Corporate Treasury & Cash Management in Japan

Corporate Treasury & Cash Management in Japan

At a glance

About Japan 

Japan is the world's third-largest economy and its second-largest developed economy. Technology exports have been the main driver of economic growth in Japan since the 1960s, with key exports including automobiles, high-end machinery and electronics industries. Japan's largest export partner is China, followed by the United States and South Korea. 

Innovation is another major feature of Japan's economy, and the country ranked 13th in the Global Innovation Index 2021 by the World Intellectual Property Organisation.  

Japan's intellectual property development and accumulation, as well as the quality of its research output, are a direct result of the country’s commitment to research and development (R&D) expenditure, which consistently ranks very high, as a percentage of gross domestic product (GDP), amongst G7 countries. Along with its status as a world-class innovation hub, Japan offers a good business environment with sophisticated information technology (IT) infrastructure, a world-class transportation network, and a large market size.  

The Japanese government has been actively promoting structural reforms in its economy to encourage inward foreign direct investment (FDI). Reforms include the designation of a National Strategic Special Zone to attract international businesses and the simplification of administrative procedures to enhance efficiency.  

The market size for financial technology (fintech)-related businesses is expected to grow to over USD10 billion (JPY1,210 billion) by 2022, according to the Yano Research Institute. The Japanese government has modified regulations to promote growth in the fintech sector with amendments such as the Banking Act, which was revised to encourage banks to establish IT-related subsidiaries for developing fintech businesses. This enhanced the technical aspect of Japanese banks’ financial products and services and facilitated them to open their application programming interfaces (APIs) to fintech firms. 

Corporate Treasury in Japan  

Japan is the world's third-largest economy and a global manufacturing powerhouse. In this section, we highlight some of the key factors relevant to treasury and cash management in Japan.   

Financial Market Development 

  • Tokyo is ranked 7th in the 2021 Global Financial Centres Index by Z/Yen Group.  
  • Japan has an excellent business infrastructure, a highly educated workforce and a strong rule of law.  
  • Japan has relaxed almost all of its foreign exchange (FX) controls. Those that remain have little impact on normal business transactions.   

Sophistication of Banking Systems  

  • There are more than 100 city banks, trust banks and regional banks in Japan, as well as around 40 branches of foreign banks. 
  • Japan's foreign-exchange market accounts for around 4.5% of global daily turnover, according to the Bank for International Settlements.  
  • Japan's debt market is dominated by government bonds. Its corporate bond market is the largest and the most liquid in Asia. The local currency bond market was valued at USD 11,603.76 billion in March 2021.  

Regulatory Bodies  

  • The banking industry is regulated by the Financial Services Agency. The Bank of Japan (BOJ) is the central bank.   


  • The corporate income tax rate is 23.2% for companies with paid-in capital of more than JPY100 million. For companies with paid-in capital of less than JPY100 million, except for a company wholly owned by a company that has paid up capital of JPY500 million and above, the rate is 15% on the first JPY8 million per annum of taxable income and 23.2% on taxable income in excess of JPY8 million per annum.  
  • Companies pay national local corporate tax at 10.3% of their corporate tax liabilities.  
  • Other corporate tax liabilities for companies include standard enterprise tax, local corporate special tax, size-based enterprise tax and inhabitant's tax.  
  • When all the above taxes are combined, Japan has an effective tax rate of 30.62%.  
  • Resident companies are taxed on their worldwide income, whilst non-resident companies are taxed on Japan-sourced income.  
  • Profits of a branch of a foreign company are taxed at the same rate as resident company’s profits. There is no branch profits remittance tax on the remittance of profits to the head office by the branch of a foreign company.  
  • The consumption tax (or value-added tax) is 10%, with certain goods and services being zero-rated, whilst others are exempted e.g. a lower consumption tax of 8% is paid on certain goods, including food.  
  • Interest expenses that are used for business purposes are generally tax-deductible, subject to thin capitalisation rules and earning stripping rules.  
  • Stamp duty is levied on certain documents prepared in Japan. The tax is based on the amount stated in the document, for up to a maximum of JPY 600,000.  
  • Withholding taxes (WHT) of 20% on dividends and 0% or 20% on interest are charged to resident companies. For non-resident companies where no tax treaty is in place, WHT of 15% or 20% is charged on dividends and 0%, 15% or 20% is charged on interest. Where a tax treaty is in place and the non-resident can provide a Certificate of Residence, WHT ranges from 0% to 20% for dividends and 0% to 25% for interest.  
  • Japan has tax treaties with more than 80 countries and territories.  
  • Japan is a signatory to the Organisation for Economic Co-operation and Development's Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations to provide a single, global picture on some key indicators of economic activity within multinational enterprises.  

Benefits for Regional Treasury Centres 

  • Japan is a treasury centre location for multinational corporations with JPY accounts. 
  • Notional pooling is available in Japan, although it is not widely used. 
  • Cash concentration is widely available and permitted between resident and non-resident entities. 
  • Residents are permitted to establish cross-border physical cash pools within Japan and abroad. 

Bank Accounts 

  • Residents may hold foreign and domestic currency (JPY) accounts domestically and overseas, whereby domestic currency accounts are freely convertible to foreign currency. 
  • Non-residents may hold foreign and domestic currency accounts, whereby domestic currency accounts are freely convertible to foreign currency. 
  • Interest is available on demand-deposit accounts, including multi-currency accounts. 

Legal and Regulatory 

  • The Bank of Japan (BOJ is the central bank with semi-government status and the Financial Services Agency (FSA) oversees the banking sector. 
  • A company is resident if its head office is based in Japan. Non-residents are persons not domiciled in Japan or who have lived in Japan for less than a year (this may include business travellers). Non-residents are only taxed on Japanese-sourced income. 
  • Foreign-exchange control is enforced by the Ministry of Finance (MOF), the Ministry of Economy, Trade and Industry (METI), and the BOJ. 
  • Japan has anti-money laundering and counterterrorism financing legislation (ATML/CTF) in place and is a member of the Asia/Pacific Group on Money Laundering (APG). 
  • Japan has set up a financial intelligence unit, the Japan Financial Intelligence Office (JAFIO), which is a member of the Egmont Group. 

Payment Systems



Japan's Real-time Gross Settlement (RTGS) system 
  • Owned and operated by the BOJ. 
  • Processes high-value (greater than JPY100 million) and urgent JPY-denominated interbank transfers and government bond settlements. 
  • Accessed at a dedicated terminal within each bank or through a link to the bank's computer network. 
  • Activates final settlement of participants' net balances from other clearing houses. Settles transactions with finality in real time. Final settlement is done between participants' accounts held with the BOJ. 
  • 493 direct participants.

Zengin System 

Designated time net settlement system 
  • Operated by the Japanese Bankers Association. 
  • Has 1,229 participants. 
  • Processes low-value and non-urgent bulk electronic credit and debit transfers. 
  • Final settlement is across participants' accounts at the BOJ through BOJ-NET. 
  • Access to Answer Network System for Electrical Requests (ANSER) enables transfers between JPY-denominated accounts in real time. 


(Foreign Exchange Yen Clearing System) 

Foreign exchange RTGS system 
  • Owned and operated by the Bankers Association. 
  • 27 direct participants and 174 indirect participants. 
  • There is a network of 315 clearinghouses. 
  • Processes JPY-denominated cross-border transactions, including trade settlement payments. Processes transactions for non-resident entities and JPY-denominated bond transactions. 
  • Final settlement done through RTGS system. 


(Bill and Cheques Clearing System)

Cheque and paper-based clearing system 
  • Operated by the local bankers association. 
  • There is a network of 323 clearinghouses. 
  • Tokyo Clearing House processes 70% by value and 33% by volume of all paper-based instruments. 
  • Final settlement done across participants' accounts held at the BOJ through BOJ-NET. Funds are not available to recipients until the next business day after interbank settlement. 
  • Tokyo Clearing House has 106 direct and 199 indirect participants.


(Credit and Finance Information Scheme) 

Centralised card payment system 
  • Owned and operated by NTT Data. 
  • Efficient system for business to business (B2B), interbank and business to consumer (B2C) transactions. 
  • Supports debit and credit card and e-money services as well as other payments. 
  • Connects to wide network of credit card companies, overseas and national financial institutions, and payment-receiving organisations. 
  • Payments are cleared through the Zengin system or other clearinghouses after two business days and funds are received after three days.


Payment Instruments 

Credit Transfers 

  • By value, the largest form of cashless payment in Japan.  
  • High-value and urgent credit transfers cleared and settled through BOJ-NET in real time. 
  • High-value and urgent cross-border credit transfers or those for non-residents are processed through FXYCS within the same day (before 21.00) and final settlement is done through BOJ-NET. 
  • Low-value, non-urgent and bulk credit transfers (such as payroll, supplier and third-party payments) are settled through the Zengin system the same day, and those for non-residents are settled through FXYCS the same day, with final settlement done through BOJ-NET. 

 Direct Debits (auto debits) 

  • Used for low-value, regular payments such as utility bills. 
  • There is no formal direct debit system, with processing shared among the banks and done semi-manually, resulting in lengthy periods for payments to be finalised.    

Card Payments 

  • Bank cards (credit or debit) are still the leading payment method, with card usage doubling in the last ten years. On average, every person in Japan owns 2.5 cards. 
  • The main cards in circulation are JCB, MasterCard, Visa, American Express, Diners Club, UFJ Card, UC and Nicos, and all are Europay, MasterCard and Visa (EMV)-compliant. 
  • Debit cards are the most commonly used payment card, but only account for a small proportion of the total value of card transactions.  
  • Credit card and debit transactions are settled through CAFIS, and credit cards are cleared through individual card-issuing schemes and debit cards through the Zengin system. 
  • As of March 2020, there were 292.96 million credit cards in circulation that were used for almost a third of cash-less transactions. 

Online Payments 

  • The government has set a target to double digital payments from 20% to 40% of total transactions over ten years as part of its “Society 5.0” future investment strategy. It is also phasing in a change in the law to make it easier for depositors to give third parties access to their accounts and data in an effort to promote digital payments. 
  • A total of 65% of online payments are made by credit and debit cards. 
  • The use of digital wallets has expanded rapidly in recent years, mainly for low-value payments. E-commerce has experienced a steady uptake with 71% penetration for consumer transactions, and this figure is estimated to grow to 74% by 2022. However, security concerns still put off many consumers from using digital wallets. The most common local digital wallets and prepaid top-up cards are Line Pay, Suica, Nanaco and Edy, although Apple Pay and Android Pay also have a presence.  
  • Japan’s e-commerce market is worth JPY19.4 trillion, a quarter of which is mobile commerce. 
  • JPQR, a unified QR-code standard compatible with eleven existing QR code systems, was launched in July 2020, with payment facilities planned for 100,000 stores nationwide. 

Digital Currencies 

  • The licensing system for cryptocurrencies requires all exchanges to be registered with the FSA, as per regulation.  
  • Cryptocurrencies are legally accepted as a mode of payment. Japan is currently a market leader in digital-asset exchanges

Cash, Cheques and Notes 

  • Japan’s fast-tracked shift to cashless payments was done in preparation for the Tokyo 2020 Olympics Games. METI aims to double Japanese consumers’ cashless payments usage rate to 40% by 2025. 
  • Even so, cash is still widely used and is the most common form of payment for individual consumers. The amount of cash currently in circulation accounts for about 20% of Japan’s GDP and is the highest percentage in the world, according to the Bank of International Settlements. 
  • Cash remains the dominant payment method of choice for 70% of Japanese consumers for in-store purchases. 
  • Cheques are used mostly for commercial payments, but their usage is in decline due to the increasing use of electronic payments. There are severe penalties if a payer cannot honour cheques. 
  • Promissory notes, or P-Notes, are a common form of payment for B2B. The discount note market is a key source of working capital finance for Japanese companies. Notes are processed through BCCS

For more information, login to Treasury Prism for contextual insights on market regulations that are relevant to your cash management structure.

Sources (Intro & Corporate Treasury):
IMF, World Economic Forum, PwC, US Department of Commerce, Bank of Japan, Financial Services Agency, Bank for International Settlements, Asian Development Bank, World Bank, Trading Economies, CEIC, OECD, DBS, World Intellectual Property Organisation, Yano Research Institute 

Sources (Banking & Payments):
Bank of Japan, Bank for International Settlements, CEIC, The Paypers, McKinsey & Company, Zengin-Net, Japan Consumer Credit Association, The Mainichi, J.P. Morgan, Telpo 

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