I. Economic data

 

A. Macro-economic data

 

- General data[1]

​

Population 2021: 125,681,593 inhabitants

Area: 377,829 km2

Density: 337 inhabitants/km2

GDP (nominal) 2022: $4,941 billion (3rd)

GDP/capita 2022: $33,823.6[2]

GDP (PPP) 2022: $5,703.6 billion[3]

GDP (PPP)/capita 2022: $45,583.8[4]

Growth rate 2021: 1.7%

GNI/capita (PPP) 2021: $44,570

HDI 2021: 0.925 (10th)

Literacy rate: 100%[5]

Life expectancy 2021: 85 years old

 

- Policy[6]

 

Japan is a constitutional monarchy with a parliamentary system of government. At the time of writing, the Emperor is NARUHITO, while the Prime Minister is Fumio KISHIDA, of the Liberal Democratic Party.

 

The Prime Minister's priorities are the fight against inequality, the revival of economic activity, economic security, the development of digitalization and efforts to halt the falling birth rate.

 

In terms of foreign policy, Fumio KISHIDA wishes to strengthen his military alliance with the United States, seek a consensus between dialogue with China while remaining firm, promote a free and open Indo-Pacific space, and have a permanent seat on the UN Security Council, Japan being the third largest contributor to the UN budget.

 

- Economic development[7]

 

Japan is the world's 3rd largest economy. The country is a member of the G7, the WTO and the OECD.

 

Economic development took place with the first industrial revolution, under the reign of Emperor Mutsuhito (who became Meiji Tenno after his death).

​

Formerly the 2nd economic power in the world after the United States, Japan was overtaken by China for the first time in 2011.

​

Japan had already experienced slowing growth and economic stagnation in the 1990s, prior to the 2008-2009 subprime crisis. Then, in 2010, Japan experienced a recovery with a growth rate of 4.7%, but this was halted in 2011 following the earthquake that caused a tsunami in Japan.

 

With the arrival of Abe Shinzo, former Prime Minister (2013-2020), policy priorities were to support the economy and continue expansionary monetary policy.

 

In the first months of 2019, VAT rose in Japan to 16% for general trade. From April 1, 2019, the VAT rate was lowered to 13%[8]. Growth was estimated at 2% for 2022, after a period of stagnation in 2018 and 2019 and recession in 2020 due to the Covid 19 health crisis.

 

The inflation rate in 2021 was -0.2%.

 

Japan holds the largest public debt, amounting to 264% of GDP. 90% of this debt is held by Japanese economic stakeholders[9].

 

- Resources[10]

 

In 2020, tourism brought in 11.3 billion dollars.

 

Agriculture accounts for 1% of GDP, mining and industry for 29% and services for 70%. As a result, Japan's economy is primarily service based. This sector employs 72.6% of the Japanese workforce.

 

Japan is particularly noted for its leadership in cutting-edge technologies. Research and development accounts for 20% of the global budget in the sector[11].

 

- Population[12]

 

Japan is the world's eleventh most populous country.

 

92% of the population is urban.

 

The Tokyo metropolitan area is the world's largest in terms of population, with 42,794,714 inhabitants in 2020.

 

12% of the Japanese population is under 15, 59% is between 15 and 65 and 29% is over 65.

 

Japan’s ten populous cities in Japan are Tokyo's 23 special wards (9,733,276), Yokohama (3,777,491), Osaka (2,752,412), Nagoya (2,332,176), Sapporo (1,973,395), Fukuoka (1,612,392), Kawasaki (1,538,262), Kobe (1,525,152), Kyoto (1,463,723) and Saitama (1,324,025).[13]

 

- Foreign investment[14]

 

Goods exports in 2021 were $749 bn, while imports were around $733 bn.

 

Japan receives little inward foreign investment, ranking 30th worldwide. On the other hand, in terms of outward direct investment, Japan ranks 8th worldwide[15].

 

The European Union is Japan's third-largest trading partner[16]. Japan's leading trading partner is China, with 19% of exports and 25% of imports. The United States is Japan's second-largest trading partner.

 

B. Economic data specific to franchising

 

- Historical background

 

Japan was the first Asian country to introduce franchising, in 1963, with the development of the Duskin (cleaning services) and Fujiya (confectionery) brands, both of local origin.

 

The sector has grown significantly since then.

 

- Institution

 

The Japanese Franchise Association was founded in 1972 with the aim of promoting the healthy development of the system, with particular emphasis on concerns in areas as diverse as pre-contractual information and ecology.

 

The Japanese Franchise Association has adopted a code of ethics for franchising, which members of the association undertake to respect, and which contains provisions concerning the experience that the franchisor must have acquired prior to developing the network, the information to be provided to prospective franchisees, the franchisor's duty to maintain the good reputation of the network in terms of the quality of goods and services, and the duty to develop know-how.

 

- Trade shows

 

The Japan International Franchise Exhibition, focusing in particular on food and beverage franchising, will be held on March 13 and 15, 2024 in Tokyo, and on October 17 and 18, 2024 in Osaka[17].

 

The Japan Licensing and Business Development Show will take place from June 26 to 28, 2024 at the Tokyo International Exhibition Center (Tokyo Big Sight).

 

The annual FRAX Tokyo 2024 trade show was held from January 18 to 20, 2024 creating a meeting place for franchisors and franchisees.

 

- Statistics[18]

 

According to a survey conducted by the Japan Franchise Association, in 2022 Japan had 1,282 networks and 249,316 outlets. Although the number of networks and outlets fell by 0.3% and 0.4% respectively on the previous year, sales increased.

 

In the retail sector, the number of networks fell by 2.6%. By contrast, the number of stores rose by 0.7%. This sector generated sales of 805.9 bn yen, up 4.2% on 2021.

 

In the restaurant sector, the number of chains fell by 0.4% and the number of outlets by 1.7%. On the other hand, sales rose by 7.4% to 273.4 bn yen.

 

In the service sector, the number of chains rose by 1.4%, but the number of outlets fell by 0.8%. Sales were up 1% on 2021.

 

The fastest-growing sector in terms of sales, with a rise of 46.3%, was leisure and hotels. This strong growth can be explained in particular by national measures to support travel and the increase in footfall since the end of the health crisis.

​

- Contract content

 

For small stores, franchise fees are less than 1 million yen. For a medium-sized store, the cost of entering the franchise[19] is around 3 million yen.

 

- Economic impact

 

Sales amounted to 26,988 billion yen (national currency), representing a 4.3% increase over 2021. This is the second consecutive year of sales growth.[20]

 

- International

 

The Japanese market is the most attractive for franchising in the Greater Asia region.

 

Although the Japanese franchise market is relatively easy to access, it remains highly competitive. Franchising giants such as Burger King and Wendy's have had to rethink their business strategies to stay in Japan. Indeed, Burger King and Wendy's had to close their stores, only to return with a better strategy. Japanese consumers have high expectations in terms of quality, taste, safety, service and experience[21].

 

II. Legal information

 

A. Legal information directly related to franchising

 

- Applicable legislation

 

Japan has no specific law governing franchise agreements.

 

As a result, there is no single formal definition of franchising in Japan. There may be three relevant definitions:

 

The first is the Medium and small retail commerce promotion Act[22]. This Act defines a store chain as a business which, under an agreement with formal conditions, sells or acts as an agent for the sale of goods and provides management advice, and which is primarily aimed at medium and small retailers. When the franchised company meets the definition of this law, it must comply with its provisions, and in particular disclose an information document to the franchisee.

 

The second comes from the guidelines on franchising systems in the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade[23]. These guidelines define franchising as a form of enterprise in which one party (the franchisor) gives the other party (the franchisee) the right to use a specific brand and trade name, and coordinates the control, direction and support of the franchisee. The franchisor may support the sale of goods and the provision of services. In return, the franchisee pays the head office.

 

The third comes from the Japanese Franchise Association, which defines the franchise contract as a commercial agreement between the franchisee and the franchisor. The franchisor owns the brand, the know-how and a business system. The franchisor grants the franchisee the right to operate his business using his brand, know-how and business system.

 

- Pre-contractual information

 

Only the Medium and small retail commerce promotion Act requires franchisors to provide franchisees with an information document prior to signing the contract.

 

However, the guidelines laid down in the Monopoly Prohibition Act (more fully set out below) require franchisors to provide prospective franchisees with sufficient and accurate information.

 

The pre-contractual information document provided for in the Medium and small retail commerce promotion Act contains relatively detailed information on the franchisor (management, employees, capital structure, etc.), the content of the contract (confidentiality clause, non-competition clauses, penalty clauses, duration, termination conditions, etc.), the sums paid by the franchisee on joining the network (amount, payment terms, nature (entry fee, equipment, deposit, etc.) and then during the performance of the contract, whether or not it is refundable), the products sold to the franchisee, the trademark and other distinctive signs, and the history of the network [24].

 

As there is no specific procedure open to franchisees who have been victims of false or incomplete information, they must bring proceedings, where appropriate, under the general provisions of the Civil Code, in order to have the contract annulled and obtain damages.

 

- Contract performance

 

The law makes no provision for the content of the franchise agreement.

 

The relationship between the parties is therefore defined by the contract, subject to compliance with the general requirement of contractual good faith and being bound by competition law.

 

In the absence of any provision for early termination of the contract, the parties may terminate the contract by mutual agreement, and one of the parties may unilaterally terminate the franchise contract in the event that the other party commits a breach of contract such as to cause the loss of trust necessary to maintain the contractual relationship.

 

Particular attention must be paid to the conditions of renewal of the contract. If the contract contains an implied renewal clause, the judge may consider that the refusal to renew must be specially justified.

 

- Jurisdiction and applicable law

 

Japan ratified the New York Convention on Arbitration[25] on June 20, 1961, facilitating the recognition and enforcement of foreign arbitral awards.

 

- Trademarks

 

Japanese law is governed by the Trademark Law[26].

 

Application for registration is made to the Commissioner of the Patent Office and must contain the name and domicile or residence of the trademark registration applicant, the trademark for which registration is sought and the goods and services designated, as well as the class of goods or services (Section 5, paragraph 1 of the Trademark Law).

 

When two or more trademark applications are identical or similar, the applicant who filed the application first will have their trademark registered in his name (Section 8, paragraph 1 of the Trademark Law).

 

When a trademark is registered, it is protected for ten years and can be renewed indefinitely (Section 19 of the Trademark Law).

 

If a third party uses a trademark identical or similar to its own, the Japanese trademark registration enables the owner to obtain an injunction to cease such use, and to order the wrongdoer to pay damages.

 

Japan has been a member of the Madrid System since 2000, enabling companies to obtain trademark protection in up to 130 countries by filing a single international application, in a single language, with the World Intellectual Property Organization (WIPO). Under Article 6 of the Madrid Agreement, trademark registration is valid for 20 years.

​

In Japan, trademark applications can be handled both nationally and through the international system under the Madrid Protocol. The Japan Patent Office (JPO) conducts a substantive examination prior to registration, often issuing notifications. Japan allows multi-class trademark registrations. Trademarks become vulnerable to cancellation for non-use if they are not used for three consecutive years.  To develop a franchise in this country, it is advisable to cover class 35. However, note that the term "Business assistance relating to franchising" is probably not accepted but acceptable identifications in this class include "assistance in franchised commercial business management," "business management assistance in the field of franchising," "business advisory services relating to the establishment and operation of franchises," and "administration of the business affairs of franchises." Retail services are also accepted in class 35, but the goods must be specified. Recording a franchising agreement is not compulsory though advisable for legal advantages.

 

B. Peripheral legal data

 

- Competition law

 

The 1947 Monopoly Prohibition Act[27] protects competition. The Franchise Guidelines indicate which provisions in franchise agreements conflict with the Monopoly Prohibition Act.

 

The Japan Fair Trade Commission[28] is the national authority in charge of monitoring and enforcing competition law in Japan.

 

These guidelines qualify the franchisor’s conduct under competition law, both at the negotiation stage and during the performance of the contract.

 

Thus, information given by the franchisor to the franchisee before the contract is signed, such as sales forecasts, can constitute misleading advertising (defined by point 8 of communication no. 15 “Designation of unfair commercial practices” of the Unfair Trade Practices Commission)[29].

 

With regard to the relationship between the parties during the performance of the contract, the guidelines state in particular that exclusive rights to supply goods or services imposed on the franchisee are considered to have the aim of preserving, on the one hand, the confidentiality of information supplied by the franchisor to the franchisee and, on the other hand, the image of the network. As such, they are not penalized by the law on unfair commercial practices. On the other hand, when these obligations go beyond what is considered normal commercial practice in franchising, they may amount to an abuse of dominant position or tied selling.

 

The guidelines state, however, that limiting the parties with whom franchisees may transact, obliging the franchisee to purchase a specific quantity of goods, or restricting the ability of franchisees to offer discounts to their customers may amount to an abuse of a dominant position[30].    

 

The Unfair Trade Practices Commission has the power to issue injunctions to put an end to restraint of trade practices: injunctions to cease the prohibited activity or to remove clauses that harm competition, for example.

 

- Personal data

 

Personal data law in Japan is regulated by the Protection of Personal Information Act[31].

 

Section 1 of this law states that the aim is to protect the rights and interests of individuals while considering the usefulness of personal information, notably for the creation of new industries, the realization of a dynamic economic society and a better quality of life for the Japanese population.

 

The data subject's consent is required for the collection and use of his/her data.

 

The Personal Information Protection Commission[32] monitors compliance with this law.

 

Japan is recognized as a suitable country by the European Union. This means that the transfer of personal data between the countries of the European Economic Area and Japan does not require any specific framework[33].

 

- Special provisions for foreign investments

​

Foreign investment is governed by the Foreign Exchange and Foreign Trade Act of 1949[34]. In addition, the franchise network's business may be subject to specific regulations, which may contain special provisions for foreign investors.

 

Foreigners wishing to run a business in Japan must obtain "Investor/Company Manager" residency status, or register their representative in Japan. They must also register with the foreigners' office of their home town hall within 90 days of entering Japan.

 

Main websites

 

- Intellectual property: www.jpo.go.jp;

- Japan Franchise Association: https://www.jfa-fc.or.jp/;

- Competition: www.jftc.go.jp;

- Legislation: https://www.japaneselawtranslation.go.jp/en;

- Personal data: https://www.ppc.go.jp/en/;

- Statistics: https://www.stat.go.jp/english/index.html;

- Japan External Trade Organization: www.investjapan.org.

​

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[1] Unless otherwise stated, the information below is taken from the Atlas, socio-économique des pays du monde, Larousse, 2024 edition.

[2] https://donnees.banquemondiale.org/indicator/NY.GDP.PCAP.CD?locations=JP

[3] https://donnees.banquemondiale.org/indicateur/NY.GDP.MKTP.PP.CD?locations=KR-CG

[4] https://donnees.banquemondiale.org/indicateur/NY.GDP.PCAP.PP.CD?locations=JP

[5] https://www.diplomatie.gouv.fr/fr/dossiers-pays/japon/presentation-du-japon/

[6] https://www.diplomatie.gouv.fr/fr/dossiers-pays/japon/presentation-du-japon/

[7] Unless otherwise stated, the data below is taken from the Atlas, socio-économique des pays du monde, Larousse, 2024 edition.

[8] https://wise.com/fr/vat/tva/chine

[9] https://www.diplomatie.gouv.fr/fr/dossiers-pays/japon/presentation-du-japon/

[10] Unless otherwise stated, the information below is taken from the Atlas, socio-économique des pays du monde, Larousse, 2024 edition.

[11] https://www.larousse.fr/encyclopedie/divers/Japon_activit%C3%A9s_%C3%A9conomiques/185397

[12] Unless otherwise stated, the information below is taken from the Atlas, socio-économique des pays du monde, Larousse, 2024 edition.

[13] Japanese Statistics Bureau

[14] Unless otherwise indicated, the data below is taken from the Atlas, socio-économique des pays du monde, Larousse, 2024 edition.

[15] https://www.diplomatie.gouv.fr/fr/dossiers-pays/japon/presentation-du-japon/

[16] https://www.diplomatie.gouv.fr/fr/dossiers-pays/japon/presentation-du-japon/

[17] Postal address Osaka - INTEX Osaka, Osaka Prefecture, Japan; postal address Tokyo: Tokyo Big sight; e-mail address: tradefairs@congre.co.jp

[18] The following statistics are taken from the Japanese Franchise Association (https ://www.jfa-fc.or.jp/particle/29.html).

[19] https://www.fc-hikaku.net/franchises/2090

[20] The following statistics are taken from the Japanese Franchise Association (https ://www.jfa-fc.or.jp/particle/29.html).

[21] https://www.trade.gov/market-intelligence/japan-franchise-market

[22] Law No. 110 of 1973

[23] Act No. 54 of 1947

[24] https://www.franchise.org/sites/default/files/2022-09/2023%20Franchise%20-%20Japan.pdf

[25] New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958

[26] Act n°127 of 1959

[27] Act n°54 of 1957

[28] 100-8987 1-1-1 Kasumigaseki, Chiyoda-ku, Tokyo, JAPAN, Tel : +81-3-3581-1998

[29] https://www.franchise.org/sites/default/files/2022-09/2023%20Franchise%20-%20Japan.pdf

[30] Point 12 of communication no. 15 "Designation of unfair commercial practices" from the Commission on Unfair Commercial Practices

[31] Act n°57 of May 30, 2003

[32] Common Gate West Building 32F, 3-Chome-2-1 Kasumigaseki, Chiyoda City, Tokyo 105-0013, Japan

[33] https://www.cnil.fr/fr/la-protection-des-donnees-dans-le-monde

[34] Act No. 228 of 1949