Japan

Introduction:The Country Risk Assessment is an indicator of the overall level of trade credit risk in a country at a given point in time. More specifically, it assesses how the ability of firms to generate cash flow is shaped by the country’s structural characteristics (level of development, fiscal sustainability, quality of governance, social/political risks, sensitivity to climate risk) and the macroeconomic conditions of the moment. The country risk assessment covers 160 countries on an 8-step scale: A1, A2, A3, A4, B, C, D, E, in order of increasing risk. A1 Very good macroeconomic and financial outlook. Stable political context. Very low sovereign. A2 Good macroeconomic and financial outlook. Generally stable political context. Overall good sovereign and climate risk. A3 Less favourable macroeconomic and financial outlook. Political context remains stable. satisfactory climate and sovereign risk. A4 Economic and financial outlook could be marked by some weaknesses. Political context could suffer from tension. Non-trivial climate and sovereign risk. B Uncertain economic and financial outlook. Political context could suffer strong tensions. Exposure to climate and/or sovereign risk is a noticeable issue. C Very uncertain economic and financial outlook. Political context could be unstable. Exposure to climate and/or sovereign risk is a significant issue. D Highly uncertain economic and financial outlook. Very unstable political context. Sovereign and/or climate risk represent a material threat. E Extremely uncertain economic and financial outlook. Extremely unstable political context.

I. Risk Outlook

Potential Opportunities	There are plenty of chances for cooperation between China and Japan in industries pertaining to the digital economy and new-energy vehicles. As the development of new-energy vehicles in Japan is relatively lagging behind, there is great potential for exporting auto parts, battery technology, and charging facilities to Japan. Over the years, China and Japan have established all-round and in-depth cooperations in aspects such as goods and service trade, technical cooperation, and personnel exchanges.
Main Risks	In the coming period, the situation of Japan's foreign trade imports and exports remains relatively severe. The enforcement of the “reciprocal tariff” policy by the United States may impact Japan's foreign trade economic pattern. As Japan's trade deficit continues to expand and import costs remain high, it may suppress import demand. The Japanese government frequently adjusts policies, for example, implementing export controls on cutting-edge semiconductor equipment, which may affect the partnership between Chinese and Japanese enterprises. At the present stage, the Japanese government and some ruling parties attempt to strengthen restrictions and controls on foreign digital technology enterprises and services, which will affect Sino-Japanese digital economy cooperation. In addition, the Japanese government follows the semiconductor export restriction policy of the United States towards China, leading to the fragmentation of the Sino-Japanese semiconductor market.
Suggestions on Countermeasures	We should closely monitor policy changes, regularly track Japan's economic situation, financial policies, political trends, and foreign trade policies, and adjust strategies in a timely manner; work carefully in logistics management, monitor the operational status of destination country ports in real time and change the transportation mode in a timely manner when logistics and warehousing are blocked; strengthen risk prevention and verify the identity information of trading partners for both new and old clients, pay attention to industry relevance, control transaction amounts, carefully select payment methods, and verify payment accounts and addresses; reasonably use export credit insurance, and help reduce risks via pre-transaction credit investigations and risk information gathered from professional institutions.

II. Index Overview

	Risk Score		Overall Median	Risks Worthy of Attention
SMERI Composite Index	28.6		32.5	According to expert's research, the risk of this country's trade policy towards China is worthy of attention.
Macroeconomic Indicators	20.3	Medium	20.8
Trade Environment Indicators	49.3	Relatively high	49.0
Subject Quality Indicators	22.9	Relatively low	41.1
Payment Status Indicators	24.1	Medium	24.1

Data Source: Sinosure, Chinese Academy of International Trade and Economic Cooperation of Ministry of Commerce.

III. Risk Distribution

IV. Risk Analysis

1. Overall Risk

The SMERI index of Japan is 28.6 points, which is 5.9 points lower than the average level of the 60 countries covered in this report, indicating that the overall credit risk of transactions between China's medium, small, and micro-sized foreign trade enterprises and Japanese enterprises is "relatively low". Historical data in recent years shows that the Japanese market exhibits a certain degree of uncertainty, primarily influenced by the trade environment indicators. According to the annual trend of the index, the risk of the performance of the Japan's SMERI Composite Index showed a fluctuating upward trend in two years but gradually declined in the past year (as shown in the figure below).

2. Macroeconomic Risk

Japan scored 20.3 points on this sub-index, 2.1 points lower than the average, indicating that the macro-economic risk is “medium”. In 2024, the Japanese economy achieved moderate growth and domestic demand recovered to some extent, but consumer confidence did not improve significantly. Its Inflation pressure continued, raw material prices rose, corporate profits declined, operating costs increased, and the number of corporate bankruptcies increased significantly. Regarding the economic climate, the manufacturing industry in Japan is still in the contraction range, and the service industry, especially accommodation and catering, has experienced significant growth driven by the recovery of tourism.

3. Trade Environment Risk

Japan scored 49.3 points on this sub-index, 1.8 points higher than the average, indicating that the risk of Japan's trade environment with China is “high”. According to the survey, Japanese import demand for Chinese goods and services may increase significantly; the standardization of trade laws and regulations may remain unchanged; the tariff on Chinese goods exported to Malaysia may decrease at a certain range; the enforcement of anti-dumping and counter-subsidy measures against Chinese exports may be mitigated; and the implicit trade barriers to Chinese exports may be expanded.

4. Subject Quality Risk

According to the underwriting business data of Sinosure and the query results of the digital foreign trade transaction risk quick-check tool Credit Traffic Light, Japanese enterprises scored 22.9 points on this sub-index, which is 22 points lower than the average, indicating that the current subject quality risk of Japanese enterprises is “relatively low”.

5. Payment Status Risk

Based on Sinosure's business data, Japanese enterprises that have trading relationships with Chinese medium, small, and micro-sized foreign-trade enterprises scored 24.1 points on this sub-index, which is 3.0 points lower than the average, indicating that the current payment credit risk of Japanese buyer enterprises is “medium”.

^{^[1]}The SMERI Composite Index aims to measure the overall risk of export transactions between Chinese medium, small, and micro foreign-trade enterprises and buyer enterprises in the export destination country. This index consists of risk indicators in four dimensions: the macroeconomic risk of the export destination country, the country's trade policy environment risk towards China, the credit quality risk of the buyer enterprises in the country, and the payment status risk of the buyer enterprises in the country.

[2]According to the underwriting business data of Sinosure and the query results of the digital foreign trade transaction risk quick-check tool Credit Traffic Light, a comprehensive assessment is made to evaluate the overall search popularity of Chinese medium, small, and micro foreign-trade enterprises regarding enterprises in destination country, reflecting the level of attention Chinese export enterprises are paying to the market of that country.

【Content Description】

The country (region) index analysis within the China Small and Medium-Sized Enterprises Export Risk Index (SMERI) Report 2024, jointly released by China Export & Credit Insurance Corporation (Sinosure) and the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce, provides a detailed analysis of the risk situation reflected by the composite index and its sub-indicators for the 60 export destination countries (regions) selected according to the SMERI. The analysis primarily encompasses the following aspects:
Firstly, it presents the composite SMERI score and corresponding risk tier for each country (region), explaining the overall credit risk faced by Chinese enterprises when trading with entities from that country (region). Based on historical data from the past three years, it displays the overall risk trend indicated by the annual composite SMERI for each country (region) and provides a focused analysis of the primary factors driving export credit risks.
Secondly, the analysis delves into the sub-indicators. This includes: 1) presenting the sub-index scores and risk tiers for the Macroeconomic Indicators of each country (region), and analyzing the main factors influencing its macroeconomic risk; 2) providing the sub-index scores and risk tiers for the Trade Environment Indicators of each country (region), and forecasting the likelihood of an increase or decrease in its demand for imports of goods and services from China, tariff levels, intensity of anti-dumping and countervailing measures, strength of hidden trade barriers, and the degree of standardization of trade laws and regulations over the coming year; 3) presenting the sub-index scores and risk tiers for the Subject (Enterprise) Quality Indicators of each country (region) according to the underwriting business data of Sinosure and the query results of the digital foreign trade transaction risk quick-check tool Credit Traffic Light; and 4) utilizing Sinosure's claims settlement business data to provide the sub-index scores and risk tiers for the Payment Status Indicators of each country (region).
Finally, by analyzing the usage data of Sinosure's digital risk management tools by small and medium-sized foreign trade enterprises, the report also displays information such as the "Popularity as an Export Destination" and "Distribution of Loss Causes" for each country (region). It further provides an analysis and outlook on the main factors likely to influence the export risks for Chinese small and medium-sized enterprises and the trends in trade cooperation with each country (region) in the future.

【Author's Statement】

To ensure the correct understanding and use of the China Small and Medium-Sized Enterprises Export Risk Index (SMERI) Report 2024, the following statements are made: The report is jointly authored by China Export & Credit Insurance Corporation and the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce (CAITEC). Based on the information provided by relevant entities or already publicly announced, as well as other information collected in accordance with laws, regulations, and regulatory requirements, Sinosure and CAITEC have conducted a prudent analysis of the relevant information in accordance with the principles of relevance, timeliness, reliability, and integrity, but make no express or implied warranties regarding the accuracy, reliability, timeliness, and integrity of the information contained in the report.
The viewpoints and conclusions involved in the report constitute independent judgments made by Sinosure and CAITEC based on a reasonable internal evaluation system, methodology, and procedures. They are not comparable to conclusions derived from different evaluation systems, methodologies, or procedures, and should not be considered a form of credit rating or credit information service.
The report is intended to provide small and medium-sized foreign trade enterprises with information and reference opinions concerning relevant business risk conditions, and is not a conclusion or recommendation for a specific decision. Sinosure and CAITEC have not conducted specific investigations into the facts involved. The report shall not serve as a basis for determining the responsibilities or obligations of Sinosure or CAITEC, nor does it represent Sinosure's underwriting or claims settlement opinions for specific businesses. Sinosure and CAITEC shall not be held liable for any consequences or losses arising from any entity's use or citation of the report, nor for any consequences or losses resulting from any entity providing the report to a third party.
The report comes into effect as of the date of issue and remains valid for a specified period. During the period of validity, Sinosure and CAITEC reserve the right to modify or adjust the relevant views and conclusions based on their internal evaluation system, methodology, and procedures, and shall decide at their own discretion whether to publish such modifications. Unless otherwise agreed, Sinosure and CAITEC are under no obligation to provide updated reports to any entity.
The copyright of the report is owned by Sinosure and CAITEC. No organization or individual may reproduce or distribute it in any form without prior written permission. Sinosure and CAITEC reserve the right to pursue legal action against any infringement or citation that contradicts the original intent of the report.

Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce
China Export & Credit Insurance Corporation
June 2024

【Authorization Information】

In September 2024, the Asian Financial Cooperation Association obtained written permission from Sinosure to excerpt and republish partial content for reference purposes only.

Details in "Export Risk Index" of other countries

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