TRANSPORTATION & INFRASTRUCTURE OPPORTUNITIES IN JAPAN

TRANSPORTATION & INFRASTRUCTURE OPPORTUNITIES IN JAPAN DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN BUSINESS SWEDEN, JANUARY 2018 DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN BUSINESS SWEDEN 1

TRANSPORTATION AND INFRASTRUCTURE OPPORTUNITIES IN JAPAN Japan has an extensive and modern transportation system and infrastructure. High-speed trains are operated between all major cities with a maximum speed of 320km/h, and 97 airports are located in Japan. Transportation and infrastructure in Japan have changed dramatically especially leading up to the 2020 Tokyo Olympics as Japan aims to showcase new technologies and upgraded cities. This report explains the changes to transportation and infrastructure in Japan as well as the business opportunities available as a result. FOCUS ON MORE ENERGY EFFICIENT VIHICLES SUCH AS EV, PHV AND FCV The automotive industry is one of the biggest industries in Japan. 5.5 million people belong to the automotive industry in Japan, with approximately 800,000 working directly in production. This generates 5.4% of the total GDP in Japan. The major Japanese automotive companies are aiming to shift their business to manufacturing more next-generation vehicles. Honda launched its first fuel cell sedan in 2016. They have entered into a partnership with Softbank to include 5G technology with their next-generation vehicles. Nissan has been selling a EV called Leaf since 2010. At present Toyota is heavily focused on developing fuel-cell vehicles seeing them as a key part of the market in the near future. However, since each hydrogen station is estimated to cost 500M JPY, 100times higher than an EV charger, the automotive industry is gradually shifting to invest in electric vehicles. Toyota, Mazda and Denso established a joint venture in 2017 to standardize EV basic technology. For these new generation of vehicles, each car is subsidized by over 2M JPY by the Japanese government in order to increase the penetration ratio of these vehicles. Figure 1 - Next-generation vehicles penetration target in Japan 2 BUSINESS SWEDEN DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN

Source: EV, PHV Road Map, Ministry of Economy, Trade and Industry Key-takeaway: There are many business opportunties to develop next generation s vehicles in Japan. VISION ZERO INITIATIVE ENABLE FURTHER TRAFFIC SAFETY COOPERATION WITH JAPANESE STAKEHOLDERS The Vision Zero approach to road safety has proven highly effective. Still, more work can be done in Korea, Japan and Sweden, to further reduce trafic-related fatalities. The Japanese government is promoting an increase of ICTapplication and telematics in cars. Automated braking, spatial indicators and the opportunity to use other cars` information to prevent accidents are prioritized. Widespread introduction of automated braking systems in trucks and bikes is one focus area by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). Moreover, due to increasing traffic accidents by elderly drivers, MLIT is considering stricter driver license renewals for over 75s. Traffic Safety Administration, and Japanese vehicle companies are aiming to launch a level 4 vehicle by 2025. To accomplish the targeted business plan, one of the major IT companies, DeNA will conduct test drives with volunteer passengers from 2018 together with Nissan in the Tokyo Bay Area and Yokohama City. Toyota is considering even more ambitious plan launching the level 4 technology by 2023. However, implementing the technology for commercial vehicles will depend on amendments to the law and infrastructure development. Figure 3: Autonomous Driving Roadmap Key-takeaway: Business Sweden is pursuing cooperation in this area with foreignstakeholders Figure 2 : Road Fatalities per Million Inhabitants Number of road fatalities Source: National Highway Traffic Safety Administration, Nikkei Key-takeaway : Not only automotive companies but simplified physical vehicle components will facilitate global tech companies to enter automonous driving. AIMING FOR A DIVERSIFICATION OF THE TRANSPORT SYSTEM Year Source: OECD, Ministriy of Land, Infrastructure, Transport and Tourism JAPANESE AUTOMOTIVE AND IT COMPANIES ARE COMPETING TO DEVELOP AUTONOMOUS DRIVING TECH Japan has adopted an automated vehicle classification from the US-National Highway Based on MLIT s mid term trasnportation improvement plan, the MLIT is aiming to diversify the transportation system. In Japan 1,747 municipalities exist and are seeking better transportation systems especially in rural areas aging population in Japan. By the smaller number of passengers for daily bus operation. Any new transportation system must be mutually beneficial in terms of low cost and door to door service. Due to the increasing elderly population in Japan, non-step busses and low-floor electric tramways will be more widely used. DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN BUSINESS SWEDEN 3

Figure 4: Diversification Plan of Japan Transport System Source: Ministriy of Land, Infrastructure, Transport and Tourism Ride-sharing systems as well as unlicensed taxis are highly debated within the Japanese government as efficient transportation methods to reduce costs. However, the Japanese government has postponed de-regulation of the taxi industry due to safety concerns. Meanwhile, the taxi industry in Japan is lobbying against IT companies entering the taxi market to protect their business. Key-takeaway: Japan s transportation did not change for a long time. However, distribution of population change in Japan stimulates creative transportation solution. invest heavily in the railway infrastructure. Japan s government signed a shinkansen deal with a value of approximately 1.7 trillion JPY with India in December 2015. Japan has ambitions to sell further its high-speed rail technology overseas to Indoneasia, Malaysia/Singapore and Thailand. In 2014, construction work began on a 286km maglev shinkansen between Tokyo and Nagoya. By 2045, maglev trains are expected to operate the 410km between Osaka and Tokyo in 1h 7min at a top speed 500 km/h, cutting the journey time in half. Contruction costs are estimated at nearly 9 trillion JPY for the Tokyo-Nagoya line, with a majority of the route expected to go through expensive mountain tunnels. Key-takeaway: By completing this maglev train between major commercial cities in Japan, the traffic of business people is expected to increase 10-15%. Yamanashi, Nagano and Gifu, where intermediate stations are set up, it is anticipated that the region will be revitalized due to the increase in traffic for sightseeing purposes. JAPAN IS A WORLD-LEADER IN TRAINS & RAILWAY Japan is well-known for its world-leading position within railway infrastructure. Shinkansen Japan s high speed trains celebrated its 50 th anniversary in 2014. In a plan to revive local economies, Japan s government will continue to Figure 5: Construction and Redevelopment Plans in Tokyo Source: Toyo Keizai Magaze, December 2017 4 BUSINESS SWEDEN DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN

HIGH INFRASTRUCTURE AND TRANSPORTATION INVESTMENTS LEADING UP TO 2030 Tokyo aims to be a competitive global city and large infrastructure transportation investment projects are ongoing in major suburbs of Tokyo. Deregulation of building acts allow major developers to build high capacity and taller towers. Major projects aim to be completed by the Tokyo Olympics in 2020 and large revelopment projects continue leading up to 2030. JR will construct a new station between Shinagawa and Tamachi station. This will be the first new JR station in Tokyo in 50 years. The 147,000 square meter area was used for train cargo space previously. The entire project including the maglev shinkansen station will be completed in 2027 and will function as Japan s gateway to Haneda airport and major cities in Japan. Key-takeaway: Building material suppliers will have business opportunities in especially major commercial areas. OLYMPICS IN 2020 AND LABOR SHORTAGE STIMULATE MARKET GROWTH IN SECURITY SEGMENT In surveillance cameras, while analog cameras are decreasing, IP cameras are steadily growing. This trend is expected to continue until 2020. For entrance / exit management applications, highfunction products with excellent authentication accuracy are only for use in areas requiring confidentiality, However, adoption of relatively inexpensive products is increasing mainly in office buildings and government agencies. Figure 6: Potential growth areas in security hotels and commercial facilities for the purpose of entrance and exit control. face authentication will be also expected to be used widely for the newly started Japanese social security number, My Number, among municipalities. Municipalities are required to introduce twofactor authentication from the Ministry of Internal Affairs and Communications to strengthen information security. In recent years, technologies such as autonomous robot, sensor, image analysis and the like are developing dramatically. Due to the shortage of personnel in the security industry, new products and new services of security robots are being adopted in order to improve the efficiency of security. Key-takeaway: The Japanese government focuses on inproving infrastructure related security to prepare Tokyo Olympics 2020. There is instant demand within this area in Japan. ONGOING AIRPORT TERMINAL EXPANSION AND NEW TERMINAL PLANS IN JAPAN The government has set the new target of foreign visitors which is 30 million in 2020 and 40million in 2030. Japan is seeking to become a major travel destination for further economic growth. Major hub airports and regional airports have already launched new international flights, especially short haul flights such as to South Korea and Taiwan. Japan is liberalizing aiports and air travel to boost tourism. Since Japan has been gradually privatizing 27 state owned airports from 2016, privatized airports will aim to make profit by terminal expansion, flight launches, shops and technology/security implementation. Figure 7 : Airport terminal expantion plan in Japan Source: Fuji Keizai, Security Market in 2017 In the future, along with the hosting of the Tokyo Olympic Games, face authentication and other authentication methods will be used at airports, DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN BUSINESS SWEDEN 5

Source : Ministriy of Land, Infrastructure, Transport and Tourism Key-takeaway: The aviation industry used to be centralized in Tokyo area(haneda and Narita airport). However, the Japanese government is leading the traffic of tourists to more other regions by privatization of airports in order to vitalize the economy in rural regions. JAPAN ENDORCES HANEDA, NARITA AIRPORTS TO BE A COMPETITIVE ASIAN HUB The Japanese government has, as of 2016, signed the open skies treaty with 27 countries / regions(sweden agreed with Japan in 2012). The ratio of passengers who fly to such destinatiions (open skies countries / regions ) is 94%This makes it easier for aviation companies to freely launch new flights in high traffic airports without authority s intervention. (e.g. Narita and Kansai airport excluding Haneda ) Figure 8: Haneda & Narita Airport capacity forecast Thousand slot / Year 1200 1000 800 600 400 200 220 250 303 390 410 Haneda 270 270 300 340 447 447 486 Narita 460 616 Tokyo Metropolitan area airport slots have increased over the last 5 years. Local municipalities agreed in 2015 for aircrafts to fly over central Tokyo by 2020, and this allows an increase of 39,000 slots/year in Haneda. Haneda and Narita are considering to construct an additional runway after 2020. Haneda will shift gradually towards being a full service carriers hub to major international destinations while Narita will be specialized as a low cost carriers hub to Asian destinations as well as full service carriers to leasure destinations. Key-takeaway: For haneda airport capacity expantion in 2020, it is expected high completition among major full service carriers. However, aviation companies need to prove high passenger load factor in Narita airport. STRONG HOTEL DEMAND CONTINUES UNTIL 2030 The number of visitors from overseas is increasing with approximately 20 percent annually due to the relaxation of visa requirement for South Aisian and Russian tourists. As a result of increasing tourists from overseas, the hotel industry is actively investing to build new properties by the Tokyo 2020 Olympics. Hotels in major cities recorded high occupancy in 2015 (Osaka: 85.2%, Kyoto 71.4% and Tokyo: 82.3%),and is estimated an accommodation shortage of 41,000 rooms by 2020 and an additonal 569 billion JPY hotel investment will be needed to meet the demand. The Japanese government eased the construction standard law in central Tokyo and Osaka to encourage the hotel industry to increase capacity profitability. The government also passed a legislative bill to enable private properties to be rented out up to 180 nights a year. The law will be put into force in 2018 June and it is expected that other industries will also enter into the home-sharing business. 0 Year Source: Ministriy of Land, Infrastructure, Transport and Tourism 6 BUSINESS SWEDEN DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN

Figure 9: Number of tourists to Japan Million manufacturers have hesitated to invest heavily into the manufacturing of busses due to the unpredictable demand forecast after the 2020 Tokyo Olympics. Figure 10: Sales of large sized bus in Japan Source: Japan National Tourism Organization, Mizuho Research Institute LAW AMENDMENT AND TOURISM INCREASE ARE PUSHING UP SIGHTSEEING BUS SALES In 2014 a law was amended to regulate bus fares in Japan with the aim of making the business more sustainable. Bus operation companies had sold at excessive price competiton. The law requires to keep the revenue of each bus at higher than 270,000JPY in order to secure safety. As a result of law amendment, bus operators are willing to invest to upgrade safety focused bus. Tourism industry s positive trend also effects sightseeing bus sales. Compared to 2015, total number of busses sold increased 24% in 2016. Japanese bus Source: Japan Automobile Manufactures Associations, monthly report Key-takeaway: International competitors have already found instant demand until 2020 and actively doing sales activities. DISCOVER TRANSPORTATION & INFRASTRUCTURE MARKET IN JAPAN BUSINESS SWEDEN 7

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