Country spotlight: key risks for businesses operating in Japan - and how to manage them

For visitors, Japan often feels like a model of seamless infrastructure, security and meticulous order.

A single visit to Japan ignites a lifelong desire to return, while making the inefficiencies of home feel all the more jarring.

However, for those who call Japan home, resilience is a necessity. The country endures roughly 1,500 earthquakes each year, while also grappling with a rapidly aging population and shifting geopolitical tensions.

As one of the world’s largest economies and a leader in technology and manufacturing, Japan operates under constant pressure to stay resilient.

Businesses are not only refining their disaster preparedness but also confronting labour shortages and reinforcing supply chains against geopolitical uncertainty.

NATURAL DISASTER-PRONE

Japan’s geographic location makes it highly susceptible to earthquakes, tsunamis and typhoons. In response, businesses and risk managers have prioritised proactive disaster risk reduction.

Lessons from past crises, such as the 2011 Great East Japan Earthquake and subsequent Fukushima nuclear disaster, have led to significant regulatory and corporate shifts.

“We’re seeing a sharp decline in property insurance capacity from the domestic market, particularly for natural catastrophe-prone coastal areas where many of Japan’s key industrial facilities are located,” says Kei Masuyama, risk manager of the Business Risk Management Department at Mitsubishi Heavy Industries.

“Since relocating these facilities to safer areas is nearly impossible, some risk managers are investing in measures to avoid or mitigate water-related losses. At the same time, they must lobby for government support, such as tax-free funding schemes, to manage unforeseen natural disasters instead of relying solely on insurance.”

Advanced modelling and predictive analytics now play a central role in corporate risk strategies. Organisations are investing in AI-driven earthquake forecasting, real-time hazard detection systems, and improved crisis response frameworks.

The integration of digital twin technology – virtual models that simulate real-world disaster scenarios – is helping businesses stress-test their operational resilience under various conditions.

“The risks from disasters are increasing and I fear that hardware measures to date have not been effective.”

Professor Yasuhiro Suzuki of Nagoya University’s Disaster Mitigation Research Center believes the most serious challenge Japan faces is the threat of a major earthquake striking a region that has not experienced a significant tremor in over a century — where existing countermeasures may prove inadequate.

“We have less and less time available to implement disaster risk reduction measures before the next major event, while I am also concerned that our cities are becoming overcrowded,” he said. “The risks from disasters are increasing and I fear that hardware measures to date have not been effective.”

A LAND OF RETIREES

Japan’s demographic challenges are well-documented. With nearly 30% of its population aged 65 and older, the country faces a shrinking workforce, increased healthcare costs, and potential operational disruptions.

For risk managers, these factors introduce unique workforce planning and liability considerations. Even in 2023, then prime minister Fumio Kishida warned that “Japan is standing on the verge of whether we can continue to function as a society.”

A major concern is over labour shortages. Industries heavily reliant on skilled labour, such as manufacturing and construction, are grappling with an aging workforce and a decline in younger replacements.

“From a manufacturing risk manager’s perspective, maintaining a skilled workforce and preserving technical expertise are essential to ensuring product quality and timely delivery while avoiding disruptions,” says Masuyama.

“However, with an aging society and shi¦s in career preferences among younger generations, hiring competent employees is becoming increasingly difficult. As a result, many Japanese companies are turning to automation and AI to enhance productivity.”

The rise of ‘co-bots’, or collaborative robots, in manufacturing is a testament to this shift, enabling older workers to continue contributing while mitigating the risk of productivity loss.

“From a manufacturing risk manager’s perspective, maintaining a skilled workforce and preserving technical expertise are essential”

“At the same time, shrinking domestic market revenues are pushing businesses to expand abroad. Over the past two decades, the proportion of overseas revenue for listed companies has steadily grown, prompting management to place greater emphasis on risk management,” adds Masuyama.

Pension and healthcare-related risks are another focal point. Corporate risk teams are reassessing employee benefits and retirement planning models to accommodate longer life expectancy and rising medical costs.

Companies are increasingly offering phased retirement programs, retraining older employees, and implementing flexible work arrangements to retain experienced talent while balancing financial sustainability.

RELIANCE ON SUPPLY CHAINS

Japan’s economic and trade policies are deeply intertwined with global supply chains, making geopolitical tensions a significant risk factor.

The country’s reliance on semiconductor imports, energy security concerns and trade dependencies with China and the US all present exposure points for businesses.

Masuyama says that many Japanese companies are working to identify bottlenecks and diversify their customers and suppliers to mitigate geopolitical risks beyond the control of risk managers.

The election of Donald Trump as US president has increased the prospect of higher tariffs and greater trade friction, and 86% of Japanese firms see Trump’s policies as harmful to the business environment, according to a survey by Reuters Japan.

The COVID-19 pandemic and geopolitical shi¦s, including rising US-China trade tensions, have accelerated Japan’s supply chain diversification efforts. The government has incentivised firms to ‘reshore’ manufacturing and reduce reliance on single-source suppliers.

Companies are increasingly adopting a “China+1” strategy, where operations are spread across multiple countries to mitigate concentration risk.

SLACKING ON CYBERSECURITY?

Cybersecurity threats, exacerbated by global tensions, are another growing concern. There is a perception that Japan is lagging behind in its cyber resilience.

“Japan’s cyber defence has been ridiculed by the world because we haven’t done anything,” Kanehara Nobukatsu, a former assistant chief cabinet secretary, said on a television program in May.

“Many in North Korea, Russia and China are hunting for vast amounts of data in Japanese cyberspace. Who will go and catch them? No one has done so in Japan.

“Japan is the only country that has been slacking on cybersecurity for 20 years.”

With Japanese firms heavily integrated into digital supply chains, risk managers are strengthening cyber resilience by adopting zero-trust security frameworks, enhancing data encryption protocols, and investing in cyber insurance to offset potential financial losses.

Japan’s ability to adapt to these overlapping risks — natural, demographic and geopolitical — will determine its resilience in the years ahead, o¡ering critical lessons for businesses worldwide.