Major Economic Indicators

Latest Development

• The Japanese economy is expected to contract 6% in 2009, following the 0.7% decline in 2008. Along with stabilization of the global economy, Japan’s economy is expected to gain 1.7% in 2010.
• Consumer sentiment shows signs of picking up, though the labour market continues to deteriorate.
• Japan remains Hong Kong’s third largest export market, as well as its second largest source of imports. In the first half of 2009, Hong Kong’s total exports to Japan plunged 16% to US$6.4 billion and its imports from Japan tumbled 33% to US$13 billion.
• Japan was the sixth largest source of foreign direct investment in Hong Kong with a total stock of HK$165 billion (US$ 21 billion) as at end-2007, trailing after the Chinese mainland, British Virgin Islands, the Netherlands, Bermuda and the US.

Current Economic Situation

After shrinking 0.7% year-on-year (yoy) in 2008, the Japanese economy fell another 7.8% yoy in the first half of 2009. However, along with stabilization of the global economy, the country's economy is expected by the IMF to contract 6% in 2009, followed by a 1.7% growth in 2010.

Amid the surge of yen against the US dollar and Euro, the external demand for Japanese exports has weakened substantially. However, stepping into the second quarter of 2009, exports and consumer sentiment showed signs of picking up.

The Tankan Index, a quarterly business confidence survey reported by the Bank of Japan, showed that the business conditions were improving as per the survey results of June 2009. However, the labour market continued to worsen in the first half of 2009, with the unemployment rate rising from 4% at the end of 2008 to 5% in June 2009, and further rises expected by the end of 2009. Japan's consumer price rose by 1.4% in 2008 but recorded a mild deflation in the first half of 2009.
 
In light of the global economic crisis, Japan’s government has implemented a series of stimulus measures, totaling JPY12 trillion approximately, or equivalent to 2% of GDP. The aim was to revive the economy by spending on various aspects such as job creation, health care, tax cuts for housing, etc. In addition, the Japanese government has also undertaken to implement financial measures amounting to JPY63 trillion in a bid to strengthen the financial and banking system.
 
Trade Policy and Development

Most goods can be imported freely without import licences, except certain items covered by the Import Restriction System (e.g. chemical products and weapons). Most of the Hong Kong exports, such as garments, toys, jewellery, houseware, watches, clocks and the majority of electronic items, are not subject to import restrictions.

Japan's tariff schedule has four columns of applicable rates: general, WTO, preferential, and temporary. Goods originating from Hong Kong are charged WTO rates unless a lesser "temporary" rate exists. Japan's Generalised System of Preferences (GSP) grants lower or duty-free rates to products imported from developing countries. Hong Kong fully graduated from Japan's GSP in February 2000.

Japan has signed bilateral free trade agreements (FTAs) and economic partnership agreements (EPAs) with Chile, Mexico and Switzerland, and its agreement on comprehensive economic partnership with ASEAN went into force on 1 December 2008. Beside, Japan has embarked on negotiations of FTAs with several economies, including Australia, India and South Korea.

Hong Kong's Trade with Japan

In the first half of 2009, Japan was the third largest export market for Hong Kong. Hong Kong’s total exports to Japan declined by 16% to US$6.4 billion for that period. Major export items included telecommunications equipment and parts (21% share of total exports), toys, games and sporting goods (7%), other articles of apparel of textile fabrics (6%) and travel goods and handbags (4%).

On the other hand, Japan was Hong Kong's second largest source of imports in the first half of 2009. Hong Kong's imports from Japan plunged 33% to US$12.8 billion for the period. Major import items included semiconductors and electronic valves/tubes (17% share of total imports), telecommunications equipment and parts (12%), electrical machinery & apparatus (5%) and electrical apparatus for electrical circuits (5%).

Japan's Involvement in the Hong Kong Economy

Japanese companies have a substantial involvement in the Hong Kong economy. According to the Consulate-General of Japan in Hong Kong, there are approximately 2,100 Japanese companies in Hong Kong. Japanese banks are also well represented here, including Bank of Tokyo-Mitsubishi UFJ Bank and Sumitomo-Mitsui Bank. In particular, many Japanese companies are using Hong Kong as their regional headquarters or regional offices to oversee their business activities in other Asian economies, in particular, the Chinese mainland. As at June 2008, there were 238 Japanese companies with regional headquarters in Hong Kong, while another 494 had regional offices here.

Japan was the sixth largest source of foreign direct investment in Hong Kong with a total stock of HK$165 billion (US$ 21 billion) as at end-2007, trailing after the Chinese mainland, British Virgin Islands, the Netherlands, Bermuda and the US.

In light of Hong Kong's position as a regional trade centre, most leading Japanese trading companies and manufacturers, including Itochu, Marubeni, Mitsubishi Electronic, Sojitz, Bandai and Citizen, have set up purchasing/distribution offices in Hong Kong. A number of large department stores and chain stores such as Muji and Uniqlo operate in Hong Kong.