Overview of Japan
Japan is the high-tech powerhouse economy of Asia. In 2017 it made up 6% of World Gross Domestic Product (GDP) (source: World Economic Forum).
It is ranked as the 3rd largest economy in the world (source: the World Bank). Japan has a stable government, a strong rule of law and an effective regulatory system. However it is only ranked in 34th place by the World Bank in the ease of doing business rankings.
Japan has a population of 126.5 million people with only 22.4% of the population under 25 years of age (source cia.gov). However Japan now has an ageing population.
The Japanese market is characterised by consumers with high levels of disposable income and companies with a strong global orientation and willingness to invest in sustainable, long-term products and services.
Japans Business culture
The only official language in Japan is Japanese. English is spoken by a growing number of the young population. However there are still many Japanese who are sometimes too polite to inform you that they don’t fully understand what you are saying in English. It is advisable to have a translator accompany you to business meetings.
Business etiquette and practices in Japan are very important. The Japanese are extremely polite and place importance on respect and social rank. It is advisable to start a business meeting with ‘small talk’ will help to get the meeting off to a good start as the Japanese equate being indirect with being polite.
The Japanese culture of avoiding conflict can cause frustration to many foreign business people. During a meeting the Japanese side may agree to an offer that they have no intention of accepting. The main purpose of agreement is to avoid a direct conflict during the meeting.
**Tip** Have a clear memo of which outlines the situation and obligations from the meeting written up. Present it to the Japanese side to review, respond and sign. This approach will allow you to fully know their true position.
As is the custom with most Asian countries night time dinners and drinks are often the place where most open business discussions take place.
Seating arrangements are important in Japan. The most important guest sits furthest from the door and the host sits closest to the door. If in doubt, wait to be seated.
Other details which can have a positive impact:
- Be Punctual – arrive at a meeting at least 10 minutes before the appointed time
- Give out and accept business cards with both hands. Keep the card visible during the meeting.
- Supply hard copies of your company literature.
- Accept social invitations
- Professionally wrap gifts
Setting up in Japan
The Japanese External Trade Organisation (JETRO) provides an overview of the laws, regulations and procedures related to setting up a business in Japan. It provides an easy-to-follow flowchart which outlines the basic steps and costs of setting up in Japan.
Companies considering entry into the Japanese market have a variety of options including:
- Establishing a representative office, Japan branch office, Japanese subsidiary or Limited liability partnership (LLP).
- Entering into a joint venture or strategic alliance with an existing Japanese business.
- Buying an existing Japanese business.
It is possible to set up a company in in Japan in just 14 days!
Banking and Finance
The unit of legal tender in Japan is the Japanese Yen (JPY).
Japan has a well-developed and sophisticated banking and financial system.
There are three mega banks in Japan – Mizuno FG, Mitsubishi UFJ and Sumitomo Mitsui. Japan also has +100 local banks. Most major foreign banks also operate in Japan.
Foreign exchange regulations have little impact on normal business transactions in Japan.
Japan – Tariffs and Non-Tariff Barriers
Tariff
Japan has trade agreements with many countries; correspondingly this may mean that tariffs may be eliminated on a number of goods and services, with additional tariff reductions on other goods and services. You should research this through your local government trade support office.
Tariffs and duty rates are constantly revised and are subject to change without notice. Therefore it is worth visiting the Japanese Customs Service to determine any customs or import taxes in Japan for your goods or service.
Non-tariff barriers
Japan imposes restrictions on the sale or use of certain products including:
- Agricultural products.
- Chemical products.
- Meat products.
- Medical products,
- Pharmaceuticals products.
Please click on the link to find a list of items which are prohibited to be imported into Japan.
Product labelling, certification and packaging
Labeling for most imported products is not required at the customs clearance stage, however it is required at the point of sale. It is common practice for the Japanese importer to affix a label to an imported product after it has cleared customs.
If the exporter is putting on labels prior to export they must be aware that food and consumer products are subject to very specific labelling requirements and importers should always be consulted on proposed labelling.
Special labelling regulations apply to:
- Aluminium foil and plastic film.
- Certain furniture.
- Cleaning materials.
- Electrical appliances.
- Hot water bottles.
- Some kitchen utensils.
- Toilet and bath fittings.
(Note that the metric system is used in Japan.)
More information on Japans labelling regulations can be found on the JETRO Website .
Certification
- Animals, plants and their by-products require health certificates issued by an approved authority in the country of origin.
- Frozen fruit & vegetables may require a certificate of condition.
- Meat for human consumption requires an additional certificate, issued by an approved authority in the country of origin, stating that the animals were free from designated infectious diseases prior to slaughtering and that subsequent processing was under hygienic conditions.
- Food importers require a food import permit which is issued by the Ministry of Health and Welfare.
- Electrical appliances must conform to the Electric Appliance Control Law, with certain goods requiring type approval before being permitted to be sold in Japan.
- Machine tools which are less than a year old must be accompanied by a certificate of date of manufacture.
Packing
Use of straw packing materials is prohibited in Japan. Moreover proposed packaging should be cleared with importers as they have definite preferences. Goods should be marked according to normal commercial practice.
Methods of quoting and payment
An irrevocable letter of credit (L/C) payable at sight is the most popular method settlement of international transactions. A L/C offers protection to both the exporter and the importer.
It is equally important to agree payment terms in advance. Whatever payment terms are agreed upon, make sure they are understood by all parties and that your client, representative or contact signs a mutually agreed document.
It is best practice for sellers dealing with new customers to use secured payment terms such as 100% payment prior to shipping, letters of credit, sight drafts or bills of exchange.
Documentary & Clearance Requirements
Documentation required:
Importers must submit a Customs form (C-5020) to Japanese customs along with the following documents:
- Invoice
- Bill of lading or Air Waybill.
- Any Customs duty payment slips.
- A Certificate of origin.
- Detailed statement on reductions of, or exemption from Customs duty and excise tax.
- Generalized system of preferences, certificates of origin (Form A).
- Licenses and certificates required by laws and regulations other than the Customs Law.
- Packing lists, freight accounts, insurance certificates, etc.
Customs process:
Exporters to Japan can find information about the Import requirements of Japan from the Japanese Customs website.
Moreover any person wishing to import goods must declare themselves to the Director-General of Customs and obtain an import permit after necessary examination of the goods concerned.
The formalities start with the lodging of an import declaration and moreover end with issuance of an import permit after the necessary examination and payment of Customs duty and excise tax.
Business Risks
Companies wishing to operate in Japan should commit to the highest level of corporate behavior and therefore should familiarize themselves with the laws of the country and the penalties pertaining to bribery of foreign officials.
Intellectual Property Protection
Japan has IP laws which cover the registration and protection of patents, utility models, trademarks and copyright. Japanese and foreign nationals are equally protected by Japanese trademark laws.
Japan operates a ‘first-to-file’ system. The protection period in Japan for trademarks is 10 years and for patents it is 20 years.
Details on the registration procedures and the fees involved can be found on the JPO website.
Dispute resolution
Japan has an established legal system. Correspondingly hiring a local legal representative is common practice.
Japan Web Resources
Japanese External Trade Organization
Ministry of Economy, Trade and Industry
Ministry of Finance
Ministry of Foreign Affairs
Ministry of Internal Affairs and Communications
Japanese Patent Office
Consumer Affairs Agency
Japanese Household Goods Quality Labelling Law
Handbook for Industrial Products Import Regulations 2009
About the Author
Aidan Conaty is the founder of Goodada & TCI China. Aidan is a qualified Management Accountant and has a background is in Supply Chain Consultancy.