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In this page: FDI in Figures | What to consider if you invest in Japan | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information

 

FDI in Figures

FDI flows to Japan remain low compared to most other developed nations across the world and are relatively unstable. According to UNCTAD's 2021 World Investment Report, FDI declined by 30% to USD 10 billion in 2020, reflecting a 25% decline in FDI from MNEs in the United States. Japan's FDI stock was estimated at about USD 243 billion in the same year. The country is also one of the main investors worldwide, with an estimated stock of outward investments of USD 1,982 billion. In 2020, investment by Japanese multinationals fell 49% to USD 116 billion from a record USD 227 billion in 2019, partly due to the economic crisis triggered by the Covid-19 pandemic. The United States, Singapore, France, the Netherlands, and the United Kingdom were the main investing countries and represented nearly two-thirds of the FDI inflows. Investments are mainly oriented towards finance and insurance, transportation equipment production, electric machinery, communication, and chemicals and pharmaceuticals. According to the latest figures from OECD, in the first semester of 2021 FDI inflows to Japan totaled USD 16.8 billion, up by 215% year-on-year. In the same period, Japan recorded increases in FDI equity outflows of more than USD 15 billion, partly influenced by some large M&A transactions, such as the acquisition of the entire share capital of Nipsea Pte Ltd, a Singapore-based manufacturer of coatings, by Nippon Paint Holdings Co Ltd.

Japan ranked 29th out of 190 countries in the World Bank's latest Doing Business report, an increase from the previous edition when it ranked 39th. The country has a solid net foreign creditor position and external indicators are generally robust.  Japan is actively opening its doors to foreign business, as it's aiming to create the best possible environment for overseas investors. The country's key strengths are its position as a leader in advanced technology and R&D, the fact that it is the third-largest economy in the world, a big internal market with high purchasing power and a highly skilled workforce. The potential barriers to investment are essentially demographic, linguistic and cultural; with international competition restricted by a very insular local business culture. Moreover, the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended, lowering the ownership threshold for pre-approval notification to the government for foreign investors from 10% to 1% in sectors that could pose a national security risk, and introducing a new prior notification exemption scheme for share acquisitions. Nevertheless, Japan remains a key market for investors.

 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 9,25614,55210,254
FDI Stock (million USD) 204,524223,810243,046
Number of Greenfield Investments* 253242221
Value of Greenfield Investments (million USD) 10,9838,4277,422

Source: UNCTAD, Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries 2020, in %
United States 27.0
Singapore 15.3
France 13.2
Netherlands 9.0
United Kingdom 6.2
Cayman Islands 5.2
Hong Kong 4.8
Main Invested Sectors 2020, in %
Finance and insurance 41.6
Transportation equipment 13.6
Electrical machinery 9.5
Communication 8.5
Chemicals and pharmaceuticals 7.4

Source: Japanese Trade and Investment Statistics, JETRO - Latest available data.

 
Form of Company Preferred By Foreign Investors
Kabushiki Kaisha (Public Limited Company)
Form of Establishment Preferred By Foreign Investors
company
Main Foreign Companies
The JETRO website lists investor's success stories
Sources of Statistics
Japanese Trade and Investment Statistics proposed by JETRO
Japanese Statistical Bureau
Cabinet Office

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What to consider if you invest in Japan

Strong Points
Advantages for FDI in Japan:

  • In addition to having the third largest economy in the world, Japan has very strong purchasing power and therefore strong domestic demand.
  • As a leader in high technology, research and development (with the largest number of patents in the world), Japan has had a steadily growing economy and rock solid stability for several decades.
  • Because of its geographical location, any foreign investor operating in the Japanese market has a facilitated entry to other Asian markets. 
  • The business environment is clearly favourable and reinforced by a stable political system.
  • The workforce is highly skilled and the Japanese are known as great workers dedicated to their company. 
  • The ageing of its population opens up great opportunities for products and services geared towards older age groups (health care technology, medical devices, entertainment, pharmaceuticals, etc.).
  • Japan has signed Trade agreement with the EU and Transpacific Partnership (December 2018).

Further arguments in favour of investing in Japan can be found on the website of the Japanese investment agency (JETRO).

Weak Points

 Here is a non-exhaustive list of the main obstacles to FDI in Japan:

  • Excessive regulation that hinders economic growth as it increases the cost of starting activities
  • The difficulties the country faces in restoring public finances and deflation 
  • International competition restricted by a very insular local business culture: Japanese prefer to do business (especially M & A transactions) with known partner companies. In the same way, it is preferable to establish networks and alliances with companies and national professional organizations. 
  • Cultural and linguistic challenges that can be complicated to overcome for an SME 
  • Low productivity of Japanese SMEs.
  • Still insufficient female labor participation, lack of child care
  • Ageing population at risk of jeopardizing the social security system
Government Measures to Motivate or Restrict FDI
Japan offers a number of national and local tax incentives that are available to foreign investors in Japan. These incentive schemes have been created for the benefit of both foreign investors and all Japanese companies. These incentives include the following:

  • Tax incentives for comprehensive special zones - The government offers tax benefits in the form of special depreciation rules and other deductions related to investment in equipment and plant related to special sectors.
  • Tax incentives for strengthening local business.
  • Tax incentives for wage and productivity improvement. These programmes offer tax incentives to increase employees' salaries and for investing in information technology.
  • Local tax incentives

For more information, visit the Japan External Trade Organization JETRO site.

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Protection of Foreign Investment

Bilateral Investment Conventions Signed By Japan
Japan is a signatory to 34 bilateral investment treaties. For a list of conventions signed by Japan, consult the list prepared by UNCTAD.
International Controversies Registered By UNCTAD
The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. Japan are involved in 4 cases as Home State of claimant.
Organizations Offering Their Assistance in Case of Disagreement
ICCWBO , International Court of Arbitration: International Chamber of Commerce
ICSID ,  International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency
Japan has been a member since its creation.
The MIGA website gives a detailed description of all the guarantees it proposes.
 
Country Comparison For the Protection of Investors Japan OECD United States Germany
Index of Transaction Transparency* 7.0 6.5 7.0 5.0
Index of Manager’s Responsibility** 6.0 5.3 9.0 5.0
Index of Shareholders’ Power*** 8.0 7.3 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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Procedures Relative to Foreign Investment

Freedom of Establishment
Guaranteed
Acquisition of Holdings
Possible
Obligation to Declare

The different obligatory declarations in Japan are:

  • when a company with meets these thresholds (Competition Law):
    • Joint share company: one company contribution exceeds JPY 20 billion and the other JPY 5 billion,
    • Joint corporation-type company split: companies contributions exceed JPY 10 and 3 billion,
    • Share acquisition: capital issued exceeds JPY 5 billion and acquiring company capital exceeds JPY 20 billion,
    • Merger: company capital exceed JPY 20 and 5 billion,
    • Acquisitions of business: transferring company capital exceeds JPY 3 billion and acquiring company capital JPY 20 billion,
  • when a company exceed 1 % of equity participation, regardless the amount of investment (Foreign Exchange and Foreign Trade Law).
Competent Organisation For the Declaration
Ministry of Finance
Japan Fair Trade Commission (JFTC)
Requests For Specific Authorisations
The Japanese government has imposed relatively few restrictions on inward foreign investment. However, with regard to sensitive sectors of the Japanese economy, six months' prior notification is required and the Ministry of Finance may restrict FDI if it considers that investments "undermine national security, disrupt public order, impinge on public safety or have serious effects on the smooth operation of the national economy":

  • Defence.
  • Broadcasting and telecommunications.
  • Agriculture, forestry and fisheries.
  • Petroleum, utilities and nuclear energy.
  • Aviation, aerospace and maritime transport.
  • Leather making.

Any investment in the banking, insurance, energy, electricity, security and pharmaceutical sectors is subject to license.
On 22 November 2019, the Japanese parliament adopted a bill revising the Foreign Exchange and Foreign Trade Act. The revised law requires foreign investors to request prior notification to the government before obtaining a 1% or more stake in a listed Japanese company engaged in activities related to arms, nuclear energy, semiconductors, railways and other areas, lowering the threshold from the current 10%. The amended law came into force on 7 May 2020.

Learn more about Foreign Investment in Japan on Globaltrade.net, the Directory for International Trade Service Providers.

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Office Real Estate and Land Ownership

Possible Temporary Solutions
Located in the main Japanese cities (Tokyo, Yokohama, Nagoya, Osaka, Kobe and Fukuoka), the Invest Japan Business Support Centers (IBSC) managed by JETRO, offer temporary office space (up to 50 working days) and various services and support.
The Possibility of Buying Land and Industrial and Commercial Buildings
No restrictions apply to the purchase, ownership or disposition of real estate in Japan by foreign nationals.
Risk of Expropriation
Up to now, bilateral disagreements have given rise to no expropriation. In general, expropriation by the government must comply with the standards of international law, which means that expropriation must be in the public interest. The act must be non-discriminatory, legally enforceable and subject to the payment of prompt, adequate and effective compensation.

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Investment Aid

Forms of Aid
The Japanese government’s program for promoting imports and investment takes the form of discounts and reductions of taxes, guarantees on loans, and loans at reduced rates.
It also takes the form of assistance for foreign exporters wishing to import into Japan.
Privileged Domains
Creation of jobs, national and regional development, protection of the environment, Aid for research and development, poll of competitiveness.
Privileged Geographical Zones
Since applications for special zones for structural reform began being accepted, a total of 910 zones have been established throughout Japan, each with its own distinctive character. Established at the initiative of local governments or private businesses, they are exempt from one or more national regulations. In theory, this measure offers foreign investors attractive terms for setting up; in practice, the acceptance of projects raises some difficulties. The Cabinet Office summarises this policy.

Click here for a more detailed breakdown of investment conditions region by region.
Free Zones

Japan’s free trade zones are attractive options for business setups since they offer foreign companies partial tax exemption and partial custom duties exemption. The FTZ include:

  • Okinawa SFTZ, ideal for semiconductor, circuit board and precision grid jigs production,
  • Naha FTZ, ideal for business operating in manufacturing, cargo ship building and import and export,
  • Nigata Free Port, suitable for business in the sectors of sea freight, international distribution, energy and foreign trade.
Public aid and funding organisations
The State, the Japanese development bank, the Japanese bank for international cooperation, Japanese financial corporation for SMEs make loans at advantageous rates. The regional corporation for the development of Japan develops “nurseries” for companies and obtains long term reduced rate loans valid for foreign companies too.
 
 

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Investment Opportunities

The Key Sectors of the National Economy
Medical equipment, pharmaceutical products, biotechnology, dietary supplements, electronic components, software, aviation and spare parts, engineering services, new energy production, tourism, education and training services, safety equipment, telecommunications equipment, the fashion market, real estate products.
High Potential Sectors
Business opportunities related to the Olympics and the Paralympics, smart robots, biopharmaceuticals and biosimilars, smart agriculture, VR/AR, renewable energy, tourism-related business, electricity and renewable energy, life Science, information and communication technologies. The JETRO details the attractiveness of these sectors.
Privatization Programmes
There are plans to privatise the operations of New Chitose, Wakkanai, Kushiro, Hakodate, Asahikawa, Obihiro and Memanbetsu airports. They are currently managed by the central government or local authorities.
Tenders, Projects and Public Procurement
JETRO - Japan External Trade Organisation, Tenders
Asian Development Bank, Procurement Plans in Asia
Tenders Info, Tenders in Japan
dgMarket, Tenders Worldwide

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Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

The monopolistic sectors are:

  • postal services
  • water
  • telecommunications : foreign investors are not allowed to hold more than 1/3 of the rights to vote in « Nippon Telegraph » and « Telephone Corporation » (NTT)
  • arms, explosives, atomic energy, aviation industries and aerospace

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Learn more about Investing in Japan on Globaltrade.net, the Directory for International Trade Service Providers.

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Latest Update: May 2022