Financial sustainability of water utilities is essential to guarantee the provision of high quality services. The aims of this paper are to review the current state of water management in Japan and to identify the main difficulties which confront Japanese water utilities. As the facilities built when the country expanded water utilities rapidly are drawing near the renewal period concurrently, water operators must quickly accelerate facility renewal work. The statistical data from the Japan Water Works Association illustrate that one of the most significant challenges facing Japanese water utilities is to finance investments to renew facilities and to prepare them for earthquakes. Difficulties in reviewing the water rates and the decreasing water consumption per capita considerably affects cost recovery and, therefore, financial sustainability of water utilities. The Japanese vulnerability of technical base impacts mainly on small scale water utilities and it is linked to an insufficient number of qualified staff and limitations in emergency situations. With the water distribution rate already reaching about 100%, there are no factors that could lead to business expansion or revenue increase in the future.

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