PESTEL analysis of Japan (country profile)
This comprehensive PESTEL analysis of Japan aims to address some of the political, economic, social, technological, environmental, and legal factors that affect Japan today. Japan is often called the ‘land of the rising sun’. It is a powerful country in the world.
Political environment in Japan
Japan is a constitutional monarchy with the emperor being the head of state. Like many other monarchs in the world, Japanese monarch has very limited say concerning the political affairs of the country. Indeed, the role is ceremonial.
However, the people and the constitution of the country regard the emperor as ‘the symbol of the State and of the unity of people’. The prime minister and the cabinet have the executive power to administer the state affairs. The prime minister appoints the Ministers of States and may dismiss any of them if required.
Tokyo is the capital of Japan. Japan has a post-war pacifist constitution. It plays a considerable role in international community and is a major aid donor (BBC, 2021). While the internal political environment is generally stable, it has some very powerful neighbours with a long history of diplomatic challenges. It is worth mentioning that former Prime Minister Shinzo Abe’s assassination has shocked the nation.
Japan has territorial disputes and political disagreements with a number of countries, notably Russia, China, South Korea, and North Korea. However, it maintains a very close relationship with the United States. This relationship is part and parcel of Japan’s foreign and security policy.
Japan has also been putting a lot of efforts to build and maintain relationship with other world powers such as India, the UK, France, and Australia. However, an effort to amend its post-war pacifist constitution has raised concerns. It is politically contentious and may impact on trade and foreign direct investment.
Economic environment in Japan
The next element to address in the PESTEL analysis of Japan (country profile) is the country’s economic environment. Japan is the 3rd largest economy in the world. It is also the 2nd largest economy in Asia. It is a member of the G7, G20, APEC, and ASEAN. It has a mixed economic system, albeit the government closely works with industries.
Motor vehicles, electronic equipment, machine tools, steel, ships, chemicals, textiles, and processed foods are some of the major industries in Japan. Japan has a world-renowned automobile industry and is home to some of the largest vehicle manufacturers in the world e.g. Toyota, Honda, Suzuki, Mazda, Nissan, Mitsubishi, and Yamaha.
Japan heavily relies on imports of oil, gas, coal, iron ore, copper, aluminium, wood and raw materials for industrial production. It imports most of these resources from countries such as China, the USA, South Korea, Germany, and Australia.
Likewise, Japan exports a variety of manufactured goods e.g. electronic equipment, cars, vehicle parts, and industrial printers to other countries. Its exports mostly go to the USA, China, South Korea, Hong Kong, and Thailand.
Japanese companies need to pay corporate tax on the income they generate in Japan and abroad. On the other hand, foreign companies pay tax only on the income they generate within Japan. There are four types of corporate tax i.e. corporate tax, corporate inhabitant tax, enterprise tax, and special local corporate tax. The current tax rate for large organisations stands at 30.62% (Trading Economics, 2023).
Social environment in Japan
Japan is ranked as the 10th most populated country in the world. However, according to some other sources, it is not 10th, rather 11th in the world. Its current population is 125.4 million (Worldometer, 2023). Shintoism and Buddhism are two major religions while the major language is Japanese which is spoken by around 99% of the country’s population.
Most Japanese live in urban areas. However, the urban culture is spread across the country. Western popular music is heard everywhere, and many young Japanese love spending on luxury products and services on a lavish scale with a view to enhancing their prestige.
However, Japan faces a number of social challenges. Ageing population and sinking birth rate are two of the biggest challenges it faces today. The life expectancy for men is 81 years, while 87 years for women. Many sources forecast that the Japanese population is likely to fall below 100 million in 2048 and about 87 million by 2060.
This projected decline in population will severely impact on Japan and it will lose out to regional powers, particularly China. Therefore, many Japanese politicians are now highlighting an ‘integrated’ immigration policy to draw vital foreign workers to the country to reduce the skill-gaps created by shrinking birth rate and ageing population.
Many people in Japan prefer Japanese companies to foreign ones. This makes trading difficult for foreign companies. Indeed, this is one of the main reasons as to why many foreign companies failed in the country. For instance, after operating 9 years, Tesco (British retail giant) had to close its operations in Japan.
Likewise, Wendy’s, Pret A Manger’s, and many other global companies failed in Japan. However, it is also true that some foreign companies did very well in Japan as well. Therefore, it is extremely important for foreign companies to carry out a detailed environmental scanning before entering into the country.
Technological environment in Japan
Technology is the next topic to discuss in the PESTEL analysis of Japan (country profile). Japan is one of the most technologically advanced countries in world. It has been pushing technological innovation and creativity in such a way that many countries will struggle to emulate. The Japanese are well-known as extremely creative in searching out and learning to use modern technologies.
Japan’s innovation can be found in a variety of fields. For example, automation systems are widely used in Japan, particularly in hospitals, airports, and restaurants. Likewise, Japan is well ahead of many other advanced countries in robotic development. Indeed, it has more than half of the industrial robots in the world.
The contactless payment system has been in Japan for a long time; indeed, long before many countries even thought about it. Japan has also done tremendously well in areas such as space research and development, chemicals, optics, rail transport, and semi-conductors. These developments offer great opportunities for both Japanese and foreign individuals and companies.
Environmental factors in Japan
Japan is a relatively clean and environmentally responsible nation. However, it faces some environmental challenges today. For example, waste management is one of the biggest environmental issues in Japan. It is worth noting that the country has set up some stringent rules and regulations to fend off the challenges.
Trash produced by the modern society, industrial activities, and agriculture contribute to the production of a great deal of waste. Japan is indeed under pressure to minimise waste and control environmental pollution. Consequently, the government and other relevant authorities are working on improved processes to reduce the amount of waste taken to landfills.
Many Japanese love fish and fish products which take up a lot of space in their regular diets. However, as the fish stocks in the oceans are decreasing, the country’s annual fish yield is gradually declining as well. Many experts blame overfishing for this decline.
Japan is one of the countries, most affected by calamities and natural disasters. Tsunamis, floods, earthquakes, mudslides, cyclones, and volcanic eruptions hit Japan from time-to-time. These disasters cost the country billions of dollars for reforms and rebuilding. In fact, Japan is a less popular tourist destination because of natural disasters, high-cost, and language barriers.
Legal environment in Japan
Legal environment is the last element to discuss in the PESTEL analysis of Japan (country profile). People can work in Japan as employees, dispatched workers, independent contractors, and directors. All employees enjoy employment rights and benefits such as maximum work hours, work breaks, holidays, and maternity leave.
Companies in Japan need to register employees for mandatory pension insurance, health insurance, unemployment insurance, and workers’ accident compensation insurance. All of these apply to employment relationships regardless of the citizenship of employees (Ohta, 2021).
Summary of PESTEL analysis of Japan
To conclude, Japan is a tech giant and powerful economy. It is also a stunningly beautiful country. It has excelled in many areas. Its creativity and innovation have been instrumental in global economic growth and development.
However, like all other big economies, Japan is faced with a variety of challenges. However, the government initiatives and public awareness are combatting those challenges well.
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Last update: 03 February 2023
BBC (2021) Japan country profile, available at: http://www.bbc.co.uk/news/world-asia-pacific-14918801 (Accessed 12 January 2023)
Ohta, Y. (2021) Employment and employee benefits in Japan: overview, available at: https://uk.practicallaw.thomsonreuters.com/9-5033920?transitionType=Default&contextData=(sc.Default) (Accessed 03 February 2023)
Trading Economics (2023) Japan Corporate tax rate, available at: https://tradingeconomics.com/japan/corporate-tax-rate (accessed 03 February 2023)
Worldometer (2023) Japan population, available at: https://www.worldometers.info/world-population/japan-population/ (accessed 03 February 2023)
Photo credit: Sarkar office Japan
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.