Japan has always been an outlier when it comes to inward FDI. Its accumulated stock of inward FDI has been stuck for several years at around 4% of GDP, the lowest among the OECD countries.

Recognising FDI’s potential contribution to the Abenomics programme to revitalise Japan’s economy, in 2013 Prime Minister Shinzo Abe announced, “We have set an ambitious target of doubling the level of direct investment into Japan by foreign companies.”

Advertisement

However, Japan is not a closed market for inward FDI, based on the OECD’s FDI Regulatory Restrictiveness Index, where its score is a little better than the average for OECD countries.  “But FDI can be influenced by a wide variety of other policies,” says Sadakazu Osaki, head of research at the Nomura Research Institute.

Power of five

In this regard, in March 2015 the Council for Promotion of Foreign Direct Investment in Japan approved ‘Five Promises for Attracting Foreign Businesses to Japan’. These include promoting multilingual services at retailers, offering free wi-fi in certain places to foreign visitors, receiving business jets in local airports, loosening the criteria for accrediting international schools to facilitate education for foreign children, and assigning state ministers as advisors for foreign companies which have made important investments in Japan.

Despite efforts at policy reform, there has been little movement in FDI flows in recent years, with inflow of $2.1bn in 2014, followed by an outflow (divestment) of $2.3bn in 2015, based on OECD data. Mr Osaki cautions however that the official statistics may not capture all FDI because of the complex nature of the financing of some deals. 

Moreover, a number of reported important transactions are still in the works. In December 2015,  French group VINCI Airports signed a concession contract to take over the operation of the two Kansai region airports for a period of 44 years, as part of the Japanese government’s move to privatise the operations of the nation’s major airports. 

Change is coming

Advertisement

Earlier this year, troubled electronics giant Sharp was purchased by Taiwan’s Hon Hai Precision Industry Co, the first foreign takeover of a major Japanese electronics firm. And Nissan, which is a part of a Franco-Japanese alliance with Renault, has agreed to buy a 34% stake in Mitsubishi Motors.

Despite these positive developments, experts are ambivalent about the prospects for Japan’s inward FDI performance. “The government’s recent fiscal stimulus package, and the Trans Pacific Partnership, assuming that it is ratified, could boost the Japanese economy and also inward FDI over the coming years,” says Dr Randall Jones, head of the OECD’s Japan/Korea desk. “But looking further ahead, the economy will face headwinds from its ageing and declining population, and heavy public debt burden.”

Following his chairmanship of the government’s expert group on FDI, Waseda University’s Professor Shujiro Urata is chairing a new government working group to identify further barriers to FDI into the Japanese market. “It will be critical for the Japanese government to implement with greater urgency the structural reforms envisaged under the Abenomics programme in order to boost the economy and prospects for inward FDI,” he says.

Find out more about