Japan’s economy will likely turn the corner in 2021, although there will be uneven recovery across different segments. The winter COVID-19 resurgence prompted ten prefectures to enter an extended second round of a “state of emergency,” further delaying Japan’s consumption revival. Businesses in Japan are likely to face this new normal in 2021, as Japan’s export-oriented industrial sector recovers ahead of the service sector and domestic consumption. Firms should segment customers to maximize their revenue upside as this divergence in the pace of recovery persists over the coming months. 

Japan’s subdued wage growth suggests elevated price sensitivity will persist. Dampened wage growth will be a drag for Japan’s consumption recovery in 2021. B2B firms should expect heightened price sensitivity to linger for months, until the labor market normalizes and wage growth improves. 

Higher public debt ratios in Japan could put pressure on medium-term government spending. The Japanese government will continue to prioritize restoring growth with ample fiscal ammunition. Over the medium term, firms should expect greater government budget constraints as the government shifts priority toward fiscal consolidation. 

Global recovery in manufacturing activities in 2021 will send a reprieve to Japan’s industrial sector. B2B firms will benefit from Japan’s recovering industrial sector, as global industrial recovery lifts demand for intermediate capital goods made by Japanese manufacturers.  

Actions for Business Professionals 

  • Build flexibility into demand forecasts to account for continued COVID-19 uncertainty and potential disruptions. 
  • Consider offering more value-based options, as price sensitivity is expected to remain elevated in Japan, particularly in the first half of the year. 
  • Plan for a televised Tokyo Olympics as your base case and gauge the potential impact on consumer demand and marketing. 

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