# ![](media/image1.jpeg){width="0.7395833333333334in" height="0.78125in"} Doing Business in Japan: A Country Commercial Guide for U.S. Companies

# Chapter 7: Trade and Project Financing

# INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2007. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

-   [How Do I Get Paid (Methods of
    Payment)](#how-do-i-get-paid-methods-of-payment-return-to-top)

-   [How Does the Banking System
    Operate](#how-does-the-banking-system-operate-return-to-top)

-   [General Availability of
    Financing](#general-availability-of-financing-return-to-top)

-   [Types of Available Export Financing and
    Insurance](#types-of-available-export-financing-and-insurance-return-to-top)

-   [Foreign-Exchange
    Controls](#foreign-exchange-controls-return-to-top)

-   [U.S. Banks and Local Correspondent
    Banks](#u.s.-banks-and-local-correspondent-banks-return-to-top)

-   [Project Financing](#project-financing-return-to-top)

-   [Web Resources](#web-resources-return-to-top)

## How Do I Get Paid (Methods of Payment) [**Return to top**](#ch7)

There are a number of methods used to settle payment in Japan: cash in
advance, letter of credit used in conjunction with a documentary draft
(time or sight), promissory note, documentary collection or draft, open
account and consignment sales. As with U.S. domestic transactions, a
major factor in determining the method of payment is the degree of trust
in the buyer\'s ability and willingness to pay.

Because of the protection it offers to the American exporter and the
Japanese importer, an irrevocable letter of credit (L/C) payable at
sight is commonly used for settlement of international transactions. As
large Japanese general trading companies often serve as intermediaries
to small and medium-sized companies, L/Cs are often issued in their name
rather than in the name of the end user of the product. With the trading
company taking on the risk of the transaction, the U.S. firm is
protected from the possible bankruptcy of the smaller company.

Another payment option is the use of documentary collection or open
account with international credit insurance that, unlike the letter of
credit, allows the importer\'s line of credit to remain open. At the
same time, this option protects the exporter if the buyer goes bankrupt
or cannot pay. International credit insurance can be obtained from the
Export-Import Bank of the United States or private insurers.

A payment method widely used in Japan but sometimes unfamiliar to U.S.
companies is the promissory note *(yakusoku tegata).* Promissory notes
are IOUs with a promise to pay at a later date, typically 90 to 120
days. Banks will often provide short-term financing through discounting
and rollover of notes. Factoring and other forms of receivables
financing (whether with or without recourse) are not common in Japan,
and more conservative businesspeople find such arrangements a violation
of the "relationship" between buyer and seller. It should be noted that,
domestically, it is not uncommon for the buyer to request, and be
granted an extension of the term of the *tegata* if there are cash-flow
problems.

## How Does the Banking System Operate [**Return to top**](#ch7)

While financial system deregulation and international competitive
pressure has drastically changed the face of Japanese banking (the
consolidation of 19 banks into 4 super banks), the connection between
corporate finance and banking institutions and non-financial
corporations remains much tighter in Japan than in the United States;
and extends far beyond simple lender/borrower relationships. Much
corporate banking business is rooted in either *keiretsu* or regional
relationships, and Japanese banks are frequently shareholders in
companies that conduct banking business with them, although there are
signs of changes. Japanese companies are traditionally highly leveraged
in comparison with their U.S. counterparts, as banks take an active role
in maintaining the financial health of their clients.

This unique relationship between a company and its bank has been
long-standing; until recently, a Japanese company rarely changed its
primary lender, although it would occasionally \"shop around\" for
better credit arrangements. Even when credit is loose, companies
sometimes borrow in excess of their need in order to maintain good
relations with their bank and to ensure that funds will be available in
leaner years. Banks are often large shareholders in publicly traded
corporations, have close relationships with both local governments and
national regulatory agencies, and often play a coordinating role among
their clients. The collapse of the asset price \"bubble\" and the
consequent worsening of bank balance sheets since the early 1990s, as
well as corporate borrowing outside of traditional channels, has
increasingly caused borrowers to tap international capital markets, and
placed traditional banking systems under considerable strain. However,
it remains safe to say that the Japanese commercial bank system is much
more relationship oriented than the transaction-based U.S. system.

While large corporations with suitable credit ratings (especially
export-oriented firms) can rely on corporate bond issues rather than
banks for financing, bank lending continues to be the primary financing
method for small and medium sized companies. However, after the
\"bubble\" economy of the late 1980s and early 1990s, Japanese banks
have had a harder time maintaining strong capital positions, and
consequently have become more restrictive, leading to a credit crunch.
In November 1996, the Japanese government embarked on a \"Big Bang\"
financial reform initiative and has taken a number of helpful measures
since then. While the actual long-term market impact of this
liberalization still remains to be seen, the psychological impact in
raising awareness of the potential effects of deregulation is now
apparent.

Japanese banks offer regular and time deposits and checking accounts for
businesses. Checks are negotiable instruments that are in effect payable
to the bearer (rather than to the order of the payee, as in the United
States). This limits the usefulness of checks, and in fact, most
payments are made by electronic bank transfer (which costs a few hundred
yen on average), or by sending cash through the postal system. The banks
(and now investment/securities firms) continue to wage an uphill battle
against the postal savings system for consumer deposits, a fight that
has become more difficult recently due to the perceived superior safety
of the postal deposit system. The postal system enjoys regulatory
permission to pay higher rates than commercial banks (and is in turn an
important source of working capital for the government).

Personal checking accounts are almost unknown in Japan. Most individuals
use electronic bank transfers to settle accounts. Cash settlement is
also very common and the Post Office has a mechanism for payment by
\"cash envelope\" which is widely used in direct marketing and other
applications. Many Japanese banks now operate 24-hour cash machines (as
do some credit card companies). Bank and other credit cards are easy to
obtain and are widely accepted. The consumer credit card market reached
nearly 15 trillion yen in 2004, equivalent to 5.3 percent of personal
consumption. Some bank credit cards offer revolving credit, but in most
cases balances are paid in full monthly via automatic debiting from bank
accounts.

The relationship among trading company, end user and exporter is an
important feature of the financing environment in Japan. The Japanese
general trading company *(sogo shosha)* is an integrated, comprehensive
organization that embraces a range of functions including marketing and
distribution, financing and shipping and the gathering of commercial
information. It performs functions that in the United States would be
carried out by import/export companies, freight forwarders, banks, law
firms, accounting firms and business consultants. Thus, U.S. firms
dealing with trading companies should familiarize themselves with the
financing capabilities of such firms.

## General Availability of Financing [**Return to top**](#ch7)

While some large U.S. companies in Japan enjoy strong relationships with
the larger Japanese \"city banks,\" most medium and small-sized U.S.
firms have stated that it is difficult to secure the specific type of
trade financing services needed for importing and distribution. In
Japan, credit evaluation is heavily asset-based, and real estate is
still favored as collateral despite the collapse of \"bubble\" era
valuations. Moreover, a firm\'s ability to borrow may also be based on
its personal relationships and rapport with bank officials rather than
on typical U.S. standards of credit-worthiness. Some smaller firms
report that they have been forced to secure needed financing from
offshore sources. For U.S. companies with operations in Japan, teaming
up with Japanese partners in a joint venture has been effective as a way
to receive better treatment from Japanese banks.

While most American banks operating in Japan do engage in lending to
subsidiaries of U.S. companies (especially their home market clients),
many of them focus on higher value-added lines of business than
conventional credit products.

When a Japanese bank extends credit to a foreign-owned company in Japan,
it generally evaluates the financial status of both the borrower and its
parent company. Even in cases where the Japanese subsidiary is
financially strong, the parent company is often requested to guarantee
the obligation (although a "Letter of Awareness" may be accepted in lieu
of a guarantee).

## Types of Available Export Financing and Insurance [**Return to top**](#ch7)

The Government of Japan\'s programs to promote imports and foreign
investment in Japan include tax incentives, loan guarantees, low-cost
loans to Japanese and foreign investors for import infrastructure
through the Development Bank of Japan and other loan programs.
Underscoring the Government\'s emphasis on import promotion, both the
Ministry of Economy, Trade and Industry (METI) and the Japan External
Trade Organization (JETRO) have established import divisions.

Four major public financing corporations, the Japan Bank for
International Cooperation, the Development Bank of Japan, the Japan
Finance Corporation for Small Business and the National Life Finance
Corporation, now make low-interest loans to encourage imports to and
investment in Japan. In addition, the services of the Japan Regional
Development Corporation, a government-affiliated institution that
develops business parks and provides long-term loans at low interest
rates, are available to foreign companies.

The Japan Bank for International Cooperation\'s import credit program
for manufactured goods aims to provide support for the import of
manufactured goods from developed countries to Japan. Five-year secured
or guaranteed loans up to 70 percent loan-to-value and credit lines at
preferential interest rates are available to importers, distributors and
retailers incorporated in Japan who plan to increase their imports of
manufactured goods excluding food products 10 percent or more over the
previous year. Direct 70 percent loan-to-value long-term loans are also
available to foreign exporters for the purchase of manufactured goods to
be exported to Japan under deferred-payment terms, as well as to foreign
manufacturers and intermediary financial institutions for investment in
production facilities and equipment to be used to produce goods for the
Japanese market.

The Development Bank of Japan (DBJ) offers loans designed to increase
imports into Japan. These loans are available to Japanese companies with
at least 33 percent foreign capital or registered branches in Japan of
non-Japanese companies for 40 to 50 percent of project costs for the
expansion of business operations in Japan.

The Japan Finance Corporation for Small Business and National Life
Finance Corporation has expanded their program to facilitate import
sales. The program aims to provide support to small-scale retailers,
wholesalers and importers in Japan for investments to increase imports
to Japan.

A program between U.S. Eximbank and the Export-Import Insurance Division
of METI (EID/METI) provides for co-financing insurance for U.S. exports
to developing countries. EID/METI will also be providing advance payment
insurance for U.S. exports to Japan. For additional details on these and
other cooperative financing programs, U.S. companies should contact U.S.
Eximbank.

No insurance for U.S. exporters is available from the Japanese
Government.

## Foreign-Exchange Controls [**Return to top**](#ch7)

Foreign exchange regulations have almost no impact on normal business
transactions. One deregulatory action likely to lower foreign exchange
transaction costs is the revision of Japan\'s Foreign Exchange Law,
which went into force in April 1998, and enabled a broad variety of
institutions to conduct foreign exchange transactions. Prior to that
action, only \"authorized foreign exchange banks\" could undertake such
transactions, a system that dated back to Japan's opening to the West in
the late 19th century.

## U.S. Banks and Local Correspondent Banks [**Return to top**](#ch7)

Besides 7U.S. banks with branches in Japan, many U.S. banks have
correspondent relationships with Japanese banks, which themselves have
many branches and subsidiaries in the United States.

**Commercial Banks in Japan**

Resona Bank

2-1 Bingomachi 2-chome, Chuo-ku

Osaka 540-8610

Japan

Phone: +81/6/6271-1221

Fax: +81/6/6268-1337

[www.resona-hd.co.jp/index-e.htm](http://www.resona-hd.co.jp/index-e.htm)

Bank of Tokyo-Mitsubishi UFJ

2-7-1 Marunouchi, Chiyoda-ku,

Tokyo 100-8388

Japan

Phone: +81/3/3240-1111

Fax: +81/3/3240-4764

[www.bk.mufg.jp/english/](http://www.bk.mufg.jp/english/)

Development Bank of Japan

1-9-1 Ohtemachi, Chiyoda-ku

Tokyo 100-0004

Japan

Phone: +81/3/3244-1770

Fax: +81/3/3245-1938

[www.dbj.go.jp/english/](http://www.dbj.go.jp/english/)

Japan Bank for International Cooperation

1-4-1 Ohtemachi, Chiyoda-ku

Tokyo 100-8144

Japan

Phone: +81/3/5218-3579

Fax: +81/3/5218-3968

[www.jbic.go.jp/english/index.php](http://www.jbic.go.jp/english/index.php)

Mizuho Corporate Bank

1-3-3 Marunouchi, Chiyoda-ku

Tokyo 100-8210

Japan

Phone: +81/3/3214-1111

[www.mizuhocbk.co.jp/english/](http://www.mizuhocbk.co.jp/english/)

Sumitomo Mitsui Banking Corporation

1-1-2 Yurakucho, Chiyoda-ku

Tokyo 100-0006

Japan

Phone: +81/3/5512-3411

Fax: +81/3/5512-4429

[www.smbc.co.jp/global/index.html](http://www.smbc.co.jp/global/index.html)

On January 1, 2006, the former United Financial Bank of Japan (UFJ) was
merged with The Bank of Tokyo-Mitsubishi into a new entity known as The
Bank of Tokyo-Mitsubishi UFJ (see above).

**Multilateral Development Bank Offices in Country**

Asian Development Bank

Second floor, Yamoto Seimei Building

1-1-7 Uchisaiwai-cho, Chiyoda-ku

Tokyo 100-0011

Japan

Phone: +81/3/-3504-3160

Fax: +81/3/3504-3165

E-mail: [adbjro@adb.org](../adbjro@adb.org)

[www.adb.org/](http://www.adb.org/)

## Project Financing [**Return to top**](#ch7)

#### Availability (OPIC, Eximbank, and Multinational Institutions)

As mentioned above under [General Availability of
Financing](#general-availability-of-financing-return-to-top), OPIC
insurance and finance programs are not available in Japan. Japan has
been a member of the Multilateral Investment Guarantee Agency (MIGA)
since it was established in 1988.

In addition to the investment loan programs from Japanese
Government-affiliated lenders described above, prefectures and
municipalities offer various incentives, including construction, land
acquisition and labor hiring subsidies, special depreciation of business
assets, tax deferments for replacement of specific assets, exemption
from special land-owning taxes assessed by municipalities and
prefectural and municipal real estate acquisition, enterprise and
municipal property tax reductions. In addition, most prefectures offer
loan programs to encourage companies to establish local operations.

Japan\'s venture capital specialist funds are only half the size of
those in the United States. Traditionally the top Japanese venture
capital companies have acted more like quasi-banks than venture capital
firms. Also, Financial Services Agency guidance to brokers to set tough
standards for companies seeking to go public results in even the best
companies taking up to a decade to get a listing on the over-the-counter
stock market --- less than 1000 over-the-counter stocks are listed on
the nine-year-old JASDAQ, Japan\'s electronic OTC market.

**Types of Projects Receiving Financing Support**

In line with the Cabinet Decision in March 1995, the Export-Import Bank
of Japan (JEXIM) and the Overseas Economic Cooperation Fund (OECF)
merged on October 1, 1999, creating a new institution, the Japan Bank
for International Cooperation (JBIC).

JBIC is a governmental institution that deals with external economic
policy issues such as encouraging exports, securing access to energy
resources, promoting direct overseas investments and improving Japan\'s
external imbalances through financial assistance to the trade and
investment activities of Japanese companies.

The financial facilities offered by JBIC include export loans, import
loans, overseas investment loans and untied loans. JBIC also provides
loan guarantees to private financial institutions, short-term loans
designed to finance the external transactions of the governments of
developing nations (bridge loans), and equity participation in the
overseas projects of Japanese companies.

JBIC\'s international financial operations focus on projects in
developing countries where local financial institutions cannot provide
financing on their own. As JBIC\'s mandate is the support of
internationalization for Japanese companies, its loans can be
distinguished from Overseas Economic Cooperation operations, which
targets the economic development of developing countries.

#### Overseas Investment Loans and Overseas Project Loans

These loans are typically granted via JBIC and extended to Japanese
corporations for overseas investment activities and overseas projects.
Overseas investment loans can also be made to overseas joint ventures
involving Japanese capital and to foreign governments for capital
investments or loans to joint ventures involving Japanese capital.

**Un-Tied Loans**

Extended to foreign governments, foreign governmental institutions,
foreign financial institutions (including multilateral development
banks), foreign corporations, and so forth for high-priority projects
and economic restructuring programs in developing countries. These loans
are not tied to the procurement of goods and services from Japan but are
restricted to the specific purposes designated for each loan. These
loans are managed by JBIC.

## Web Resources [**Return to top**](#ch7)

Export-Import Bank of the United States:
[www.exim.gov/](http://www.exim.gov/)

Country Limitation Schedule:
[www.exim.gov/tools/country/country_limits.html](http://www.exim.gov/tools/country/country_limits.html)

OPIC: [www.opic.gov/](http://www.opic.gov/)

Trade and Development Agency: [www.tda.gov/](http://www.tda.gov/)

SBA Office of International Trade:
[www.sba.gov/oit/](http://www.sba.gov/oit/)

(Small Business Administration)

USDA Commodity Credit Corporation:
[www.fsa.usda.gov/ccc/default.htm](http://www.fsa.usda.gov/ccc/default.htm)

U.S. Agency for International Development:
[www.usaid.gov/](http://www.usaid.gov/)

Asian Development Bank (ADB): [www.adb.org/](http://www.adb.org/)

ADB Japan Representative Office:
[www.adb.org/JRO/default.asp](http://www.adb.org/JRO/default.asp)

Japan Ministry of Economy, Trade and Industry (METI)
[www.meti.go.jp/english/](http://www.meti.go.jp/english/)

Japan External Trade Organization (JETRO):
[www.jetro.go.jp/](http://www.jetro.go.jp/)

[Return to table of
contents](#doing-business-in-japan-a-country-commercial-guide-for-u.s.-companies)

U.S. exporters seeking general export information/assistance or
country-specific commercial information should consult with their
nearest **Export Assistance Center** or the **U.S. Department of
Commerce\'s Trade Information Center** at **(800) USA-TRADE**, or go to
the following website: [http://www.export.gov]().

To the best of our knowledge, the information contained in this report
is accurate as of the date published. However, **The Department of
Commerce** does not take responsibility for actions readers may take
based on the information contained herein. Readers should always conduct
their own due diligence before entering into business ventures or other
commercial arrangements. **The Department of Commerce** can assist
companies in these endeavors.