Development of inward FDI to JapanWhile Japan is among the largest investors of FDI in the world, inward FDI flows to the country have remained low. Over the past decade, the government has created a range of incentives to attract investment from overseas and promote Japan as a destination for FDI. Measured by the FDI Regulatory Restrictiveness Index, Japan can be considered as open towards FDI and ranks above the OECD average. Financial services, such as banking and insurance, were among the most open industries with regards to FDI regulations, while the air transportation industry was considered the most restricted industry. In recent years, Japan has followed the example of other economies in tightening the regulations on inward FDI in certain industries with an amended version of the Foreign Exchange and Foreign Trade Act. During the coronavirus pandemic, the restrictions were extended to the advanced medical and pharmaceutical products and medical equipment industries.
Inward FDI by region and industryIn 2021, inward FDI flows to Japan surged to a record 24.6 billion U.S. dollars, the highest amount in the last ten years. This development was mainly driven by cross-border M&A activity which resulted in a significant increase in equity inflows that year.
Inward FDI flows were equally directed at manufacturing and non-manufacturing industries. Chemicals and pharmaceuticals accounted for the highest FDI inflows, while finance and insurance, and communications were other main target industries. Asia, North America, and Central and South America were among the leading investing regions of FDI to Japan. Broken down by country, the highest amounts of inward FDI flows came from Hong Kong, the United States, and Singapore.