The document summarizes a report on business perspectives in Japan. It finds that while Japanese business optimism improved slightly in Q2 2012, sentiment remains negative. A shortage of orders is cited as the top constraint on growth. Rolling out energy saving initiatives is the most common action taken to reduce energy consumption. Overall the Japanese economy continues recovering slowly from the 2011 disasters, but faces challenges from a aging population and global economic uncertainties.

1. Focus on: Japan
International Business Report 2012 – Economy focus series
The economy The business perspective
The eurozone debt crisis is adding to uncertainty The Grant Thornton International Business Report
globally at a time when Asia is showing significant (IBR) surveys more than 12,000 businesses in 40
signs of slowing . Japan has long depended on economies around the world. This report focuses on
emerging Asia for growth, given the moribund state businesses in Japan and their expectations for the
of the domestic economy. Luckily, the US is proving next 12 months, as illustrated in figure 1.
resilient and its performance will be important in The IBR survey tells us that businesses in Japan
determining whether the economy tips back into were less pessimistic optimistic in Q2-2012 about
recession. The trade deficit has widened as energy their economy over the next 12 months, compared
imports soar following the 2011 earthquake and with the 2011 average. Hiring expectations have
tsunami whilst depressed demand in Europe weighs ticked upwards from 2011 but a lack of skilled
on exports. workers remains a concern for businesses. A
The key indicators1 are highlighted below: shortage of orders/reduced demand remains the key
• output expanded 1% in Q1-2012 compared to constraint on business growth in Japan at double the
the previous three months following the G7 average.
upwardly revised flat reading in the fourth
quarter of 2012
• year-on-year GDP was up 4.1% and has risen
annually now in three straight quarters
• the trade deficit widened to ¥907bn (US$12bn)
in May 2012, from ¥522bn in April, the third
highest level since records began; the trade gap
with the EU was ¥11bn
• the current-account surplus fell by 62.6% in
May comapared with 12 months previously, to
¥215bn
• employment contracted by a further 100,000 in
May but the unemployment rate declined by 0.2
percentage point to 4.4% as 200,000 people left
the labour force
• Consumer price inflation eased to 0.2% in May
from 0.5% in the previous month; excluding
food and energy, inflation fell to -0.6%.
1
source: International Monetary Fund, The Economist and Experian.

2. The outlook
Figure 1: Key indicators for businesses
Strong momentum built up over the first quarter
and the ongoing investment into reconstruction Japan compared with the G7 2010 2011 2012 2012
following the 2011 earthquake, tsunami and nuclear Jap Jap Jap G7
disaster, should be enough to sustain growth at 1.7% Outlook for the economy over the next 12 months
Net optimism over pessimism -72% -66% -41% 23%
in 2012. The external picture is complicated by the
eurozone debt crisis and a number of internal
Change in employment levels
challenges remain. Real GDP growth is expected to Net hiring expectations 6% 15% 25% 29%
slow to 1.3% per annum in 2013-16.
However, rhis could yet prove to be quite an Constraints on expansion
achievement given Japan’s ageing population. Shortage of orders/reduced demand 79% 68% 60% 30%
Demographics remain a key concern, as the Availability of skilled workers 28% 35% 37% 24%
dependency ratio – the ratio of dependents (children Source: Grant Thornton IBR 2012
and the retired) to the working-age population –
rises from 53% in 2007 to 69% in 2020. While
domestic savings have compensated for rising public
debt (now around 200% of GDP), this will not be
the case in the long term.
Upcoming policy decisions – including the post-
nuclear disaster future of the energy industry and
the possibility of Japan joining talks on the Trans-
Pacific Partnership – by Yoshihiko Noda, the sixth
holder of the premiership in the past five years, are
likely to be crucial.
Talk to us to find out how we can help you deal
with the challenges your business is facing today.
Hiroyuki Hamamura
T +81 3 5770 8860
E hhamamura@gtjapan.com
W www.gtjapan.com

3. International Business Report results
The results reveal that global business optimism Figure 2: Outlook for the economy over the next 12 months: Q4-2010 to Q2-2012
rose marginally in Q2-2012 with net 23% of Net percentage businesses indicating optimism less those indicating pessimism
businesses optimistic2 for their economies over the 40
30
next 12 months. Businesses sentiment for the next
20
12 months in Japan remains negative, although it 10
also rose from -53% in Q1 to -41% in Q2. 0
The sovereign debt crisis continues to weigh -10
-20
heavily on businesses confidence in Europe;
-30
business optimism across the eurozone stands at net -40
-5%. However confidence in the BRIC3 economies -50
remains strongly positive at 41% and confidence in -60
-70
the United States increased from 46% to 50%, the
-80
highest level recorded since 2005. Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
Japan -71 -58 -62 -69 -71 -53 -41
G7 11 27 27 -8 -12 16 21
Business confidence
Global 23 34 31 3 0 19 23
• business confidence improved in Q2-2012, with
the proportion of businesses optimistic for the Source: Grant Thornton IBR 2012
economy over the next 12 months climbing from
net -53% in Q1 to -41%
• however, optimism levels in Japan remain well
down on the global average (23%)
• businesses in only Spain, Greece and the
Netherlands are more pessimistic about the next
12 months
• optimism climbed across the G7 over the past
three quarters to stand at net 21%.
2
the balance is the proportion of companies reporting they are optimistic less
those reporting they are pessimistic.
3
the BRIC economies are Brazil, Russia, India and China

4. Employment Figure 3: Employment history: Q4-2010 to Q2-2012
• net 25% of Japanese businesses expect Net percentage businesses
employment to grow in the year ahead, higher 35
30
than expectations in Q1, but below the G7
25
average (29%) 20
• actual employment growth reported by Japanese 15
businesses in Q1 (21%) was higher than 10
5
expected the previous quarter (13%).
0
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012*
Expected Japan 8 14 9 15 26 13 25
Expected G7 22 21 30 17 26 28 29
Actual Japan 11 19 16 7 2 21 –
Actual G7 14 34 20 22 24 29 –
*Q2 2012 actual data will be documented in Q3 2012
Source: Grant Thornton IBR 2012
Revenue expectations Figure 4: Revenue expectations: Q4-2010 to Q2-2012
• the proportion of businesses expecting revenues Net percentage businesses indicating an increase less those indicating a decrease
to climb over the next 12 months rose to net 60
50
41%, up from 30% in Q1
40
• Q2 expectations are in line with Q1 for 30
businesses in the G7 and globally, with net 49% 20
in the G7 and net 52% globally expecting to 10
0
increase revenue in the year ahead.
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
Japan 19 9 19 23 12 30 41
G7 52 46 50 36 37 47 49
Global 46 55 55 45 43 52 52
Source: Grant Thornton IBR 2012

5. Profitability expectations Figure 5: Profitability expectations: Q4-2010 to Q2-2012
• net 8% of businesses expect to increase profits Net percentage businesses indicating an increase less those indicating a decrease
over the next 12 months, the first time since 2007 60
50
this figure has turned positive
40
• 12 months previously, the figure stood at net 30
-18% 20
• the global and G7 averages have remained fairly 10
0
steady over the past three months at 38% and
-10
34% respectively. -20
-30
Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012
Japan -3 -7 -18 -5 -3 -3 8
G7 35 39 38 24 26 35 34
Global 40 47 42 33 31 39 38
Source: Grant Thornton IBR 2012
Constraints
Figure 6: Constraints on expansion: Q2-2012
• a shortage of orders/reduced demand is cited as Average percentage of businesses rating constraint 4 or 5 on a scale of 1 to 5 where 1 is not a constraint
and 5 is a major constraint
the greatest constraint on business growth for
businesses in Japan (60%), significantly above Shortage of orders/reduced demand 60
30
the G7 average (30%)
Availability of skilled workforce 37
• a lack of skilled workers is also cited by 37% of 24
Japanese businesses as being a major constraint, Regulations/red tape 34
33
again well above the G7 average (24%).
Shortage of working capital 24
15
Shortage of long term finance 21
15
Cost of finance 15
21
ICT infrastructure 14
11
Transport infrastructure 10
8
Japan G7
Source: Grant Thornton IBR 2012
Accessing finance Figure 7: Accessing finance: Q2-2012
• the majority of Japanese businesses are happy Percentage of businesses
with the level of support provided by lenders; 100
90
91% of class lenders as supportive or very
80
supportive towards their business, compared 70
with 82% of G7 businesses 60
• moving forward, 14% of Japanese businesses 50
40
expect finance to become more accessible, whilst
30
14% also expect it to become less accessible. 20
10
0
91 82 1 7 14 28 14 19
Supportive Unsupportive More Less
Lender support Accessibility of finance – next 12 months
Japan G7
Source: Grant Thornton IBR 2012

6. Business challenges Figure 8: Business challenges: Q2-2012
• growing revenues by more than 5% is cited by Percentage of businesses citing challenge
63% of respondents to emerge as the key Grow revenue by more than 5% 63
challenge facing businesses in Japan
Develop a new (to market) product 45
• this is followed by 45% citing developing a new or sservice
product or service
Move into new (non-domestic) 18
• 18% cite moving into a new (non-domestic) geographic markets
geographic market, and a further 18%
Undergo significant reorganisation 18
undergoing a significant restructuring or and/or restructuring
reorganisation.
Increase staff levels by more than 5% 9
Acquire, be acquired or merged 5
with another business
Invest at least 5% of budget in R&D 3
Grow our exports by more than 5% 2
Source: Grant Thornton IBR 2012
Energy Figure 9: Actions taken by businesses to reduce consumption from major suppliers: Q2-2012
• as a result of increased electricity rates, 55% of Percentage of businesses
businesses in Japan have reduced (or are in the Roll out ‘Cool biz’ and ‘Warm biz’ scheme 62
process of reducing) the amount of power they
Introduce energy saving products 50
purchase from the major electricity companies
• rolling out the ‘Cool Biz’ and ‘Warm Biz’ energy Overtime limit to shorten office 33
operating hours
saving schemes is the most popular measure
undertaken by businesses in Japan to reduce Own privately-owned electrical power 24
facility by solar power
energy consumption (62%)
• half of businesses plan to introduce energy Introduce a smart grid 14
saving products to reduce consumption, and a Shift hour of operation from day to night 7
further third plan to limit overtime to shorten
Own privately-owned electrical power 5
office opening hours. facility by fossil fuel
Own geothermal system 2
Source: Grant Thornton IBR 2012

7. The Grant Thornton International Business Report (IBR) is a quarterly survey of 3,000 senior executives in businesses all
over the world. Launched in 1992 in nine European countries the report now surveys more than 12,000 business leaders in
40 economies on an annual basis providing insights on the economic and commercial issues affecting the global economy.
In Japan 400 businesses were surveyed over the past 12 months across all industry sectors. These businesses ranged from
medium to large in size with total employment between 100 to 750 employees. Q2-2012 data are drawn from interviews
conducted in May/June 2012.
To find out more about IBR and to obtain copies of reports and summaries please visit: www.internationalbusinessreport.com.
Participating economies
Argentina Malaysia
Armenia Mexico
Australia Netherlands
Belgium New Zealand
Botswana Peru
Brazil Philippines
Canada Poland
Chile Russia
Mainland China Singapore
Denmark South Africa
Finland Spain
France Sweden
Georgia Switzerland
Germany Taiwan
Greece Thailand
Hong Kong Turkey
India United Arab Emirates
Ireland United Kingdom
Italy United States
Japan Vietnam
Contacts
Global research
Grant Thornton International
Dominic King
T +44 (0)207 391 9537
E dominic.h.king@uk.gt.com
www.gti.org
www.internationalbusinessreport.com
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