Japan: Investing

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

FDI flows to Japan remain low compared to most other developed nations across the world and are relatively unstable. According to UNCTAD's 2022 World Investment Report, FDI declined by 30% to USD 10.70 billion in 2020, reflecting a 25% decline in FDI from MNEs in the United States. It reached 24.65 billion in 2021. Japan's FDI stock was estimated at about USD 232.31 billion in 2021 and 256.93 billion in 2021. The country is also one of the main investors worldwide, with an estimated stock of outward investments of USD 1,983.85 billion in 2021. 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. In the first half of 2022 FDI inflows were already reaching 14.78 billion USD (OECD FDI In Figures, October 2022).

The country is ranked 4th on the AT Kearney Foreign Direct Investment Confidence Index 2022 on the most attractive economy for foreign investment. 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. Japan'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.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Japan and Asia-Pacific in 2022 and 2023.

What to consider if you invest in Japan

Protection of Foreign Investment

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.

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.

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-trade 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.

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

Privatisation of the operations of New Chitose, Wakkanai, Kushiro, Hakodate, Asahikawa, Obihiro and Memanbetsu airports started in January 2020 and was finalised in March 2021. There are plans to privatise Niigata airport.

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

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

Finding Assistance For Further Information

Investment Aid Agency

Japan External Trade Organisation, JETRO
Invest Japan Business Support Centres (IBSC)
Kansai Bureau of Economy,Trade and Industry
Japan Investment Council

Other Useful Resources

Venture Japan

Doing Business Guides

Japan Doing Business Guide - Export to Japan
Doing business in Japan - UHY
Deloitte Tax Guide to Japan

Any Comment About This Content? Report It to Us.