Japan: Investing

FDI in Figures

Despite the increase of FDI since the mid-1990s, Japan continues to have the smallest inflow of foreign investments. The stock of FDI in Japan represented only 3.9% of the GDP at the end of 2010. The flow of FDI had slowed down due to the global economic crisis, and they started to pick up again at a slow rhythm. According to the UNCTAD report on world investment, Japan's potential appeal for foreign investment is very strong compared to the other countries of the world, but its performance in terms of reception of FDI is weak. Of the 141 countries studied for the report, Japan ranked on the 136th place on performance level in 2010.

After a downturn in FDI growth in 2009 following the global economic crisis, Japan experienced disinvestment in 2010 and 2011. FDI flows are expected to remain relatively low in 2012.

The main asset of Japan is its position as a leader in matters of high technology, research and development. The potential hindrance to investment are of a linguistic order and business culture. The disaster that hit Japan on March 11, 2011 (the earthquake and the devastating tsunami that followed), as well as environmental and health concerns about the situation of the Fukushima Daiichi Nuclear Plant could slow down foreign investment for a short period. However, Japan remains a key market for investors. In addition, the Japanese economy should be able to finance the reconstruction of the country without too much difficulty thanks to a Surplus in Savings accumulated over recent years.

Foreign Direct Investment	2008	2009	2010
FDI Inward Flow (million USD)	24,426	11,939	-1,251
FDI Stock (million USD)	203,372	200,141	214,880
Performance Index*, Ranking on 141 Economies	129	135	-
Potential Index**, Ranking on 141 Economies	25	-	-
Number of Greenfield Investments***	200	161	-
FDI Inwards (in % of GFCF****)	2.1	4.0	-
FDI Stock (in % of GDP)	4.2	3.9	-

Source: UNCTAD - Last Available Data.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field 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. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

FDI Inflows By Countries and Industry

Main Investing Countries	2010, in %
USA	33.8
Netherlands	17.2
France	8.9
Cayman Islands	8.7
Singapore	6.5
Germany	4.7
United Kingdom	4.4

Main Invested Sectors	2010, in %
Electricity	30.2
Trade	20.1
Chemical and pharmaceutical products	18.2
Metallurgy	10.8
Services	8.3

Source: Japanese Trade and Investment Statistics, JETRO - Last 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 « success stories » of investors
Sources of Statistics: Japanese trade and investment statistics, proposed by JETRO
Japanese statistical Bureau
Cabinet Office

Why You Should Choose to Invest in Japan

Strong Points: Japan is the world's second economic power. The purchasing power is one of the highest in the world. Technology is modern and innovative. Substantial means are devoted to education and R&D. Accessing the Japanese market gives access to the rest of Asia. The business climate is favorable. The population is ageing, which opens up a new development potential to meet the needs of the older age groups.
Click here for further arguments in favor of investing in Japan.
Weak Points: Over-regulation in Japan continues to restrain economic growth, raise the cost of doing business, restrict competition, slow down the market entry and exit, and slow down investment.
Government Measures to Motivate or Restrict FDI: The government still imposes some restrictions on the penetration of the Japanese economy by foreign investors. Nevertheless, Japan’s Company Law has been re-examined in 2009, which simplified and made access to the national market easier for foreign investors.
Click here for further information about this reform.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Japan: Japan is a signatory to 12 conventions.
UNCTAD allows you to visualize the list of conventions signed by Japan, and to download these conventions.
International Controversies Registered By UNCTAD: Japan has been involved in no case of disagreement concerning foreign investment and up to now, bilateral disagreements have given rise to no expropriation. UNCTAD offers a database listing disagreements and the countries involved, complementary information about the evolution of settlement of international disputes concerning investment.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International court of arbitration, International chamber of commerce
WTO , World Trade Organization
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	الولايات المتحدة	Germany
Index of Transaction Transparency*	7.0	6.0	7.0	5.0
Index of Manager’s Responsibility**	6.0	5.2	9.0	5.0
Index of Shareholders’ Power***	8.0	6.8	9.0	5.0
Index of Investor Protection****	7.0	6.0	8.3	5.0

Source: Doing Business - Last 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. **** The Greater the Index, the Higher the Level of Investor Protection.

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 a capital of more than 2 billion Yen acquires 10%, 25%, or 50 % of a Japanese company.
- when a company with more than 10 billion Yen acquires business from another company with more than a billion Yen turnover.
Competent Organization For the Declaration: Ministry of Finance
Japan Fair Trade Commission (JFTC)
Requests For Specific Authorizations: Investment of foreign capital in the fields of agriculture, forestry, fishing, mines, oil, leather and the industries of the transformation of leather, and telecommunications is examined first by the Japanese government.
Any investment in the banking sector, insurance, security, and pharmaceutical products is subject to license.

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: Yes
Risk of Expropriation: Up to now, bilateral disagreements have given rise to no expropriation.

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 practice, the acceptance of the projects raises some difficulties, but in theory, this measure offers foreign investors attractive terms for setting up. The Cabinet Office summarizes this policy.
Current efforts concerning the decentralization of public finances should soon allow local governments to use the fiscal tool to draw FDI to their areas.
Click here for a more detailed breakdown of investment conditions region by region.
Free Zones: Japan no longer has free zones or free ports. Nevertheless, the government wants to facilitate access to the Japanese market through access Zones for imported products located near ports and airports.
Japan’s objective is to develop 22 zones like these with infrastructures designed to facilitate imports and loans at preferential rates and tax reductions.
Organizations Which Finance: 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, the new generation of energy
Tourism, education and training services, safety equipment, telecommunications equipment, the fashion market, real estate products
High Potential Sectors: The car industry, retail trade, information and communication techniques, biotechnology, medical care, the environment, the sectors relative to elderly people.
The JETRO details the attractiveness of these sectors.
Privatization Programs: The energy sector (privatization program being studied)
Tenders, Projects and Public Procurement: JETRO - Japan External Trade Organization, 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
Sectors in Decline: Agriculture

Finding Assistance For Further Information

Investment Aid Agency: Japan External Trade Organization, JETRO
Invest Japan Business Support Centers (IBSC)
Kansai Council of Investment Promotion
Japan Invest Council
Entry Point Tokyo Business
Other Useful Resources: Venture Japan
Doing Business Guides: The Lexmundi guide « Doing Business » about Japan
The Deloitte « International Tax and Business Guide » about Japan
Japan Commercial Guide 2010 - Buy USA

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