Doing business in Japan: Insights for Canadian exporters

Amid the buzz about the emerging, high-growth markets in the Indo-Pacific, it can be easy to overlook Japan. While its growth trajectory has been slower than some of its neighbours, the island nation remains the fourth-largest economy in the world, and its population of 125 million ranks among the world’s wealthiest by per capita net worth. Japan is a global financial hub, an undisputed leader in technological innovation, and a pillar of stability in a rapidly changing world.

As geopolitical uncertainty rises around the world, Japan is seeking to bolster trade connections with reliable partners to secure its supply chain in strategic sectors. Canada—a trusted ally with strong capabilities to deliver the goods Japan needs—fits the bill. With preferential market access provided by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the time is right for Canadian exporters to take a fresh look at Japan. 

Canada and Japan enjoy a healthy trade relationship, with two-way trade totalling around $35 billion annually. Canadian companies exported $15.8 billion in goods to Japan in 2023, making it our third-largest export market.

The CPTPP, which came into force on Dec. 30, 2018, has played a critical role in enhancing this bilateral relationship. Key benefits for Canadian businesses include: 

• Reduced tariffs on key Canadian imports into Japan, such agriculture and agri-food, fish and seafood, industrial goods and forest products. Once fully implemented, 99% of tariff lines among CPTPP parties will be duty-free.
• Simplified temporary entry for Canadian professionals, making it easier for service exporters to do business in Japan.
• Being on equal footing with domestic suppliers when bidding for contracts with the Japanese government, thanks to the agreement’s government procurement provisions.

In addition to the CPTPP, the Canada-Japan Economic Partnership Agreement (EPA) enhances bilateral trade relations, aiming to further integrate the two economies.

Canada and Japan established full bilateral diplomatic relations in 1929 and share a strong commitment to multilateralism and a rules-based international order. Japan is a key partner in Canada’s Indo-Pacific strategy to boost trade, investment and engagement in the world’s fastest-growing region. With economic and political tensions growing in Asia, Japan welcomes the support of allies, like Canada, to grow prosperity and stability in the region. 

Building on this solid foundation, Export Development Canada (EDC) will open a new representation in Tokyo in 2024. Our in-market team will focus on creating new pathways for Canadian companies to do business in Japan and take full advantage of opportunities in the market.

“Japan is one of Asia’s main business hubs, and remains one of the gateways to the region,” explains Jean-Bernard Ruggieri, EDC’s chief representative for Japan. “Building relationships in the market is critical. The Japanese government, and Japanese companies (public and private) have a deep knowledge of the region, along with the expertise, experience and networks needed for Canadian enterprises to succeed. It’s important for EDC, our clients and partners to take the opportunity to leverage all of that, so we can increase Canadian trade and investment in Asia and the Indo-Pacific.” 
 

March 2024 was a pivotal month for the Japanese economy. First, Japan’s biggest companies agreed to the largest wage increase for unionized workers in more than three decades. Soon afterwards, the Bank of Japan (BoJ) ended its long-standing negative interest rate and yield curve control policy.

Rising wages and the end of the negative interest rate policy, originally implemented to encourage inflation in the stagnant economy, are positive signs for the Japanese economy. Susanna Campagna of EDC’s Economic and Political Intelligence Centre (EPIC) predicts that growth will continue to be steady, but moderate.

“Japan’s gross domestic product (GDP) grew about 1.9% annually from 2019 to 2023, and we expect to see 1% annual growth for the next five years,” Campagna continues. “This growth rate is modest, but it will be supported by higher rates of domestic consumption, including increased demand in services and private investment. The weaker Yen is also supporting a boom to tourism in Japan and stronger exports.”

What does this mean for Canadian exporters and investors? Japanese consumers have more money in their pockets, but the nation’s demographics are still challenging. “Japan’s aging and shrinking population could negatively impact the country’s medium to long-term growth potential, alongside an ongoing labour shortage in certain sectors, which remains a constraint for businesses to grow and expand,” says Campagna.

Those same trends are also shaping opportunities in key sectors, as Japanese consumers, businesses and investors seek out innovative products and services to make their economy greener, more efficient and secure. 

Agri-foods

Canada is a leading exporter of high-quality, safe and sustainable agri-food products. This positions Canada as an attractive partner for Japan, a country that places a high premium on food safety, sustainability and innovation in agricultural products.

Canadian agri-food products, including grains, meats and seafood, are highly valued in the Japanese market for their quality and the environmental stewardship demonstrated by Canadian producers.

Japan’s strong quality standards are respected throughout the Indo-Pacific region, which can open doors in additional markets, according to Stephen Boudreau, general manager of sea cucumber and clam for Clearwater Seafoods. “Japanese food culture has a huge influence on surrounding Asian countries. If your product is successful in Japan, buyers from other countries of the region often see it as proof of quality and consumer acceptance. As a result, they might approve it faster.” Ruggieri adds, “in my view this dynamic applies not only for food but other products, too.”

The CPTPP has streamlined the agri-food trade channel by reducing tariffs on Canadian agri-food products, giving Canadian imports a competitive edge in the Japanese market. Furthermore, Canada’s agri-tech companies are at the forefront of innovation, developing technologies that are sought after in Japan to address challenges such as food security and sustainable farming practices.

Cleantech

Both Canada and Japan have thriving clean technology sectors, and opportunities exist to develop closer integration of the industry through supply chain partnerships and joint research ventures. For example, Canada’s advancements in hydrogen fuel technology complement Japan’s commitment to green energy, highlighting a potential area for expansive collaboration. Japan is a promising market for Canadian cleantech innovations related to biofuels, plastic recycling and energy efficiency. Finally, many Canadian cleantech investors view Japan as a safe haven for new investments in this crucial sector, compared to Asia’s higher-risk markets.

Critical minerals

Supported by their government, Japanese companies and the main trading houses (“sogo shosha” in Japanese), are actively seeking to secure their procurement of critical minerals. Their needs and strategy align with Canada’s critical minerals agenda for two main reasons:

1. Canada extracts critical minerals and welcomes investors from friendly nations, like Japan, in this strategic sector.

2. Canadian mining expertise has a great reputation globally, and Japanese companies in the sector welcome our involvement in mining projects in other regions where they have investments, such as Latin America.

In 2023, Canada and Japan released a Memorandum of Cooperation (MOC) about the establishment of “sustainable and reliable global battery supply chains from upstream to downstream in Canada and Japan,” including critical minerals. While non-legally binding, the MOC demonstrates the nations’ shared commitment to co-operation in this important sector.

Automotive

Japan and Canada are longstanding partners in the automotive sector. As the industry shifts to hybrid and electric vehicles (EV) as part of the green transition, there are opportunities to strengthen and expand the relationship. Canadian capabilities in battery technology and sustainable materials complements Japanese expertise in automotive manufacturing. This opens pathways for joint ventures in the sector, including Honda’s recent commitment of $15 billion to create Canada’s first comprehensive electric vehicle supply chain in Ontario. 

Health and life sciences

Japan has the world’s second-highest median age, so it’s no surprise that its market for pharmaceuticals and medical devices is robust. Demand for products and innovations in these fields, along with digital health technologies, present Canadian companies with strong opportunities for licensing, foreign direct investment (FDI), and science, technology and innovation (STI). New solutions, including robotic parts, are also welcome in this market, where innovation is celebrated.

Advanced technology: Due to rising tensions in the region, chipmakers are de-risking their supply chains by building up manufacturing capacity in Japan.

Forestry: As its aging population shrinks the available workforce, Japan’s forestry sector is in the market for new, productivity-boosting technologies.

Japan’s business environment is highly developed and boasts many qualities that make it an exceptional place to do business, including:

• A record of innovation
• Enviable infrastructure
• Strong commitment to the rule of law
• Robust educational standards and a highly skilled workforce
• Safe, clean cities

Japanese culture places a high value on personal bonds. Once a relationship is established, Japanese companies tend to be extremely loyal to their trading partners. New entrants must be prepared to spend considerable time in the market to build these bonds. Plan for frequent visits to Japan, especially during the initial stages of your business encounters. It’s advisable to have a local partner who can help you build and maintain relationships.

Japanese business culture is formal and hierarchical. Wear a suit for meetings, bring business cards (translated into Japanese, if possible), and address the most senior associate in the room first. Be sure to accept if you’re offered tea and snacks during your meeting, as declining will be considered rude.

Some of the biggest barriers in Japan for Canadian businesses include: 

• Complicated and lengthy business processes 
• A complex regulatory environment
• Managing logistics in a distant market
• Strong competition from domestic and foreign suppliers
• Language and cultural differences

Engaging translators and cultural advisors for your first visit can help you navigate the Japanese business world. Working with a local partner who speaks Japanese and understands local traditions, norms and processes can also help Canadian businesses break into the market. 

Export Development Canada

EDC is part of the Government of Canada’s trade ecosystem of experts available to help you save time, learn more about your target markets and identify the capital you need to grow.

As part of our Indo-Pacific strategy, EDC is committed to helping Canadian companies diversify into new markets and succeed in this dynamic region. Our Japan representation is scheduled to open later in 2024, and EDC’s experienced team will be well-positioned to offer the industry insights, knowledge, and tools you need to succeed in Japan. EDC also offers:

• A full suite of credit insurance products to lower your risk for doing business abroad
• Help with getting access to working capital  
• Expertise to enable you to learn more about international markets
• Connections to international companies in need of your products and services

Learn more about how EDC’s financial and knowledge solutions can help you understand the opportunities in your target market and make exporting less risky. To contact an EDC export advisor, visit our Export Help Hub. 

Trade Commissioner Service (TCS)

Canada’s TCS has a team of approximately 50 trade professionals stationed in Tokyo, Sapporo and Osaka. With specialized knowledge of key sectors, they excel at forging relationships with associates who can help Canadian companies do business in Japan. 

Provincial trade offices and the Canadian Chamber of Commerce

The governments of Alberta, British Columbia, Ontario, Quebec and Saskatchewan have trade offices in Japan to promote investment opportunities and support exporters. Canadian businesses can also connect with the Canadian Chamber of Commerce in Japan, which has been in the market for almost 50 years and offers extensive knowledge of the business landscape. 

Interested in growing your business in Japan and the Indo-Pacific?

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