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Macro‐Economic Trends in Japan～To identify areas for further collaboration between Japan and India～

March 2017

Nomura Research Institute India Pvt. Ltd.

Sonny Kim

President / Managing Partner

[email protected] +91-70426-00551


Objective of Presentation

To identify areas for further collaboration between Japan and India

Capital

Technology

Human Recourse


Demographics in Japan

In 2015, Japan has observed depopulation, and this trend is expected to continue

107

35

127128

05

128

2000

127

95

126

90

124

85

121 121

20

124

1510

112

30

117

25

92

50

97

4580

117

102

112

1970

105

40

-1.0%

-0.6%

2060

87

5575

Forecast →← Actual

Population in Japan

(million people)

Source: National Institution of Population and Social Security Research and MIC “Population Census”



Population of working age group has been decreasing significantly.

90801970 20102000 50 206030 40

86

44

1822

12

83

26

11

79

28

9

76

27

7

72

12

37

71

13

36

73

8

36

47

9

38

50

15

33

76

16

29

81

1818

87

2015

86

11

39

54

10

39

58

65 year old or more

0～14 year old

15～64 year old35

9

37

63

11

37

68

17

26

84

2225

Population by Age Group in Japan

(million people)

Source: National Institution of Population and Social Security Research and MIC “Population Census”



In 2015, Population of Greater Tokyo recovers and reached to the level of 2005/2006. In the long run, this trend is

expected to continue

Population has been inflowing to Greater Tokyo.

Population Inflow to Greater Tokyo from other areas

(million people)

Note: Greater Tokyo includes, Tokyo, and three neighboring prefectures (Kanagawa, Saitama, and Chiba)

Source: MIC “Jyumin Kihon Daichou Jinkou Idou Houkoku”

Net increase

Net decrease

9594939291908988878685848382811980

Kanagawa

Tokyo

Saitama

Chiba

15

128

1413121110090807

155

06

132

05

115

04030201200099989796



Japanese companies are focusing on collaboration with technology companies to resolve issues in

Japan and might pay attention to the Indian tech- companies.

Japan needs Automated Driving Technology.

Number of People Employed in Transportation Sector in Japan

(million people)

Source National Institution of Population, National Census, and Social Security Research and MIC “Population Census”

1.4

1.71.9

2.22.4

2.7

3.03.13.2

3.4

3.1

2010 2015 2020 2025 2030 2035 2040

-2.51%

19951990 20052000



Japanese companies focus on collaboration with technology companies to resolve issues in Japan,

and might pay more attention for Indian tech-companies.

Japan needs Robotic Technology to maintain its infrastructure.

Optimistic Scenario

Pessimistic Scenario Base Scenario

Number of People Employed in Construction Sector in Japan

(million people)

Forecast

Source: NRI Based on National Census

3.07

1.49

3.43

1.95

6.636.29

4.47

3.25

1.71

0

1.00

2.00

3.00

4.00

5.00

6.00

7.00

1975 80 85 90 95 2000 05 10 15 20 25 30 35 40



Japan needs more skilled IT-engineers.

IT engineer “Volume” Shortages or Excess Supply in Japanese IT Service Companies

Source IT Human Resource White Paper 2016

23%

24%

63%

65%

67%

16%

11%

8%

19%

0%

Severe Shortage Shortage Neutral Excess Others

FY2015(N=1031) 100

FY2014(N=876) 1002%

FY2013(N-790) 1001%

IT engineer “Quality” Shortages or Excess Supply in Japanese IT Service Companies

29%

28%

65%

62%

66%

8%

9%

7%

27%

Severe Shortage Shortage Others

FY2015(N=1031) 100

FY2014(N=876) 100

FY2013(N-790) 100


Macro Economy in Japan

IMF forecasts estimate Japan’s GDP growth rate at around 0.5% for the next 5 years.

Japan’s economic growth is the lowest compared to other major economies

Real GDP growth rate of major economies

←Actual Estimate→

Source: IMF(2016 Apr.)

-10.0

-5.0

0.0

5.0

10.0

15.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

(%)

India

China

Japan

US


Macro Economy in Japan

India will surpass Japan in GDP in 10 years.

Source: IMF(2016 Apr.)

Nominal GDP of major countries

(Billion USD)Forecast →←Actual

0

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Japan

China

US

India

This fact indicates that Japan will not always remain the supplier of capital and technology to India.

There is need to think, what India can offer to Japan


Capital Market in Japan

Since quantitative and qualitative easing in April 2013, BOJ has been massively expanding money

supply by purchasing government bonds.

To boost slow economy, aggressive easing has been continuing since 2013.

BOJ’s possession of Japanese government bond

(Billion USD)

Source: Bank of Japan

0

1,000

2,000

3,000

4,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



Although the 2014 increase in price index was reflected by the increase in consumption tax, but it

decreased after that and the core CPI turned negative again in 2016.

Despite BOJ’s easing policy, deflation has been continuing.

Inflation target set by BOJ

Year-on-year comparison for the same month of the consumer price index

Sources: MIC and Bank of Japan

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0（％） Core CPI BOJ's Core CPI

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Core CPI



The Bank of Japan introduced the negative interest policy which set the policy rate applied to the part

of the temporary balance to minus 0.1 % in January, 2016.

To Boost consumption and investment negative interest rates were introduced

Short-term interest rate(Call rate) (Each end of the month)

Long-term interest rate (10-JGB) (Each end of the month)

Source: Bank of Japan

(%) (%)

Source: Bloomberg

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

-0.50

0.00

0.50

1.00

1.50

2.00

2.50



However, low-return in Japan does not make institutional investors to go to

emerging markets.

Demand byPension Funds

High

Low

Source: NRI

ManyFew

Number of Financial Product Providers for Pension Funds



However, low-return in Japan does not make institutional investors to go to

emerging markets.

Demand byFinancial Institutions

High

Low

ManyFew

Number of Financial Product Providers for Financial Institutions

Source: NRI


Corporate Activities in Japan

In the long run, the policy of expanding overseas production and sales has been consistent among

Japanese manufacturing companies.

Japanese Corporations need to accelerate overseas business.

Source: JBIC

Production(%) Overseas Sales (%) Overseas Operating Profit (%)

Ratio of Overseas Business (Japanese Manufacturing Companies)

0

5

10

15

20

25

30

35

40

201420122010200820062004 201620022000

0

5

10

15

20

25

30

35

40

20142012201020082006200420022000 2016

0

5

10

15

20

25

30

35

40

20022000 2016201420122010200820062004



Strategies and capabilities are very diversified among sectors.

Depending on the sector, progress and results are different.

Ratio of Oversea Production

Automobile(%) Electronics(%) Chemical(%) Food(%)

0

10

20

30

40

50

201620142010 20122008

35%

47%

Machinery(%)

20122008 2010 2014 2016

43%46%

2012 20142010 20162008

31%

22%

2010 20162012 20142008

28%

20%

2010 2012 201620142008

18%19%

Source: JBIC



According to the survey conducted by Japan International Corporation Bank, India was in first place

in ranking of promising countries over the medium-term.

Japanese companies consider India as one of their most promising markets

Promising Countries/Regions for Overseas Business over the Medium-term (Japanese Manufacturer) (next 3 yrs. or so) (Multiple responses, Max 5 countries)

Source: JBIC

7.2%

10.1%

10.6%

19.3%

25.9%

29.4%

32.7%

35.8%

42.0%

47.6%

23.6%

30.7%

27.5%

38.8%

38.8%

40.4%

Brazil

Mexico

Phillippines

Myanmar

India

USA

China

Indonesia

Thailand

Vietnam

2016

2015



However, because of the resources shortage, most of the SME do not take actions to enter in India.

Japanese SMEs also consider India is an attractive market

Promising Countries/Regions for Overseas Business over the Medium-term (Japanese Mid-Small Size Manufacturer) (next 3 yrs. or so) (Multiple responses, Max 5 countries)

6.3%

7.0%

11.2%

15.4%

28.0%

29.4%

33.6%

37.1%

37.1%

46.2%

China

India

Vietnam

Phillippines

Indonesia

Myanmar

USA

Brazil

Mexico

Thailand

2015

2016

Source: JBIC



Making profit in India is difficult for Japanese companies.

This fact makes new comers hesitate to enter in India.

Satisfaction with Profits(Japanese Manufacturer) (by Region)

Note : Which of the following applies concerning your company’s FY2015 net sales and profits compared with initial targets in the countries/regions overseas you invested in?

⇒ 1: Unsatisfactory 2: Somewhat unsatisfactory 3: Can’t say either way 4: Somewhat satisfactory 5: Satisfactory

Source: JBIC

FY2012 FY2013 FY2014 FY2015

1 Thailand 2.87 NIEs 3 2.87 NIEs 3 2.86 Vietnam 2.86

2 Indonesia 2.73 North America 2.83 Vietnam 2.85 North America 2.82

3 North America 2.72 EU15 2.79 North America 2.84 EU15 2.79

4 Mexico 2.72 Singapore 2.78 CEE 2.78 Mexico 2.78

5 Singapore 2.66 CEE 2.77 Singapore 2.73 CEE 2.77

6 Vietnam 2.63 Philippines 2.75 Mexico 2.72 Philippines 2.76

7 NIEs 3 2.63 Vietnam 2.67 EU15 2.68 NIEs 3 2.71

8 Philippines 2.62 Turkey 2.67 Philippines 2.63 Singapore 2.65

9 Turkey 2.62 Mexico 2.64 Turkey 2.58 Thailand 2.62

10 Malaysia 2.60 Malaysia 2.64 Malaysia 2.58 Turkey 2.57

11 Russia 2.60 Thailand 2.62 Thailand 2.56 Malaysia 2.49

12 CEE 2.40 Russia 2.57 China 2.47 China 2.46

13 Brazil 2.40 Indonesia 2.55 Indonesia 2.47 Russia 2.43

14 EU15 2.36 China 2.50 India 2.42 Indonesia 2.39

15 India 2.30 Brazil 2.42 Brazil 2.24 India 2.31

16 China 2.25 India 2.24 Russia 2.19 Brazil 2.14



HQs in Japan expect Indian Government to improve its systems.

Source: http://www.tata.com

Tata, Docomo Settle

Wireless Dispute

Tata Sons is pleased to

announce that in the interests of

putting an end to a dispute that

had arisen with NTT DOCOMO,

Japan, and in the larger national

interest of preserving a fair

investment environment in India,

it has reached an agreement

with NTT DOCOMO on a joint

approach to enable enforcement

of the June 22, 2016, London

Court of International Arbitration

(LCIA) award.

Source: JCCII


Conclusion

A lot of areas for further collaboration between Japan and India

Capital

Technology

Human Recourse

Capital

It will take some time to bring

capital from Japanese institutional

investors.

Japanese corporations are keen

to start / expand business in India.

Human

Resource

Japan needs more skilled

engineers to suit Digital-era.

India can bring more Japanese

people with better system.

Technology

Japan needs technologies to

resolve issues regarding

population decrease.

Start-up India, Digital India might

help Japan.

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