Economic Studies


Population 126.2 million
GDP per capita 40,256 US$
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major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 0.3 0.7 -5.3 2.0
Inflation (yearly average, %) 1.0 0.5 -0.1 0.3
Budget balance (% GDP)* -2.5 -3.3 -14.1 -6.5 
Current account balance (% GDP) 3.6 3.6 2.9 3.2
Public debt (% GDP) 236.5 238.0 266.0 264.0

(e): Estimate (f): Forecast *April 1 N-1 / March 31 N


  • Privileged location in a dynamic region
  • Very high level of national savings rate (around 23% of GDP)
  • Public debt is 90% owned by local investors
  • Advanced technology products and diversified industrial sector
  • Trade agreement with the EU and Transpacific Partnership (December 2018)
  • Regional trade agreement (RCEP) with neighbouring countries
  • Excellent corporate payment behaviour


  • Difficulty in consolidating public finances and ending deflationary pressures
  • Reduction of the workforce and low immigration contribution, increasing share of precarious workers
  • Low growth potential, low productivity of SMEs
  • Still insufficient female labour participation, lack of child care
  • Ageing population, risk of jeopardizing the social security system

Risk assessment

Fragile recovery amid headwinds

The economy is set to recover in 2021, amid persistent headwinds. The country was hit by a third wave of infections in late October 2020, with no sign of abating at the time of writing (January 2021), and the government was considering to declare a second state of emergency after the first one declared in April. This situation is likely to continue weighing on domestic consumption (56% of GDP) and tourism (8% of GDP), as restrictions on movement of people are likely to be tightened again. This will in turn exacerbate deflationary pressures. On the external front, exports (18% of GDP) have been under downward pressure due to the trade tensions between the U.S. and China, to which Japan is exposed via supply chains links , further compounded by the COVID‐19 outbreak. External demand has been mostly relying on the recovery of China (the largest trade partner), which absorbs up to 18% of total exports, although the margin of improvement started to decline in Q3 2020 as shipments of chip‐making equipment to China dropped. Consequently, weak domestic and external demand are set to weigh on private investment (17% of GDP), as industries are looking to cut expenditures on plants and machinery.


Public debt load balloons up

The current account surplus, which narrowed in 2020, should rebound in 2021 on the back of a recovery in the merchandise trade surplus and a decrease in the services deficit. Imports should remain muted, as the new wave of infections is likely to continue weighing on domestic demand. Export growth (transport equipment, construction and manufacturing equipment, electronics, specialty chemicals, optics, etc.) is set to recover, albeit softly, driven by the revival of Chinese demand, while global demand should slowly mend as Japan’s other trade partners are still grappling with COVID‐19 infections. Furthermore, the ongoing trade disputes with South Korea (7% of total exports) since 2019 and the related exports curbs on semiconductor parts should also continue to be a burden. Additionally, the current account failed to capture inflows on the services front (3.5% of GDP in 2019) due to a collapse in tourism in 2020, as borders have remained closed for international tourists. That said, if the situation improves thanks to vaccination campaigns, and with the Tokyo 2020 Olympics postponed to 2021, the current account should find additional support there. The primary income, which reflects returns on Japanese investments made overseas and usually contributes the most to the current account surplus, eroded in 2020 as the global crisis affected profits.

The fiscal deficit is expected to narrow in the fiscal year starting in April 2021, after three large stimulus packages (two in April 2020, one in December, accounting for USD 3 trillion or two‐thirds of the GDP) weighed on FY 2020 (with the fiscal impact representing 14% of GDP). These packages are meant to support employment, consumer spending and to ensure business continuity through subsidies and cash handouts. Even though the budget drafted for FY 2021 will increase to USD 1 trillion, as it will partly fund the December 2020 stimulus package worth USD 700 billion, it may not reflect Japan’s final spending for FY2021 given that the country is still grappling with COVID‐19 infections and might unveil additional extra budgets to support the recovery.


Stable domestic politics vs. tensed international relations

Prince Naruhito became the 126th emperor of Japan in May 2019. Japan’s new prime minister, Yoshihide Suga, will maintain policy continuity after Shinzo Abe, former prime minister and President of the ruling Liberal Democratic Party (LDP), ended his final three‐year term prematu‐ rely due to health reasons in September 2020. Prime Minister Suga will most likely focus on the fight against COVID‐19 in the first place, to restore economic confidence as soon as possible ‐ before the next House of Councilors (Upper house) elections in July 2022 ‐ in order to secure LDP seats. On the international front, Japan’s relationship remains delicate with China, over its expanding influence throughout Asia, and South Korea. With the latter, the dispute over the compensation for forced Korean labour during Japan’s colonial rule is the issue at the heart of diplomatic and economic disputes between the two countries. Nevertheless, South Korea announced that it would not leave the General Security of Military Information Agreement (GSOMIA), the strategic military information exchange agreement it shares with Japan. Both sides have agreed to hold talks over Japan’s export dominance on three chemical products critical to the manufacturing of semiconductors and displays by South Korea.


Last updated: March 2021


Japan has ratified the International Conventions of June 1930 on Bills of Exchange and Promissory Notes, and of March 1931 on Cheques. As a result, the validity of these instruments in Japan is subject to the same rules as in Europe.

The bill of exchange (kawase tegata) and the much more widely used promissory note (yakusoku tegata), when unpaid, allow creditors to initiate debt recovery proceedings via a fast-track procedure, subject to certain conditions. Although the fast-track procedure also applies to cheques (kogitte), their use is far less common for everyday transactions.

Clearing houses (tegata kokanjo) play an important role in the collective processing of the money supply arising from these instruments. The penalties for payment default act as a powerful deterrent: a debtor who fails twice in a period of six months to honour a bill of exchange, promissory note, or cheque collectable in Japan is subsequently barred for a period of two years from undertaking business-related banking transactions (current account, loans) with financial establishments attached to the clearing house. In other words, the debtor is reduced to a de facto state of insolvency.

These two measures normally result in the calling in of any bank loans granted to the debtor.

Bank transfers (furikomi), sometimes guaranteed by a standby letter of credit, have become significantly more common throughout the economy over recent decades thanks to widespread use of electronic systems in Japanese banking circles. Various highly automated interbank transfer systems are also available for local or international payments, like the Foreign Exchange Yen Clearing System (FXYCS, operated by the Tokyo Bankers Association) and the BOJ-NET Funds Transfer System (operated by the Bank of Japan). Payment made via the Internet site of the client’s bank is also increasingly common.

Debt collection

In principle, to avoid certain disreputable practices employed in the past by specialised companies, only lawyers (bengoshi) may undertake debt collection. However, a 1998 law established the profession of “servicer” to foster debt securitisation and facilitate collection of non-performing loans (NPL debts) held by financial institutions. Servicers are debt collection companies licensed by the Ministry of Justice to provide collections services, but only for certain types of debt: bank loans, loans by designated institutions, loans contracted under leasing arrangements, credit card repayments, and so on.


Amicable phase

A settlement is always preferable, so as to avoid a lengthy and costly legal procedure. This involves obtaining, where possible, a signature from the debtor on a notarised deed that includes a forced-execution clause, which, in the event of continued default, is directly enforceable without requiring a prior court judgement.

The standard practice is for the creditor to send the debtor a recorded delivery letter with acknowledgement of receipt (naïyo shomeï), the content of which must be written in Japanese characters and certified by the post office.

As of 1 April 2020, statute of limitation period has changed.
For the debts accrued after 1 April , the statute of limitation period of the debts is 5 years from the date of the knowledge of the creditor of the collectability of the debts and 10 years from the date of the accrual of the debts in accordance with Article 166(1) of the Civil Code revised and informed as of 1 April 2020.


Legal proceedings
Fast-track proceedings

Summary proceedings, intended to allow creditors to obtain a ruling on payment (tokusoku tetsuzuki), apply to uncontested monetary claims and effectively facilitate obtaining a court order to pay (shiharaï meireï) from the judge within approximately six months.

If the debtor contests the order within two weeks of service of notice, the case is transferred to ordinary proceedings.


Ordinary proceedings

Ordinary proceedings are brought before the Summary Court (kan-i saibansho) for claims under JPY 1,400, and before the District Court (chiho saibansho) for claims above this amount. Those proceedings, partly written (with submission of arguments and exchanges of type of evidence) and partly oral (with respective hearings of the parties and their witnesses) can take from one to three years as a result of the succession of hearings. These proceedings generate significant legal costs.

The distinctive feature of the Japanese legal system is the emphasis given to civil mediation (minji chôtei). Under court supervision, a panel of mediators – usually comprised of a judge and two neutral assessors – attempts to reach, by mutual concessions of the parties, an agreement on civil and commercial disputes.

In practice, litigants often settle the case at this stage of the procedure, before a judgment is delivered. While avoiding lengthy and costly legal proceedings, any transaction obtained through such mediation becomes enforceable once approved by the court.


Enforcement of a legal decision

A court judgment is enforceable if no appeal is lodged within two weeks. If the debtor does not comply with the decision, compulsory measures can be ordered through an execution against Real Property (an Examination Court issues a commencement order for a compulsory auction) or an execution against a claim (a compulsory execution is commenced through an order of seizure).

Japanese law provides for an exequatur procedure in order for foreign awards to be recognised and enforced. The court will verify several elements, such as whether the parties benefited from a due process of law, or if enforcement will be incompatible with Japanese public policy. Furthermore, if the issuing country does not have a reciprocal recognition and enforcement treaty with Japan, the decision will not be enforced by domestic courts.


Insolvency proceedings


There are two types of restructuring proceedings. The first of these is corporate reorganisation proceedings (kaisha kosei), which are typically used in complex insolvency cases involving stock companies. They come with the mandatory appointment of a reorganisation trustee by the court and with a stay against enforcement by both secured and unsecured creditors. The court typically appoints a third-party bengoshi with substantial experience in restructuring cases.

The second of these is civil rehabilitation proceedings (minji saisei), which are used to rehabilitate companies of almost any size and type. The debtor-in-possession (DIP) administers the rehabilitation under supervision of a court-appointed supervisor. Enforcement by secured creditors is not stayed in principle. The debtor must enter into settlement agreements with secured creditors in order to continue using the relevant collateral to conduct their business.


Winding up proceedings

There are two winding up proceedings. In bankruptcy proceedings (hasan), the court appoints a lawyer as trustee to administer the proceedings. Enforcement by secured creditors is not stayed; rather, they can freely exercise their claims outside of the bankruptcy proceedings. The trustee will usually attempt to sell secured collateral with the agreement of the secured creditors and contribute a percentage of the sales proceeds to the estate. The debtor’s estate is distributed to creditors in accordance with prescribed statutory priorities without any need for voting by the creditors.

The second, special liquidation (tokubetsu seisan), is used for stock companies. A liquidator is appointed by either a debtor’s shareholders or the court. Distributor of the debtor’s estate to creditors has to be approved by creditors with claims to two-thirds or more of the total debt or by way of settlement. This procedure is used when the debtor’s shareholders are confident that they will obtain creditors’ cooperation for the liquidation process, and wish to control the liquidation process without involvement of a trustee.

Insolvency trend Japan