Understanding Japan
Success in Japan begins with understanding its unique business culture, economic structure, and regulatory landscape. This chapter outlines the key factors shaping Japan's market and what they mean for Australian businesses.
Business culture
Cultural intelligence is key to achieving sustainable business outcomes. Being able to read cultural clues and respond appropriately helps develop relationships, communicate effectively and build trust. While cultural and communication norms are changing as virtual modes of engagement increase, core cultural values remain an important factor in business. Not understanding the particularities of doing business in Japan can lead to missed opportunities, delays and lost engagements.
Communication
Conflict avoidance and the cultivation of harmonious relationships is an important aspect of Japanese culture, leading to an indirect style of communication that can be unfamiliar to Australian business people. Traditional Japanese principles continue to underpin many customs and business practices. Japanese culture values modesty and humility. English is also not as widespread as it is in other Asian markets, and interpreters are often used in formal meetings. Speaking in a quiet tone will go some way towards giving a modest, calm and humble impression. Being overly assertive or talking up yourself or your company may make you appear immature and lead your Japanese counterparts to form a negative impression.
The exchange of business cards (meishi) follows a strict protocol and is an essential part of initial meetings in Japan. It allows one to quickly determine important information such as their counterpart’s position, title, and rank. While still standing, you should politely hand a business card over with two hands and receive one in return. A slight bow as a form of respect when exchanging is usually performed. Do not simply drop the card into a pocket; instead take a few seconds to review names and titles, commenting on them if time permits. If you are sitting down, place it on the table in front of you for the duration of the meeting. If possible, place the most senior counterpart’s card at the top with their subordinates’ below or to the left.
Navigating culture in business – the importance of core cultural values
Relationships
Investing in relationships is important to succeeding in Japan. The strength of business relationships can determine many aspects of commercial life, including access to credit, procurement and contracting. Businesses must be prepared to visit Japan in person on a regular basis to develop these relationships. This involves face-to-face time with a person of similar age and status, with a strong emphasis on loyalty and trustworthiness. Having contacts in Japan with whom you have a good working relationship may also help you access critical market information and learn about new opportunities.
Australian businesses should also consider the impact of age, gender and education on the formation of personal and commercial relationships in Japan. For example, younger people or those with low-sounding titles are expected to defer in language and attitude to older or more senior people.
Business relationships in Japan are more trust oriented and personal than Australians might be used to. Japanese people often have greater trust in people that they socialise with, so taking time to build this trust is vital.
Hierarchy
Respect for age and status is very important in Japanese culture, with hierarchy affecting most aspects of social and business interactions. Status is determined by a combination of someone’s role in an organisation, which organisation they work for and even which university they went to. Always show appropriate deference to high-status Japanese individuals and ensure they are treated with special attention. While hierarchy is important in relationships, Japanese decision making can be surprisingly democratic, with input required from many levels and sections of a business.
The importance of partnerships
Japanese society places significant importance in the group or community. Partnerships can therefore be critical to success in the Japanese market. A local representative or business partner who has experience of doing business in Japan can be invaluable to help navigate the cultural and business nuances. Australian businesses should aim to develop partnerships and work with potential partners in a respectful manner.
For a more detailed understanding of business culture, business etiquette and building long term and sustainable partnerships to deliver strong business outcomes visit the Asialink Business Academy.
Managing risks
Japan offers significant opportunities for informed and well-prepared Australian businesses. While it presents fewer risks than other countries in the region, doing business in any new market can involve a range of uncertainties. These should be identified and mitigated as much as practicable – and managed carefully once business operations are established.
Risk factors in Japan
Economic – including the potential for government default (sovereign risk), fiscal, monetary and exchange rate risk.
Japan’s economic outlook is stable, with an A rating from Fitch Ratings and A+ from S&P. The ratings are supported by the country’s persistent current account surplus and significant external asset position, as well as its diverse export profile and strong governance structures.
The BOJ has taken its first step towards tightening monetary policy but this is unlikely to have a major effect on economic growth.
Potential mitigations for foreign exchange risk include forward contracts, foreign currency options, and utilising foreign bank accounts and loans to manage currency inflows and outflows. Seek advice on the level of currency risk and potential mitigations.
Political – including the potential for political instability and restrictive government policies.
Japan ranks 4th out of 28 countries on political stability in the Lowy Institute’s Asia Power Index, scoring 87.3 out of 100 on the indicator in 2024. Elections are regular and free, and the risk for violence/ terrorism is low.
Consider performing political risk due diligence for any major investments and be mindful of political affiliations of potential partners. For significant investments, political risk insurance may provide potential mitigation.
Climate – including the potential for extreme weather events and rising sea levels to impact trade routes, supply chains and infrastructure.
Japan ranks third in the world in exposure to geographic, meteorological and man-made risks. Depending on your business, potential risks associated with earthquakes, tsunamis and flooding should be considered as part of your operation plans However, Japan is also a world leader in disaster mitigation and resilience practices.
Identifying and mitigating climate change risks should be embedded in all elements of a company’s strategy and operating model.
Regulatory – including the potential for regulations that increase the cost of doing business, reduce the attractiveness of an investment or change the competitive landscape.
Heritage International’s 2025 Index of Economic Freedom ranks Japan 28th out of 184 countries. The absence of corruption and a strong judicial framework helps foster economic freedom, but structural problems discourage entrepreneurs and the labour market is constrained by lifetime employment and a seniority-based wage system.
A trusted local partner can help you understand, navigate and secure complex regulatory processes.
Intellectual property (IP) – including the potential for weak or underdeveloped IP protections and enforcement mechanisms.
Japan ranks 6th in the U.S. Chamber of Commerce’s International IP Index, with a score of 91 per cent. Japan continues to make strong efforts at copyright enforcement and in 2020 amended the Copyright Act to strengthen the environment.
Registration for patents, trademarks and copyrights can help mitigate IP risk. Continual product development and brand updates can deter counterfeiting. Technology solutions such as RFID tags and QR codes to authenticate products can add an extra layer of protection.
Geopolitical – including the potential for trade relationships, security partnerships and territorial disputes to impact business activities.
Japan faces several territorial disputes and other geopolitical flashpoints in Northeast Asia. Bilateral relations with China are in a constant state of flux and North Korea is a latent threat to regional stability. A conflict over Taiwan or in the South China Sea could affect Japan’s access to vital energy imports.
Boards and leadership teams should familiarise themselves with geopolitical issues that may impact a business and, if relevant, develop plans in response to potential scenarios. Companies may also wish to seek external advice.
Supply chain – including the quality of infrastructure, levels of corruption, corporate governance, supply chain visibility and timeliness.
Supply chain risk is low in Japan but the country is prone to natural disasters, including powerful earthquakes such as the one that struck off its east coast in 2011, causing a large tsunami that led to a meltdown at the Fukushima nuclear power facility. A number of global supply chains were disrupted as a result, most notably automotive.
For this reason, and due to exposure to climate risk, Japan ranks 36st out of 130 countries in FM Global’s Resilience Index, with a score of 77.5 out of 100.
Potential mitigations include supplier diversification, holding additional inventory, and implementing new operating models and processes. Technology is also providing improved analytics, sensors and automation.
Corruption – including the potential for bribery, embezzlement and conflicts of interest.
In 2024, Japan ranked 20th among 180 countries in Transparency International’s Corruption Perceptions Index, with a score of 71 out of 100. Japan has a strong rule of law and governance structures, along with anti-corruption enforcement mechanisms.
You should familiarise yourself with Australia’s foreign corruption and bribery legislation and ensure you have a robust anti-corruption strategy.