A place in the world: Japan
There’s a new-found sense of optimism in Japan and the watching world is just as positive about the Land of the Rising Sun’s prospects. Tokyo is preparing to host the 2020 Olympic Games and Prime Minister Shinzo Abe is determinedly pushing on with his reforms, commonly known as Abe-nomics.
“People are now more vibrant and more upbeat. It is not twilight, but a new dawn breaking over Japan,” declared Prime Minister Abe in his opening address at the World Economic Forum in Davos earlier this year.
Japan was very much at the forefront of peoples’ minds at Davos. In Prime Minister Abe's speech, delivered as we approach the third anniversary of the catastrophic Tōhoku earthquake and subsequent failure of the Fukushima Daiichi nuclear power plant, he predicted that higher wages and consumption would help the country finally break free from more than a decade of economic stagnation.
For many years the only economic story that really mattered in Asia was China. But now, for the first time in many years, there is an air of confidence in Japan amid signs that the country could be on the verge of a recovery.
In the next fiscal year, Japan’s nominal GDP is expected to reach more than 500 trillion yen ($5.9 trillion) for the first time since the onset of the global financial crisis in 2008.
Manufacturing has been a notable success story, with automobile companies including our global accounts from Toyota, Nissan, Honda and Mitsubishi responding to increased demand in North America and Asia to achieve record production for the past two years.
Construction, tourism and retail will also be boosted in the build up to the 2020 Olympics and Paralympics. The Tokyo metropolitan government estimates that hosting the event will contribute 2.96 trillion yen ($29.6 billion) to the Japanese economy in the eight years preceding the opening of the games.
KPMG in Japan is performing well, too, with total revenues up four per cent for Q1 FY14. The firm’s tax and audit practices remain the market leaders in Japan, while its Energy and Infrastructure Group, created in 2012, has won major cross-functional deals from several top Japanese companies. Elsewhere, its share of the local initial public offerings (IPO) market reached 24 per cent in CY 2013 – positioning KPMG second in the market behind Deloitte.
Further afield, the Global Japanese Practice (GJP) – a worldwide network of more than 500 KPMG professionals – supports Japanese companies doing business abroad and non-Japanese companies needing strategic assistance in Japan. With Abe-nomics opening up the domestic market, it’s likely that more and more overseas companies will start doing business in Japan.
Yet there is also cause for caution. Only a few weeks after the optimism of Davos, it was reported that Japan’s monthly trade deficit had swelled to a new record 2.79 trillion yen ($27.30 billion) in January 2014 as growth in exports, spurred by a weak yen, was outstripped by a surge in import costs.
Analysts are now watching closely to see whether a planned three-point increase in sales tax in April will slam the brakes on the Japanese economy barely a year after Abe set about recharging growth by engineering a weaker yen that allows Japanese goods to be priced more competitively.
In the time since the measures were put in place, the yen has fallen by a third versus the US dollar and around 40 per cent against the euro, and last December the Japanese Cabinet approved a 5.5 trillion yen ($54 billion) economic stimulus package in an attempt to cushion the potential negative impact of the sales tax hike.
In a recent statement, Akira Amari, Japan’s minister in charge of Economic Revitalization, expressed concerns about an economic slowdown triggered by the sales tax rise, but added that Japan’s economy is “expected to continue to recover, buoyed by robust domestic demand”.
It’s a big year for Japan’s economy. How it fares over the coming months will be watched closely by the rest of world and any impact will be felt far beyond its shores.
