Any competitive gains Japan is likely to make in the next five to 10 years will only occur in the information technology and high-tech chemical products sectors, the quasi-governmental Development Bank of Japan said Tuesday.
Japan has 17 major industrial sectors, but its gains will be limited to these two areas because of the global trend of relocating production to China, which will soon become "a factory that supplies the world," the DBJ said in a report.
Many Japanese businesses are moving production overseas to bypass the impact of a stronger yen and to circumvent high labor costs at home, the DBJ said.
Japan already possesses a competitive edge over other countries in such IT products as mobile phones, video game consoles and digital cameras, the bank said, and this will likely help Japan boost its technological edge in fields associated with household electrical appliances with Internet or networking capabilities.
The bank also said companies have a large majority of the global market for plastic-based, fiber-optic cables.
But the automobile and auto parts industries are gradually losing their international competitiveness, it warned.
This loss may explain the reason why automakers and auto parts makers are scrambling to move production overseas or tie up with foreign automakers, a DBJ official said.
Japanese firms tend to reinvest profits from overseas to expand facilities in foreign countries, rather than remit the money to Japan, the bank said.
"Unless the economy can find something that domestically can take the place of production facilities moved abroad, it will shrink and then remain in a status quo after the shrinkage," it said.
The DBJ urged the government and business communities to accelerate deregulation and build more industrial infrastructure for telecommunications networks.