Invest in Japan

The world’s second-largest market

Japan is the largest and most diverse economy in Asia, the world's second-largest economy, and America's largest Asian trade partner. Although protectionism remains a major problem as far as US businesses are concerned, it hasn't stopped thousands of American businesses from tapping into the Japanese market. Unfortunately, after Japan appeared to recover economically in 2004-5, it now appears to have once again slipped into slightly deflationary stagnation.
   
Investment climate

After the real estate/banking meltdown of the late 1980's, Japan failed to implement the fiscal, banking and labor-market "shock therapy" necessary  to improve long-run growth. Unfortunately for the Japanese, their regulatory and labor burdens now receive much more skepticism and scrutiny than they did during the heyday of the Japanese boom c. 1985. Although Japanese Prime Minister Junichiro Koizumi took some halting steps towards pension reform and deregulation, his successor government under Prime Minister Shinzo Abe offers little prospect of implementing urgently-needed reforms, and any credibility Abe had as the reformist Koizumi's successor has been squandered. Despite an extraordinarily weak yen (boosting exports), Japan remains saddled with low growth, a rapidly ageing and declining population, and soaring social-security liabilities.

Political structure

Japan is not a promising investment prospect. Performance of the Japanese economy by any major non-yen currency has been abysmal. Ultimately, Japan will have to raise interest rates to bring investment back into the country. Prime Minister Abe's failure to continue Koizumi's reforms has significantly darkened Japan's expected future growth. Relative to Ireland, Estonia, Canada, China and other investment magnets, Japan is lagging and falling further behind in every investment category.

Living standards

Living standards improved dramatically from the 1950s to the 1980s, but since the real-estate and stock market implosions in the late 1980's, GDP growth has stalled. Typically, Japanese consumers have been savers first and buyers second, much like the Chinese. In Japan's case, looming deflation also heavily discourages consumption. According to World Bank, Japan was rated better than average in terms of overall income distribution, per capita disposable income, traffic safety and crime, life expectancy and infant mortality, the proportion of owner- occupied homes, work stoppages and labor unrest, worker absenteeism, and air pollution. Egalitarianism and social harmony are strongly held social values in Japan, much more so than in the United States. For foreign investors, that price has made Japan singularly unattractive as a place to invest. Apparently, the Japanese public thinks otherwise.

Japanese had a $33,100 per capita GDP in 2006, the highest among the Asian giants of South Korea, China, and India.

Trends of Japan's Inward Foreign Direct Investment (Stock)
 


Source: "International Investment Position of Japan," Ministry of Finance and Bank of Japan in 2007