1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Direct inward investment into Japan by foreign investors has been open and free since amendment of the Foreign Exchange and Foreign Trade Act (FEFTA) in 1998. In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries. The Act was amended in 2019, updating Japan’s foreign investment review regime. The legislation became effective in May 2020 and lowered the ownership threshold for pre-approval notification to the government for foreign investors from ten percent to one percent in industries that could pose risks to Japanese national security. There are waivers for certain categories of investors.
The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it. In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2019, Japan’s inward FDI stock was JPY 33.9 trillion (USD 310 billion), a 10.4 percent increase over the previous year. The Suga Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.
The government’s “FDI Promotion Council,” composed of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment. In a May 2018 report ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf ), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.
The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/ ). Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.
Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. These challenges include an insular and consensual business culture that has traditionally resisted unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of multiple independent directors on many company boards (even though board composition is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility. Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent. Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as providers of broadcast infrastructure. Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.
The Foreign Exchange and Foreign Trade Act, as amended, governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over one percent of the shares of a listed company in the sectors set out below, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing. There are waivers for certain categories of investors.
U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.
Other Investment Policy Reviews
The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in November 2020 (available at directdoc.aspx (wto.org) ).
The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).
The Japan External Trade Organization is Japan’s investment promotion and facilitation agency. JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues. Through its website ( https://www.jetro.go.jp/en/invest/setting_up/ ), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan. While registration of corporate names and addresses can be completed online, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary, although there are indications of change underway. When he took office in September 2020, Prime Minister Suga called for reforms to eliminate use of seals and paper-based process along with establishment of a new Digital Agency as part of his policy agenda of digitizing the provision of government services.
According to the 2020 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan. JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months. While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents but not immigration documentation.
No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.
The Japan Bank for International Cooperation (JBIC) provides a variety of support for outward Japanese foreign direct investment. Most such support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects. JBIC often supports outward FDI projects to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan and third countries in Asia. More information is available at https://www.jbic.go.jp/en/index.html .
Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers. Together, JBIC and NEXI act as Japan’s export credit agency.
Japan also employs specialized agencies and public-private partnerships to target outward investment in specific sectors. For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.
Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies. The fund specializes in overseas infrastructure investment projects such as high-speed rail, airports, and smart city projects with Japanese companies, banks, governments, and other institutions (e.g., JICA, JBIC, NEXI).
Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI. JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.
Japan places no restrictions on outbound investment.
5. Protection of Property Rights
Secured interests in real property are recognized and enforced. Mortgages are a standard lien on real property and must be recorded to be enforceable. Japan has a reliable recording system. Property can be rented or leased but no sub-lease is legal without the owner’s consent. In the World Bank 2020 “Doing Business” Report, Japan ranks 43 out of 190 economies in the category of Ease of Registering Property. There are bureaucratic steps and fees associated with purchasing improved real property in Japan, even when it is already registered and has a clear title. The required documentation for property purchases can be burdensome. Additionally, it is common practice in Japan for property appraisal values to be lower than the actual sale value, increasing the deposit required of the purchaser, as the bank will provide financing only up to the appraisal value.
The Japanese Government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land and an area equivalent in size to the island of Kyushu. According to a think tank expert on land use, 25 percent of all the land in Japan is registered to people who are no longer alive or otherwise unreachable. In 2015, the Ministry of Land, Infrastructure, Transportation and Tourism (MLIT) found that, of 400 randomly selected tracts of land, 46 percent was registered more than 30 years ago, and 20 percent was registered more than 50 years ago. A similar survey by the Ministry of Agriculture, Forestry and Fisheries (MAFF) found that 20 percent of farmland had a deceased owner and had not been re-registered. The government appointed a group of experts to study the matter, and the Unknown Land Owners Problem Study Group announced the results in a midterm report on June 26, 2017, and in a final report on December 13, 2017 ( http://www.kok.or.jp/project/fumei.html ). It estimated that by 2040 the amount of land without titleholders will increase to 7.2 million hectares. There are a number of reasons beyond the administrative difficulties of a title transfer as to why land lacks a clear title holder. They include: population decline, especially in rural areas; the difficulty of locating heirs, particularly if there are multiple heirs or if the deceased had no children; and the cost of reregistering land under a new name due to tax costs. Virtually all the large banks, as well as some other private companies, offer loans to purchase property in Japan.
Intellectual Property Rights
Japan maintains a comprehensive and sophisticated intellectual property (IP) regime recognized as among the strongest in the world. In 2020, Japan ranked sixth out of 53 countries evaluated by the U.S. Chamber of Commerce on the strength of IP environments. The government has operated a dedicated “Intellectual Property High Court” to adjudicate IP-related cases since 2005, providing judges with enhanced access to technical experts and the ability to specialize in intellectual property law. However, certain shortcomings remain, notably in the transparency and predictability of its system for pricing on-patent pharmaceuticals. The discriminatory effect of healthcare reimbursement pricing measures implemented by the Japanese government continues to raise serious concerns about the ability of U.S. pharmaceutical companies to have full and fair opportunity to use and profit from their IP in the Japanese market. More generally, the weak deterrent effect of Japan’s relatively modest penalties for IP infringement remains a cause for concern.
U.S. Embassy Tokyo is aware of isolated claims of U.S. IP misappropriation by Japanese state-owned or affiliated entities and presumes, given the vast volume of bilateral trade, that additional cases across public and private sectors may exist. That said, the Japanese government has taken several steps in recent years to improve protection of trade secrets. Revisions to the Unfair Competition Prevention Act (UCPA) went into effect July 2019, which classifies the improper acquisition, disclosure, and use of specified protected data as an act of unfair competition, offering civil and criminal remedies to stakeholders. The revisions also extend the scope of unfair competition to include attempts to circumvent technological restriction measures. Japan has taken a leading role in promoting the expansion of IP rights in recent regional trade agreements, including:
- RCEP: On November 15, 2020, Japan joined 10 ASEAN member states, plus Australia, China, New Zealand, and the Republic of Korea, in signing the Regional Comprehensive Economic Partnership. This regional trade agreement includes a comprehensive IP chapter, much of it repeating norms set out in TRIPS, but also offering unique protections for genetic resources, traditional knowledge, and folklore.
- Japan-UK CEPA: The Japan-UK Comprehensive Economic Partnership Agreement signed on October 23, 2020, and in force beginning January 1, 2021, contains an IP chapter including provisions on copyrights, trademarks, geographical indications, industrial designs, patents, regulatory test data exclusivity, new plant varieties, trade secrets, domain names, and enforcement.
- Japan-EU EPA: The Japan-EU Economic Partnership Agreement, which went into effect February 1, 2019, also includes a substantial IP chapter.
- CPTPP: As part of its 2018 accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan passed several substantive amendments to its copyright law, including measures that extended the term of copyright protection and strengthened technological protection rules.
Japan’s Customs and Tariff Bureau publishes a yearly report on goods seizures, available online in English ( http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm ). Japan seized an estimated $121.2 million worth of IP-infringing goods in 2019, a decrease of 5.2 percent over 2018. In June 2020, the Customs and Tariff Bureau of the Ministry of Finance announced the “SMART Customs Initiative 2020,” which aims to utilize cutting-edge technologies such as AI to improve the sophistication and efficiency of its operations. For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
U.S. International Development Finance Corporation (DFC) insurance and finance programs are not available in Japan. However, U.S. companies seeking to invest in other foreign countries with Japanese partners may have access to DFC programs and benefit from cooperative memorandums that the DFC has signed with Japanese Government entities to fund projects in third countries.
Japan is a member of the Multilateral Investment Guarantee Agency (MIGA). Japan’s capital subscription to MIGA is the second largest, after the United States.
Other foreign governments have very limited involvement in Japan’s domestic infrastructure development, and most financing and insurance is managed domestically.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$5,148,609||2019||$5,081,770||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2019||$58,188||2019||$131,793||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||$518,205||2019||$619,259||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||6.03%||2019||4.34%||UNCTAD data available at
* Source for Host Country Data: *2019 Nominal GDP data from “Annual Report on National Accounts for 2019”, Economic and Social Research Institute, Cabinet Office, Japanese Government. December, 2020. (Note: uses exchange rate of 109.01 Yen to 1 U.S. Dollar and Calendar Year Data)
The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.
|Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2019)|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||220,785||100%||Total Outward||1,769,193||100%|
|United States||58,220||26%||United States||518,490||29%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets (IMF CPIS, 2019 end)|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||4,610,836||100%||All Countries||1,904,423||100%||All Countries||2,706,413||100%|
|United States||1,806,516||39%||Cayman Islands||735,339||39%||United States||1,186,071||44%|
|Cayman Islands||948,100||21%||United States||620,445||33%||France||257,881||10%|
|United Kingdom||175,336||4%||Ireland||50,507||3%||United Kingdom||127,514||5%|