Japan has one of the world’s strongest economies, which is heavily export-based and sustains itself amid all geopolitical oscillations. A brief overview of the economy in calendar year 2024 shows that the economy grew at 0.1% compared to 1.5% in CY2023. This growth is expected to recover at a moderate pace, and the economy will likely keep growing above its potential growth rate of 0.5% in 2025 and 2026. From October to December 2024, GDP grew by 0.7%, showing positive growth for the third consecutive quarter. The GDP is projected to grow at 1% for CY2025. Japan’s GDP is dominated by its service sector—exports account for almost 72% of GDP. Industry contributes approximately 27%, and Agriculture about 1%.
In 2024, Japan experienced record-high exports, increasing by 6.2% to 107 trillion yen. The main reasons were a shift in global demand and the weaker currency exchange. External demand in the semiconductor market is expected to grow in 2025, with Japan sales projected to grow at 9.4%. Exports of semiconductors in 2024 surged by almost 10% to 6 trillion yen. This growth was particularly driven by strong demand from Korea, the USA, China, and other parts of Asia. The top exports of Japan were automobiles and auto parts, electrical equipment, machinery, and chemicals. Exports have been increasing in the last four years. Japan’s trade balance was reduced by more than 40% to 5.4 trillion yen in 2024 and 9.5 trillion yen in 2023.
Japan is a top FDI destination in the world. At the end of 2023, the stock of inward FDI in Japan increased by 9.3% to 50.5 trillion yen (350.6 billion US dollars), equivalent to about 8.5% of Japan’s GDP. By region, investments from the United States (up 23.2% from the previous year) and Taiwan (up 21.1%) increased notably. Singaporean and US companies also made some investments in the construction of data centers.
The Council for Promotion of Foreign Direct Investment in Japan has set a priority program for attracting FDI into Japan. The program includes 10 policy measures based on 4 pillars: (1) expanding investment opportunities in Japan, (2) securing highly skilled human resources in Asia and other regions, (3) promoting collaboration between domestic and foreign companies, and (4) improving business and living environments.
Tax reforms have also been implemented to establish a tax system that promotes domestic production in strategic sectors and domestic investment. Electric vehicles, semiconductors, etc., are designated as strategic sectors, and tax credits are provided according to production and sales volumes.
Building on these and other measures, the Japanese government has set a target of 100 trillion yen in FDI stock by 2030. Investment in key sectors is supported nationwide. Japan proudly ranks among the top global ranks in its key sectors, which are digital technology, life sciences, sustainable energy, manufacturing, and tourism.
A wide range of foreign companies are entering the Japanese market, attracted by the size of the market and Japan’s advanced infrastructure, transforming its Digital Landscape. The government also supports private corporations in investing in digitalization. Japan’s Life Sciences sector is expected to expand due to the elderly population, the promotion of innovation, and the introduction of digital technologies. The Government of Japan has set the target to achieve a share of renewable energy of 38% by 2030, and it is taking various measures to achieve this target. Japan’s manufacturing industry accounts for approximately 20% of its GDP and is particularly competitive globally in automobile equipment and materials. The manufacturing industry is expected to grow through digitalization and decarbonization, creating several opportunities for collaboration with foreign companies. Tourism, one of the key industries driving the Japanese economy, is growing rapidly as the number of foreign visitors increases.
Japan is one of the safest countries in the world with state-of-the-art infrastructure, impressive technologies, and a well-educated and innovative environment. Japan invites skilled human resources worldwide to work in the most technologically advanced working environments. Human resources in Pakistan should prepare themselves to take advantage of this opportunity.
The writer is Assistant Director, JETRO, Karachi Office.
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