Manufacturing Overview

Manufacturing Overview

The Japanese manufacturing industry is expanding with the promotion of digitalization


Japan's manufacturing industry is the driving force that has supported the Japanese economy to the extent that it became the third-largest economy in terms of GDP and is known as one of the "Manufacturing Superpowers." It accounted for about 20% of the total GDP in FY 2019-20, led by automobile and many other players (See Figure 1).


 Pie chart of Japan’s GDP composition by industry (2019). The service industry accounted for the largest share at 32.1%, while the manufacturing industry is the second largest, accounting for 20.5% of the total. Followed by wholesale and retail trade accounting for 12.7%, real estate 11.8%, construction 5.4%, and others 17.5%. Created based on data from the Cabinet Office, National Accounts (GDP statistics).


After overcoming the 2008 global financial crisis and the 2011 Great East Japan Earthquake, the economy has been gradually recovering since 2013 owing to improvements in the employment/income conditions and expansion of capital investment. Capital investment in 2019 was the highest in the past decade (See Figure 2).


 Line graph showing the capital investment trends in the Japanese manufacturing industry (2010-2019). It has gradually expanded from the 60 trillion JPY level in 2010 to the upper 80 trillion JPY level in 2019. It is seen to have risen to the 70 trillion JPY level around 2012 and to the 80 trillion JPY level around 2015. Created based on data from the Cabinet Office.


On the other hand, since the start of 2019, the global economic slowdown, repeated disasters, unfavorable weather events, trade issues, and uncertainties in overseas economies have made an impact on corporate earnings and investment, especially in the manufacturing field. Additionally, the spread of the novel coronavirus pandemic since January 2020 is exacerbating the uncertainty, making it difficult for the manufacturing industry to formulate a future outlook.

As per the White Paper on Monodzukuri (Manufacturing) 2020, published jointly by the Ministry of Economy, Trade and Industry (METI), the Ministry of Health, Labor and Welfare (MHLW), and the Ministry of Education, Culture, Sports, Science and Technology (MEXT), companies must adapt and transform as the environment and global conditions change in unpredictable ways. Further, digitalization is also considered an effective way to enhance the dynamic capability of the manufacturing industry. It is also a recommended way to cope with the shortage of human resources, which has been a pressing issue for the manufacturing industry.

In this context, digitalization is being promoted not only in the manufacturing industry but also in social infrastructure. In 2016, the Japanese government approved the 5th Science and Technology Basic Plan setting forth "Society 5.0." Society 5.0 refers to a new society where advanced technologies (IoT, robotics, artificial intelligence, and big data) are incorporated in all industries and social life to realize economic development and resolve social issues.

In 2017, Japan also introduced the concept of "Connected Industries", which aims to create new added value and resolve social issues by connecting various things such as machines, technologies, and people through data. In light of the above, the size of the factory IoT market in Japan continues to expand, and an increasing number of manufacturers are actively introducing digital technologies (See Figure 3).


Bar graph showing the factory IoT market size forecast (Japan). The forecast for 2019 is 541 billion JPY;609.1 billion JPY for 2020; 685.7 billion JPY for 2021; 772.1 billion JPY for 2022; 869.3 billion JPY for 2023; 978.7 billion JPY for 2024; 1,101.9 billion JPY for 2025, and it is expected to expand steadily. Created based on data from Nomura Research Institute (NRI).


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