. Since 2015, the USA has been Japan's main buyer again. According to evaluations by the Federal Foreign Office, 19.3% exported to the USA and 19.0% went to China in 2017.

Japan's debt is currently around 237% of GDP. The goal of achieving a balanced budget has been postponed from 2020 to 2025.

The BoJ is sticking to its loose monetary policy due to the low inflation. It lowered the inflation forecast until March 2021. The central bankers' target of 2 percent has thus been postponed again.11 However, the inflation target is currently not in sight. In 2019, inflation was 0.9%.12 This is a positive factor for foreign companies to move to Japan.13

Figure not included in this excerpt

Figure 2: Disposable Income Japan (Statistics Bureau 2020)

Looking at the statistics on income development in Japan, it can be clearly seen that income remained relatively constant in 2012-2018 and has increased slightly since 2018.14 The small increases in per capita income tend to be a negative factor for foreign companies.15

Figure not included in this excerpt

Figure 3: Export of goods from 2009 to 2019 (Statista, 2020)

Figure not included in this excerpt

Figure 4: Import of goods from 2009 to 2019 (Statista, 2020)

Figures three and four show the value of exports and imports of goods over the course of 2009 to 2019. Goods for approx. 705.5 billion USD were exported from Japan in 2019 and goods for approx. 720.7 billion USD were imported. USD. The great dependency on imports mainly affects the raw materials, energy and food sectors. Japan is a pioneer in future technology (e.g. robotics) and has a strong export sector here. The well-equipped export-oriented economic structure particularly affects the automotive sector as well as the electronics and chemical industries. Due to the aging population and weak domestic demand, exports remain an important part of Japan's economic development.16

The three largest import and export sectors between Japan and Germany in 2018 were clothing, chemical products and data processing equipment.17

3.3 Technological factors

In 2018, Japan spent 3.24% of GDP on R&D, which makes it third in the world. The high level of internet usage, which is 91.1% (as of 2016), also relates to the technological factors. Another positive aspect to be emphasized is the excellent infrastructure for innovations, because the Japanese market is home to many large innovation-driven companies and is renowned on the world market for high-tech products. This can also be illustrated using the figures from researchers in Japan, which, calculated for a million inhabitants, is 5,305 (as of 2017).

The vehicle industry is one of the most important sectors of employment in Japan. About 5.5 million jobs depend on the auto industry, which is almost 9% of all workers in Japan.18 The automotive sector thus plays an above-average role in the Japanese gross value added. This becomes clear in relation to the fact that Japan holds a leading position in hybrid and battery technology. This is now to be expanded to include fuel cell technology and autonomous driving.

A major risk to Japan's technology and research sector, however, is increasing competition from India and, especially in the Asian market, from China.

[...]



1 see Sebastian Trautmann, PEST Analysis (2013) p.52

2 see Sebastian Trautmann, PEST Analysis (2013) p.52

3 see Davis Chiavacci, Japan 2019 - Politics, Economy and Society, Chapter: Foreign Policy

4 See Federal Foreign Office - Foreign Policy Japan 2019

5 see Davis Chiavacci, Japan 2019 - Politics, Economy and Society, Chapter: Foreign Policy

6 See Federal Foreign Office - Foreign Policy Japan 2019

7 see Bpb (2016): Economic growth: growth, quantitative growth, qualitative growth

8 see Bpb (2016): Economic growth: growth, quantitative growth, qualitative growth

9 see Statista (2018): The 20 countries with the largest GDP in 2018

10 see Statista (2020): GDP per capita in Japan until 2024

11 Statista (2020): Inflation rate from 1980 to 2019 and forecasts up to 2021

12 See Federal Foreign Office, Japan Economy 2019

13 see IMF / World Economic Outlook Database 2019

14 Indication of the income in the graphic in TsdJPY

15 see Trading Economics 2018

16 see WTO 2019a; WTO 2019b

17 see Foreign Trade Portal Bavaria 2018

18 see Spiegel 2016

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