Japan Overview

Executive Summary

Overall, I would recommend investing in Japan due to many positive outlooks. The political situation is Japan is strong due to the great work from Prime Minister Junichiro Koizumi over the last few years. He has improved relationships with other countries in order to improve the well being of Japan, and one of those countries was the United States. The aging population is an issue as it will have an effect on the economic and social bodies, but the government has a plan on counteracting this shift through immigration. I feel the political risk in Japan is minimal, and if there were negative political events, the financial losses would be minimal.

Japan's economy is the second largest in the world. Japan has many industrial leadership and technicians, well-educated work force, high savings and investment rates, and positive goals towards industrial development and foreign trade. Their productivity is on the rise, which is positive as their outlasting the current economic cyclical factor. Japan has proven its economy can handle globalization through the supply of critical technology to the rest of the world. Corporate earnings are very positive due to corporation getting increased price. The GDP has grown for five consecutive quarters, with expectations in 2006 to rise 2.1% to over $4.7 trillion. The unemployment rate is at an eight year low at 4%, due to stronger exports and consumer spending. Foreign investment has improved in Japan through increased real estate prices, moderate lower labor costs, 127 million potential consumers, high technological and economical standards, strong purchasing power, and government tax benefits.

Japan's culture is quite unique, as they can come across as ethnocentric. The high context culture is difficult for Americans to deal with, but this often produces a high quality work ethic. Japan's education is very high-quality, producing a 95% literacy rate and a 95% graduation rate. One benefit for American investors is all Japanese study English from seventh grade through high school, which makes integrating into the work culture a little easier.

The negotiation process is similar to the steps mentioned in Deresky. The Japanese are focused on preparation and building relationships. Once this is accomplished the remaining negotiations should go smoothly. Foreign investors need to be aware of unique Japanese negotiating traits mentioned later in this paper.

When looking at the entire package when considering investing in Japan, I feel all the trends are facing upwards and the money invested is well worth the risk.

Political Overview

Japan is a constitutional monarchy with a parliamentary government, with a House of Representatives and a House of Councillors. Executive power is in the cabinet composed of a prime minister and ministers of state, which all of the ministers must be citizens of Japan. The prime minister must be a member of the Diet (legislature) and is chosen into this position by his colleagues. The prime minister has the power to appoint and eliminate ministers from their positions, whom primarily are Diet members (US Department of State, 2006).

Overall, Japan's political situation looks strong thanks to Japanese Prime Minister Junichiro Koizumi. Over the past five years, Japan has made unprecedented deployments of military forces to aid the US-led Operation Enduring Freedom in Iraq. The Security Consultative Committee produced common objectives for the alliance and decided to create a plan to combine their two militaries. Washington and Tokyo are also cooperating on all security issues that may involve the two countries (Glosserman, 2006)

The improved relationship with the US created a new document sponsored by both countries called, "US-Japan Alliance of Global Cooperation". This document identifies the shared values and interests between the two countries and reaffirms that they'll work together to combat problems which may negatively affect either country. The document also calls the governments to explore ways to improve their economic relationships and enhance cooperation on various global issues (Glosserman, 2006).

There are some concerns that worry the political and economical communities. First, the agreement to realign the US forces in Japan is important because the government is for reducing foreign military footprints in Japan. As a result, Japanese politicians will have to spend capital to implement the plan, which Japan is extremely slow to finalize. Second, Japan feels there's still an imbalance between the benefits received through the US/Japan relationship. The people in Japan feel that US policies might entangle them into conflict, which they don't need. Others complain they don't get support from the US, such as backing Tokyo for a permanent seat on the United Nations Security Council. Some citizens felt the prime minister was overeager allowing the US to export US beef into Japan, which some critics say endangers Japanese consumers (Glosserman, 2006).

Over the long-term there are a couple concerns. First, the aging populating of Japan is one of the oldest in the world having roughly 20% of the population over the age of 65. As displayed in table 1-4 to the right by 2050, the percentage will increase to 35.7%. This is a major concern to the government because the effect of this shift on the economic and social bodies is highly unpredictable. Second, Japan is concerned how it will integrate themselves into the massive Asia economy. While Asia exports substantial amounts of product into the US the need for the US/Japan Alliance will deteriorate, which could negatively affect Japan's security and economic interests (Glosserman, 2006).

Political risk, as stated in Deresky, is a definitely a concern when investing in Japan due to the unknown governmental actions or political events which might take place. A political risk assessment should be conducted to bring forth any exposure to risk to minimize financial losses (Deresky, 2003).

Economic Overview

Japan's free open economy is the second largest in the world. International trade is highly efficient and competitive throughout the economy, but their less efficient in areas such as agriculture, distribution, and services. Between the 1960's and 1980's Japan demonstrated one of the highest growth rates in history, but in the early 1990's the market collapsed due to plummeting stock and real estate. Since the early 1990's, Japan has produced an abundance of industrial leadership and technicians, well-educated industrial work force, high savings and investment rates, and a very active promotional campaign for industrial