Japan needs to further deregulate its markets to attract overseas investment and boost economic activity, said David Warren, who stepped down earlier this month as Britain's ambassador to Tokyo.

Japan can seem a "complex and heavily regulated" environment for foreign companies, Warren said, voicing hope that the European Union and Japan will soon agree to start formal negotiations on a free-trade agreement to remove remaining barriers.

"Recent governments have tried to attack (the regulations), but there is a lot more to do to tackle the unnecessary and disproportionate regulations which hold back economic activity," said Warren, who will retire from the Foreign Office in January.