Stuart Bergman headshot, EDC
Stuart Bergman Vice-President and Chief Economist Export Development Canada Stuart Bergman

After almost a decade of unconventional monetary easing and negative interest rates, Japan is charting a path toward policy normalization and reinvigorated economic growth. In a series of well-orchestrated steps, earlier this year, officials look set to leave behind the country’s 25-year battle with deflation and achieve a virtuous cycle of rising incomes, higher spending and steady price increases.

The world is watching these developments closely. As the planet’s fourth-largest economy, worth almost US$7 trillion at purchasing power parity (PPP), Japan is a key global innovation and design centre, and a pivotal player in Asia’s delicate geopolitical and security balance. The country is also an important member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) agreement.

While Japan is at a critical inflection point, this transition will likely take several years, as the effects of wage hikes work their way through the broader economy, providing a meaningful lift to real wages across all firm sizes. To date, household spending has been largely flat, as higher prices pose a challenge to spurring increased consumption.

While Shigeru Ishiba, Japan’s former defence minister, was successful in his leadership bid for the Liberal Democratic Party on Sept. 27, we expect him to continue Prime Minister Fumio Kishida’s efforts to encourage sustained wage growth, helping Japanese households offset the cost of higher prices. Looking ahead, we forecast modest gross domestic product (GDP) growth, of slightly less than 1%, over the next five years. Persistent structural challenges, including the country’s aging population and falling birthrates, remain constraints on its longer-term growth potential.

Additionally, the rapid unwinding of the yen carry trade in the wake of the Bank of Japan’s (BoJ) July interest rate increase, alongside the rate cut cycle initiated by most other major central banks, triggered a wave of market volatility. While we expect the BoJ to take a cautious approach to its policy tightening, additional turbulence can’t be ruled out.

Yet, despite these challenges, global investors and companies, alike, have taken note of the many positive changes occurring in Japan, including corporate governance reforms. Indeed, as companies look to diversify supply chains to account for geopolitical and trade barrier risks, Japan has become an increasingly attractive destination. Taiwanese chip-industry suppliers are increasingly setting up shop in Japan, as a way to grow their businesses, a trend aligned with Japan’s own aim to revitalize its semiconductor industry. Overseas venture capital investment is also flowing into the country’s high-tech sector startups at a pace not seen since 2014. 


As far as Canada is concerned, Japan was our third-largest merchandise export market in 2023, with exports having grown by an average of 5% per year over the 2019-2023 period, driven primarily by sales of energy (coal, gas), agri-food (canola, wheat) and minerals (copper, iron ore).

In fact, Japan is the second-largest global net food commodity importer and, as such, ensuring a stable and resilient food supply is a key consideration for the country. Food security concerns are further aggravated by expected future labour shortages in Japan’s farming sector, a result of its demographic challenges.

Canadian agri-food exporters can expect continued and growing demand from Japan in long-standing areas such as seafood, but also growing demand for other protein sources, including beef, chicken and pork. Demand for frozen meats, too, is on the rise, as Japan grows its frozen food storage capacity to meet growing consumer demand for frozen foods, which provide greater flexibility in meal preparation, as well as cost savings.

The bottom line?

Efforts to revitalize the Japanese economy will, no doubt, take time. Restoring the engine of the country’s astonishing postwar growth won’t be easy or, in some cases, even possible, given new structural realities. That said, the current economic pivot bodes well for economic growth prospects. Japan’s stable business environment, its role as a key regional business hub and the opportunities it offers Canadian companies across a range of sectors—including agri-food, automotive, cleantech and critical minerals—are some of the many reasons why Export Development Canada (EDC) is excited to announce the opening of our new representation in Tokyo.

This week, special thanks to Susanna Campagna, principal country risk analyst in our Economics department.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.