Foreign direct investment in Japan displayed some interesting trends in the recent years. As far back as 2003 the Japanese government realized the importance of FDI in boosting the growth of the nation's economy. Studies reflected the superior managerial efficiency and productivity of foreign business companies operating in Japan. This was considered to be a plus point of inward FDI into Japan.
Flow of Inward FDI into Japan since 1990s
Japan witnessed augmented FDI flows since the 1990s. The FDI figures for the time period 1990 to1996 stood at around $1 billion yearly, on an average. This figure climbed to $3 billion in 1997 and further stood at $12.7 billion for the year 1999.
This FDI inflow suffered a moderate decline subsequently and hovered within the $6 billion to $9 billion range per year. Inward FDI flow for Japan recorded an increase of 86% in 2005 (within the first quarter).
A host of factors contributed towards this increment in inward FDI flow for Japan in 2005. They are stated below.
Deregulation lead to an opening up of the various sectors of the Japanese economy for investment of foreign capital
The appreciating Yen rendered Japanese assets more valuable
An increased occurrence of corporate bankruptcies resulted in foreign acquisition of many business companies in Japan
The global thrust on industry reorganization encouraged foreign firms to enter Japan
Mergers and Acquisitions were facilitated by the setting up of the requisite legal framework
An increasing number of shares were available in the market due to a fall in cross-shareholding
However, FDI inflows into Japan were modest as compared to the developed nations like USA, France, Britain and Germany in 2003. This following table substantiates this point:
Year |
Country |
FDI |
2003 |
United States |
$1.55 trillion |
2003 |
Britain |
$672 billion |
2003 |
Germany |
$545 billion |
2003 |
France |
$434 billion |
2003 |
Japan |
$89.7 billion |
Since different nations differ in area, comparison of the absolute figures for FDI is not likely to yield unbiased results. A research study made use of relative indexes for making these inter country comparisons.
For the year 2003, the ratio of inward Foreign Direct Investment to outward Foreign Direct Investment for the Japanese economy bore a value of 0.27. While the comparable ratios in the same reference period for U.S, France, Britain and Germany ranged from 0.6 to 0.9.
The result implied that in 2003 Japan's inward FDI was way behind its outward FDI. Of the two it is the inward FDI, which is effective in boosting the growth of the domestic economy.
Foreign Direct Investment in Japan from Asia in 2006
Singapore leads the pack of Asian countries with FDI activities in Japan in 2006, with respect to annual flows. Its investment figures surpassed US$1 billion in 2006. The business interests of Temasek Holdings and GIC in Japan further strengthened Singapore's status as the leading Asian FDI provider to Japan.
As per estimates from the "Ministry of Economy, Trade and Industry" the value of direct investment (different from the concept of portfolio investment) from Singapore to Japan stood at $1.06 billion for the year 2006. This was about 80% higher than the comparable figure for 2005.
In terms of Asian FDI flow into Japan, Singapore is followed by Hong Kong and Thailand. As per data available for 2007 USA maintained its status as the largest foreign investor in the Japanese economy.
It accounted for 45 % of Japan's FDI stock. Europe followed in with a share of 30%.
From 2006, Temasek stepped up its investment initiatives in Japan. It purchased stakes in telecommunications, financial and transport companies. This Singapore based investment concern bought stake worth 10% in i-Logistics Corp (which is a transportation and warehouse company) in March 2006. It also made an investment to the tune of 12 billion Yen in eMobile. It is eAccess's unit for mobile phones.