Inbound investment to Japan continues on upward trend driven by Asian neighbors

by Cory Baird

Staff Writer

The total value of foreign direct investment (FDI) into Japan increased to ¥28.6 trillion in 2017, bringing the country a step closer to meeting Prime Minister Shinzo Abe’s goal of doubling such investment to ¥35 trillion by 2020, according to the Japan External Trade Organization.

The increase, of around ¥300 billion in 2017, was driven by strong growth from European and Asian investors, the latter of which are now playing a larger role in inbound investment.

Total FDI from Asia increased 10-fold to 2017 from 2000, driven recently by increased tourism from countries in the region to Japan, according to the data, which was released in a report Thursday.

Hiroyuki Ishige, chairman and CEO of JETRO, told a news conference the same day that the pattern of strong investment from neighboring countries is likely to persist.

“Inward investment from Asia … likely has room to grow in the future,” he said. “This is based on the historical trend that FDI is higher amongst neighboring countries and regions that share historical proximity.”

JETRO, which also provides support to foreign companies looking to enter the Japanese market, said that over half of the 193 businesses they worked with in 2017 came from the Asia region, demonstrating the growing importance of the nation’s regional neighbors in economic growth and trade.

Yet, even as FDI continues on its upward trend of recent years, inward FDI in Japan as a percentage of the overall economy still remains lowest in the developed world, at around 4 percent of GDP as of 2017, according to the Organization for Economic Cooperation and Development.

One factor underlying the low investment rate from abroad is that the country is already a developed market where local staff command a higher wage, at least compared to still developing markets.

According to a survey conducted by the Ministry of Economy Trade and Industry in 2015, almost 75 percent of firms doing business in Japan cite high business costs as the leading factor that “inhibits business expansion in Japan.” This could include the high costs of labor, land, and energy.

JETRO, a quasi-government institution tasked with promoting inward and outward investment, also outlined new efforts to support foreign startups as one potential way to keep investment growing. This includes plans to expand “global acceleration hubs” — offices or shared spaces located in 12 cities overseas that can be used to attract companies to Japan.