Japanese Market Increasingly Attracts Asian Multinational Corporations

Mr. Naoyuki Haraoka's picture

Foreign direct investment (FDI) into Japan has been increasing recently, contradicting the belief Japan is a closed market. Per the Japan External Trade Organization (JETRO), total FDI for 2016 increased more than USD $30 billion over the prior year and 2016 represented the third consecutive yearly increase. Increased FDI from Asian multinational corporations (MNCs) has been noteworthy, recording a 16.7 percent jump over 2015.

A Japan Ministry of Economy, Trade and Industry (METI) survey strikingly showed that the percentage of Asian MNCs FDI relative to Japan’s total inward FDI (IFDI) not only rose to a 27.4 percent share in 2017, but also passed the percentage of American MNCs, which held a 23.2 percent share. The rise is significant, given Asian FDI had an “only” 18 percent share in 2016. The METI survey reveals most Asian MNCs are lured by Japan’s attractive market, which has many wealthy people who are sensitive to quality of goods and services and thus serves as a good market for testing new goods and services. Interestingly, a majority of the surveyed companies mentioned that they plan to expand their business in Japan. Assuming that the high percentage of IFDI in European countries has something to do with the fact that its neighboring countries have roughly equal levels of economic development, the emergence of more advanced Asian nations implies even more FDI flowing into Japan. In addition, the currently relatively low amount of Asian FDI in Japan suggests there is much potential for more Asian firms to enter Japan. As an aside, the contemporary ratio of IFDI to GDP in Japan is around 4 percent, much lower than the one for Europe or USA. Assuming the global and regional political environment remains stable, 2020, the year of Tokyo Olympics and Paralympics, this ratio should shift notably upward.