Japan’s New Efforts Aimed at Developing Global Business

By Hirohisa Akahira

Earlier this year the Japan External Trade Organization (JETRO) released its annual survey report, “JETRO Global Trade and Investment Report 2015: New Efforts Aimed at Developing Global Business”. According to this report, Japan’s outbound foreign direct investment (FDI) in 2014 totaled $119.7 billion, down 18.6 percent from the previous year. While down from the record-high of $147.2 billion reached in 2013, it was the fourth consecutive year in which Japan’s outbound FDI has exceeded $100 billion. This indicates an overall positive disposition by Japanese firms toward exploring overseas markets as well as shifts in the destinations of corporate investment. In Asia, Japanese firms have continued to place greater emphasis on the ASEAN countries over China, with the 10 Southeast Asian nations receiving a combined total of $20.4 billion in Japanese FDI, compared with $6.7 billion into China.

Figure 1: Trends in Japan’s outbound FDI by type


Meanwhile, Japan’s inbound FDI in 2014 increased 22.5 percent to $9.1 billion, the third consecutive annual increase. Asia is becoming more important as a source of inbound investment, with flows from Hong Kong, Singapore and China growing strongly. Partly as a result of this, the stock of FDI in Japan reached 23 trillion yen at the end of 2014 (roughly $193 billion at current exchange rates), exceeding 20 trillion yen for the first time. Asia’s share of Japan’s inbound FDI stock increased from 14.4 percent at the end of 2013 to 15.5 percent at the end of 2014.

Figure 2: Mega FTA coverage ratio by major countries (2014)

In terms of Japan’s free trade agreement (FTA) coverage ratio, the share of total trade represented by countries with which Japan has FTAs was 22.3 percent in 2014, exceeding the 20 percent mark for the first time. Japan’s FTA coverage ratio would reach 37.2 percent if trade values with countries participating in the Trans Pacific Partnership (TPP) negotiations were added. As noted in the graph above, if the trade value of the TPP and three other mega-regional agreements currently under negotiation are added to existing FTAs for each country/region—the TPP, the Regional Comprehensive Economic Partnership (RCEP), the Japan-EU Economic Partnership Agreement (Japan-EU), and the Trans-Atlantic Trade and Investment Partnership (TTIP) – then Japan will have an FTA coverage ratio of 73.3 percent, surpassing the ratios that South Korea, the United States, and the European Union would enjoy in that same assessment. This shows Japan has favorable market access to over 70 percent of its trade value so one can expect that Japan’s trade and investment now reaches further than in previous years. Also it exceeds the target set by the Japanese government of increasing the FTA coverage ratio to more than 70 percent.

In addition to these themes, the report analyzes a variety of other issues related to overseas business including global trade, free trade agreements, the ASEAN Economic Community, “critical mass” markets, and the globalization of management through diversity. Please click here to read the full report.

Mr. Hirohisa Akahira is a Japan Chair visiting fellow at CSIS from JETRO.  


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