Global economic volatility is hampering Japan’s efforts to address structural weaknesses, resulting in a dual assault on Tokyo’s attempts to boost economic growth. Yet despite these trends, it is not all doom-and-gloom, as there are several economic bright spots for Japan.

Specifically, while the national economy on the whole has stalled, certain sectors such as the travel and renewable energy sectors are experiencing healthy growth rates.

Japan’s financial and macroeconomic risks

While many countries around the world are reacting to the stock market chaos, Japan is feeling this volatility especially hard. The roller coaster ride that has been the trajectory of American and Chinese stock markets has hit Japan hard, as it is heavily exposed to both markets. Combine uncertainty about the U.S Fed’s plan, with slowing Chinese growth, and Japan’s own domestic issues, and it is unsurprising that the Nikkei 225 is down 30% from its earlier summer highs.

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autious investors are moving money out of the stock market and into bond markets, with demand for Japanese government bonds increasing significantly. Japan’s safe haven reputation has seen yields on Japan’s benchmark 10 year government bonds fall below zero for the first time ever, hitting a low of 0.007%.

To add fuel to Japan’s economic uncertainty, the Bank of Japan (BOJ) surprised markets by implementing negative interest rates (-0.1%) for the first time in its history on January 29^th. This move has left businesses cautious, as markets hedge that the BOJ will cut rates to negative 0.3% by the end of the year.

The BOJ’s actions do not exist in isolation, and have fueled market instability, as investors are getting mixed signals: Japan and European central banks are adopting negative rates, while the U.S is raising rates.

This has some fearing a potential interest rate war between the globe’s central banks. Brian Kelly, hedge fund manager at BKCM LLC. highlights investor fears, noting that “central banks are re-writing the Econ textbook. The problem is [that] it is unclear how this story ends, but history would suggest this is not a sustainable trend.”

The new negative interest rates has led Citigroup to downgrade the shares of Mitsubishi UFJ, Sumitomo Mitsui Financial, and Mizuho – Japan’s largest mega banks – citing heavy pressure on bank yields. The problem for Japan is that previous rates were already very low, yet year-on-year lending growth rates have only increased by 2.2%.

Moreover, despite lower interest rates, investors are continuing to bet on the yen’s ‘safe haven’ status, resulting in a marked appreciation of the yen against other currencies, especially the dollar. Earlier this month, the dollar fell below 111 yen, the lowest level since October 2014.

As an export economy, Japan relies on a weak yen to make its exports more competitive. Furthermore, Abenomics needs a weak yen to push up overseas corporate earnings, and help generate inflation by raising import prices. A stronger yen undermines these goals, especially the government’s fight against the bugbear that is deflation. To compensate, Tokyo is urging firms to raise salaries, thus increasing disposable income for workers, as part of the government’s goal for a 2% inflation rate.

Japan finds itself in the unenviable position of fighting a headwind, with any dividends from recent reforms being eaten up by the unstable global economic situation. BNP Paribas has noted how Japan is effectively running in place, stating that while it does not foresee a recession, it expects the Japanese economy to “remain lackluster in 2016.”

Tobias Harris, political risk analyst at consultancy Teneo astutely sums up Japan’s dilemma: “The risk is not that Japan faces imminent financial crisis, or that the Abe administration could collapse, but rather [Tokyo’s plan] simply fails, [leaving] Japan no more capable of reckoning with the implications of demographic decline than before Abe took power.”

Tourism and green-tech buck the trend

Despite concerns over the state of Japan’s economy, certain sectors are forging ahead and seeing impressive growth rates. The Japan National Tourism Organization (JNTO) announced on January 19^th that the number of foreign travelers in 2015 had jumped 47% from 2014, to 19.7 million. The majority came from Asia; specifically five million from China, four million from South Korea, and 3.7 million from Taiwan.

The JNTO has determined that the (until recently) weak yen, improved duty free shopping options, and a relaxation in visa requirements as important growth drivers.

Similarly, domestic flights have increased 13% from 2014, the sixth straight record breaking year. Narita Airport reported a 5% increase in the number of travelers to 37.3 million, making 2015 the second year in the row that the airport beat its all-time passenger record.

This number includes 12.5 million foreign visitors, a 23% jump from 2014. The airport has cited the increased number of international routes, and competitive pricing from budget airlines as key factors driving growth.

Part of this growth has been due to the turnaround success of Japan Airlines (JAL). The company’s iconic red crane logo may well as be a phoenix, as the company is posting record profits, just five years after filing for bankruptcy. The first half of 2015 saw a record net profit of $907 million, with 2015 sales forecast at $11.85 billion, and a Q3 March 2016 profit of $1.51 billion.

A large part of JAL’s success can be attributed to its dynamic president, Yoshiharu Ueki, a former pilot who has sought to re-tool the company’s culture – instituting a bottom-up management style – and focus on service quality and passenger care. Under his leadership JAL has won FlightStats’ prestigious On-time Performance Service Award – making JAL the world’s most punctual airline.

Alongside aviation, the green-tech sector has seen significant investment in the years following the Fukushima disaster, with Japan tabling plans to generate 67% of its energy from renewables by 2050.

Specifically, since the introduction of incentives in July 2012, the Japanese government has approved clean energy projects totaling 85,550MW: 28% of which are already online. In three years the country has doubled its clean energy capacity, from 1.4% to 3.2% (excluding hydro) of total power generation.

Japanese innovation in renewable energy technologies has born fruit, notably the construction of various floating solar power plants. Japan’s Kyocera has built several such installations, including its current project to create the world’s largest floating solar plant on the Yamakura Dam reservoir. Set to be completed by March 2018, the project will produce 16,170 Mwh per year, enough to power around 5,000 households.

The growth of the aviation sector (and JAL in particular) and green-tech in Japan are good omens. The former demonstrates the ability of Japanese firms in the service sector to reform themselves and respond to changing markets, a vital element if Japan is to increase consumer spending a drive growth. The latter offers a new field, with export potential, for Japan to kick start domestic innovation by calling on its traditional expertise in large scale manufacturing and high technology.