2. The trend of Japanese manufacturing industry under the evolution of the new pattern of global manufacturing industry

2.1 / Development of Japan’s manufacturing industry

In 2021, manufacturing will account for about 20% of Japan’s GDP and still play a role in supporting the core industries of the Japanese economy. According to the “Enterprise Statistics Survey” released by the Ministry of Finance, the overall operating profit of the Japanese manufacturing industry in 2021 was about 18 trillion yen, the highest in nearly 10 years, and the overall operating profit of the manufacturing industry in 2022 was about 19 trillion yen, more than the previous year.

Factors affecting Japan’s manufacturing business environment include: the spread of COVID-19 in 2021, shortages of semiconductors, components and materials, soaring raw material and energy prices in 2022, and the Russia-Ukraine conflict. From the survey of manufacturers on the above factors and their impact on their business, about 90% of respondents identified “rising raw material (resource) prices” and about 80% identified “rising energy prices”. According to the results of the 2021 survey, about half of the respondents identified “rising raw material prices (resource prices),” “the spread of the COVID-19 pandemic,” “labor shortage,” and “semiconductor shortage.” According to the results of the 2022 survey, about half of the respondents identified six factors, including “rising raw material prices (resource prices),” “the spread of COVID-19,” “semiconductor shortage,” and “labor shortage.” In addition, the percentage of respondents who chose “currency fluctuations” more than doubled in 2022 compared to 2021. It can be seen that factors such as soaring raw material and energy prices and exchange rate fluctuations will have the greatest impact on Japanese manufacturing companies in 2022.

2.2 / The trend of Japan’s manufacturing production base shift

According to a survey of Japanese manufacturing companies that have recently moved their production bases, the largest number of companies that have moved their production bases from China to Japan in the last year (113 companies returned from China to Japan and 70 Japanese companies moved to China). In addition, the number of new overseas transfers to ASEAN countries exceeded the number of companies returning to Japan from ASEAN countries (36 companies returning to Japan from ASEAN countries and 57 companies transferring to ASEAN countries).

Source: Mitsubishi UFJ Research & Consulting, “Orientation Survey of Japanese Manufacturing Issues and Responses,” March 2023

In terms of the reasons for the relocation in the past year, many Japanese manufacturers said that the main reason for returning to Japan was to strengthen their domestic production base in response to the COVID-19 pandemic. As for the main reasons for overseas transfer, many manufacturing companies listed the main reasons such as “production in consumption” and “the number of workers”, which can be seen that Japanese manufacturing companies still have great expectations for overseas labor and markets.

Regarding the future division of roles between Japan’s domestic production base and overseas bases, both large and small enterprises regard Japan’s domestic production base as the base for creating new technologies and new products. In addition, when maintaining/expanding domestic production bases, about 60 percent of manufacturers cited “securing factory workers” or “securing senior technicians and skilled personnel” as environmental factors that they want the Japanese government to improve, citing labor shortages as a challenge.

2.3 / The Japanese government vigorously promotes industrial revitalization of basic manufacturing technologies and cutting-edge technology research and development

According to the white paper, as the importance of securing strategic materials and key technologies such as semiconductors increases internationally, countries are strengthening measures to ensure economic security, which is also becoming an important task for Japan. In May 2022, the plenary session of the Japanese Senate voted to pass the Economic Security Promotion Bill. In December 2022, the Japanese government designated 11 categories as specific important commodities, including antimicrobial drugs, fertilizers, permanent magnets, machine tools and industrial robots, semiconductors, and batteries. Japan has drawn up “guidelines for ensuring stable supply” for each of the 11 categories of “specific important goods,” and is promoting efforts to ensure stable supply by supporting private companies.

The Japanese government’s measures to promote industrial revitalization of basic manufacturing technologies also include: popularizing products with high environmental performance; Promote new industrial clusters or strengthen the functions of existing industrial clusters, and strengthen the supporting functions related to emerging industries; Strengthen cyber security; Promote strategic standardization certification; Enhancing supply chain resilience; Ensure stable supply of energy and raw materials, etc.

In addition, according to Japan’s Sixth Basic Plan for Science, Technology and Innovation, it is proposed to be future-oriented, derive solutions, and formulate policies accordingly to drive social change through innovation. Japan is vigorously promoting the research and development of innovative artificial intelligence, big data, Internet of Things, materials, optical/quantum technology, environmental energy and other key frontier technologies that are crucial to the future society.