With a stuttering economy and energy security concerns at home, Japanese investors have been looking overseas for business opportunities, and one country that is proving particularly attractive to them is Canada. "Japan has long been one of Canada's most important investment partners. Both Canadian and Japanese investors tend to be interested in building long-term, co-operative relationships,” says Yoshi Ichida, an executive consultant for Japan Trade Invest.

And despite the country witnessing a rise in investment from China in recent years, Japan remains Canada's largest source of FDI from Asia. Japan's accumulated FDI in Canada amounted to C$17.3bn ($13.88bn) at end-2013, according to figures from the government of Canada. This investment comes from approximately 330 Japanese subsidiaries and affiliate companies operating in Canada, employing tens of thousands of local workers. The vast majority operate in the manufacturing sector, notably the automobile industry.


Wave of investment

Building on its three-decade presence in Canada, Japanese auto company Honda recently announced that it will invest $857m over three years to innovate its three award-winning manufacturing plants in Alliston, Ontario, with new technologies and processes. This initiative is a partnership between Honda and the Ontario government, which is contributing 10% of the total investment.

"This marks the first time a Honda plant outside Japan has been designated as 'global lead plant', which reflects the knowledge and experience of our Canadian associates," says Jerry Chenkin, president and CEO of Honda Canada. The new investment brings Honda's total Canadian manufacturing investments to more than $3.9bn since 1986, when it became the first Japanese auto maker to build a manufacturing facility in Canada.

Resource-poor Japan also has wide array of investments in Canada's natural resource sector. In recent times, there has been growing Japanese investment in Canada's liquefied natural gas (LNG) sector, according to Koji Asada, president and chief executive at the Bank of Tokyo-Mitsubishi UFJ Canada. Japan, the world's biggest consumer of LNG, is seeking to diversify its energy sources due to events such as the Arab Spring uprisings in the Middle East and north Africa and the Fukushima nuclear crisis.

One such deal was the acquisition in 2013 by Japex Montney (the Canadian subsidiary of Japan Petroleum Exploration) of 10% of the natural gas assets of Progress Energy Canada – which is wholly owned by Petronas of Malaysia – in north-east British Columbia. As part of the transaction, Japex has agreed to buy a 10% share of the facility's production for a minimum of 20 years.

Japanese companies are also active in Canada's retail sector, with Muji recently establishing a store in central Toronto. Muji, which sells non-brand, quality household goods, has a strong global presence, and has ambitious plans for Canada. "[We] hope to open seven to eight Canadian stores in the next five years," says Toru Tsunoda, president of Muji Canada. Industry reports also suggest that Japanese fashion giant Uniqlo will begin opening stores in Canada from 2016.

More to come?

There is still much greater potential for the Japan/Canada investment partnership, according to Yasunori Nakayama, Japan's consul general in Ontario. "I would like to encourage Japanese businesses to further expand their investments in such fields as healthcare and ICT, as Japan continues to be a leader in technological and scientific research in these areas," he says.

Mr Nakayama adds that Japan's high-speed trains and efficient urban transit systems would also be a "fertile area for consideration" for the Ontario government. He also highlights the potential of negotiations for the Trans-Pacific Partnership trade agreement, and also for a Canada/Japan economic partnership agreement to strengthen the foundations of the two countries' investment partnership.