Japan has emerged as Asia-Pacific’s top outward investor, accounting for 34% of all FDI investment projects from the region, according to greenfield investment monitor, fDiMarkets. Between January and October 2011, Japan had the highest number of outward investment projects overseas, totalling 637 projects. Three of the top ten outward investing companies from the region were Japanese: Mitsubishi Corporation, Toyota Motor and Sumitomo Group.
“This is mainly due to recovery of reinvestment profit, yen appreciation and more generally, the Japanese enterprises’ strategy of exploiting strong demand in emerging economies,” said Jun Arima, director general of the Japan External Trade Organisation in London. “We saw a decrease of outward FDI in 2009 and 2010 consecutively, due to shrinking re-investment profits and a deterioration of profits in subsidiaries. However, outward FDI started to increase from the fourth quarter of 2010 and January to June witnessed a 62.7% increase compared to the same period in 2010.”
The leading business activity driving investments is manufacturing, which accounts for 84% of Japan’s FDI projects, and the leading sector is the automotive sector, which accounted for 52% of projects from Japan, according to fDiMarkets. “In the manufacturing sector, we have seen increases in outward FDI to sectors like food, iron and metal, and precision machinery,” says Mr Arima.
Although emerging markets are the main target for Japanese investments, fDiMarkets data reveals Japan has a wide global footprint. In October the Japanese automotive company Subaru announced its intention to build a plant in Russia by 2015, forecasting production volumes in the facility of up to 35,000 cars per year. Japanese car manufacturer Honda is examining various land sites in Mexico to install its second factory in the country, and Japan's Mitsubishi Group announced an interest in establishing a spare parts production facility in Latvia. Nevertheless developed economies still remain on its radar, as Japan-based Sumitomo Precision Products announced its plans in October, to build a plant in North America at the end of 2013, worth $79m.
In the aftermath of the March disasters, the factors influencing Japan’s investment strategy are deliberate. “Japan is concerned about energy security since the Fukushima nuclear crisis”, said Rachel Shoemaker, head of Asia forecasting at the specialist intelligence company, Exclusive Analysis. “Also large Japanese corporates want to access consumer markets abroad, given the domestic market is small, and it is aging and shrinking.” The motivation is also geopolitical: “Japan is witnessing competition from China, so it wants to ensure it has secured some access to rare earth minerals,” says Ms Shoemaker.
Japan is keen to achieve economic recovery at a high pace, and outward FDI will figure prominently in this. “Japanese companies are suffering from “sextuple pains”, namely the high appreciation of the yen, high corporate tax, an unstable power supply, delayed market liberalisation, and tough labour regulation and climate policies. The future of Japan’s economy will depend on how determined the government is in addressing this,” said Mr Arumi.