The Journal The Authority on Global Business in Japan

Though the Japanese market continues to present challenges for foreign companies, the latest quarterly Foreign Chambers in Japan Business Confidence Survey finds that most remain optimistic, although cautious, about the future.

survey-1Conducted between October 18 and 28, the fall 2016 edition incorporates 288 valid responses from members of 13 foreign chambers of commerce and business organizations. A typical respondent company has been in Japan for more than 20 years, has 40 employees, and is involved in sales, trading or the service industry.

Since the last survey, conducted between April 12 and 22, there has been an improvement in the Japanese economy and the expected growth is higher; but the change is marginal.

On an index using a scale from +2 (strong improvement) to -2 (strong decline), optimism for growth in the Japanese economy over the next six months improved to +0.10 compared with +0.02 in the spring survey. Looking 12 months out revealed a similar increase: +0.27 compared with +0.18 in the previous survey.

Breaking this down by industry uncovered noticeable changes in the six-month view for finance (+0.00; previously -0.19) and service (+0.19; previously +0.08), while the 12-month view showed an increase in sales and trading (+0.23; previously +0.11).

Respondents also reported a small drop in company performance. While still positive, the index for reported sales performance over the past six months was +0.34 compared with +0.59 in April, and profitability performance showed a similar slide at +0.38 (previously +0.61).

When asked about the economic outlook for the next six months, North American companies (+0.17) were a bit more bullish than their European counterparts (+0.04), but Australia and New Zealand were most positive (+0.22). Only 1% are planning to downsize and just one of the respondents is considering withdrawing from Japan.

Identifying the reasons for a change in business performance, 51% cited their own efforts. The exchange rate was a key factor for 19%—a big jump from 9% in the spring survey—while a change in resources held steady at 8%. A shift in competition played a role for 6%, while 3% specified Abenomics (previously 5%). An additional 13% cited other factors.

The survey asked companies how an aging society will affect them. The split between those who see new business potential and those who see no effect was even at 32% each. Only 14% feel that the aging of Japanese society will have a negative impact on their business, although 16% see the weaker economy that will come in step with this aging as being bad for business.

The next survey will be conducted in April 2017.