Policies Toward Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended 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 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 June 2018, Japan’s inward FDI stock was JPY 29.9 trillion (USD 270 billion), a small increase over the previous year. The Abe 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.

In April 2014, the government established an “FDI Promotion Council” comprised of government ministers and private sector advisors.  The Council remains active and continues to release recommendations on improving Japan’s FDI environment. 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, though it depends on the sector.  These include an insular and consensual business culture that has traditionally been resistant to unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; 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.

The Japanese Government established an “Investment Advisor Assignment System” in April 2016 in which a State Minister acts as an advisor to select foreign companies with “important” investments in Japan.  The system aims to facilitate consultation between the Japanese Government and foreign firms. Of the nine companies selected to participate in this initiative to date, seven are from the United States.

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 “facility-supplying.” 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 governs investment in sectors deemed to have national security or economic stability implications.  If a foreign investor wants to acquire over 10 percent of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry.  Designated sectors include agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing.

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 March 2017 (available at https://www.wto.org/english/tratop_e/tpr_e/tp451_e.htm  ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/economy/surveys/japan-economic-snapshot/  ).

Business Facilitation

The Japan External Trade Organization (JETRO) 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 through the internet, 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.

According to the 2018 World Bank “Doing Business” Report, it takes 12 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.  In April 2015, JETRO opened a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location; however, this arrangement is not common throughout Japan. JETRO has announced its intent to develop a full online business registration system, but it was not operational as of March 2019.

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.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support to Japanese foreign direct investment.  Most 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 seeks to support outward FDI projects that aim 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. More information is available at https://www.jbic.go.jp/en/index.html  .

There are no restrictions on outbound investment; however, not all countries have a treaty with Japan regarding foreign direct investment (e.g., Iran).

The 1953 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to U.S. investments in Japan.

As of March 2019, Japan had concluded 33 bilateral investment treaties (BITs):  Argentina, Armenia, Bangladesh, Cambodia, China, Colombia, Egypt, Hong Kong SAR, Iran, Iraq, Israel, Jordan, Kazakhstan, Kenya, South Korea, Kuwait, Laos,  Mongolia, Mozambique, Myanmar, Oman, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, UAE, Uruguay, Uzbekistan, and Vietnam.  In addition, Japan has a trilateral investment agreement with China and South Korea. Japan also has 17 EPAs that include investment chapters (Association of Southeast Asian Nations, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), European Union (EU), Singapore, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Switzerland, Vietnam, India, Peru, Australia, and Mongolia)

On  December 30, 2018, Japan and ten other countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam signed the CPTPP.  Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam have already ratified the agreement. This agreement includes an investment chapter. The United States is not a signatory of this agreement.   The text of the agreement is available online (https://www.cas.go.jp/jp/tpp/naiyou/tpp_text_en.html#TPP11  

On February 1, 2019, the Japan – EU economic partnership agreement went into force.  This agreement includes a chapter on investment liberalization. The text of the agreement is available online (http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684  ).

The United States and Japan have a double taxation treaty.  The current treaty allows Japan to tax the business profits of a U.S. resident only to the extent those profits are attributable to a permanent establishment in Japan.  It also provides measures to mitigate double taxation. This permanent establishment provision, combined with Japan’s high corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations off-shore.

In January 2013, the United States and Japan signed a revision to the bilateral income tax treaty, to bring it into closer conformity with the current tax treaty policies of the United States and Japan.  The revision is awaiting ratification by the U.S. Congress.

Japan has concluded 61 double taxation treaties that cover 71 countries and jurisdictions.  More information is available from the Ministry of Finance: http://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm  

Investment Incentives

The Japan External Trade Organization (JETRO) maintains an English-language list of national and local investment incentives available to foreign investors on their website: https://www.jetro.go.jp/en/invest/incentive_programs/  .

Foreign Trade Zones/Free Ports/Trade Facilitation

Japan no longer has free-trade zones or free ports.  Customs authorities allow the bonding of warehousing and processing facilities adjacent to ports on a case-by-case basis.

The National Strategic Special Zones Advisory Council chaired by the Prime Minister has established a total of twelve National Strategic Special Zones (NSSZ) to implement selected deregulation measures intended to attract new investment and boost regional growth.  Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone’s “master plan,” which focuses on a potential growth area such as labor, education, technology, agriculture, or healthcare.  Any exceptions approved by the central government can be implemented by other NSSZs in addition to the requesting zone. Foreign-owned businesses receive equal treatment in the NSSZs; some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the “Startup Visa” adopted by the Fukuoka NSSZ.

The Japanese government has also sought to encourage investment in the Tohoku (northeast) region which was devastated by the earthquake, tsunami, and nuclear “triple disaster” of March 11, 2011.  Areas affected by the disaster have been included in a “Special Zone for Reconstruction” that features eased regulatory burdens, tax incentives, and financial support to encourage heightened participation in the region’s economic recovery.

Performance and Data Localization Requirements

Japan does not maintain performance requirements or requirements for local management participation or local control in joint ventures.

Japan has no general restrictions on data storage.  Previously, separate and inconsistent privacy guidelines among Japanese ministries created a burdensome regulatory environment with regard to the storage and general treatment of personally identifiable information.  However, amendments to Japan’s Personal Information Protection Act, which came into full effect on May 30, 2017, transferred all enforcement powers from the individual ministries to an independent third party authority.  This Personal Information Protection Commission (PPC) issued guidelines for businesses on the protection of personal data and oversees implementation of the Personal Information Protection Act amendments, including new rules for the protection and electronic transmission of personal data.

Real Property

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’s 2018 “Doing Business” Report, Japan ranks 52 out of 190 economies in the category of Ease of Registering Property.  This is a result of the 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, a government-sponsored study group noted in 2017.  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.  The primary reasons that land in Japan lacks a titleholder are: Japan’s population is declining; Japanese are increasingly moving from rural areas to urban areas; heirs are difficult to locate and there may be multiple heirs, especially if the deceased did not have children; and heirs do not re-register the land under their own names due to the cost of the initial and continuing taxes and the time and difficulty to change the title.  On June 6, 2018, the Japanese Diet enacted a special law to promote the use of unclaimed land in the public interest, as more and more properties are expected to become available amid the decreasing population.  The act goes into effect on June 1, 2019, and will enable the heads of local governments to authorize use of the unattended land for up to 10 years for public purposes such as community halls, parks, and health clinics. If the landowner appears and reclaims the land, the property will be returned after the term of the land-use contract ends.  If no one reclaims the land, the land-use period can be extended.

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 robust legal framework for intellectual property (IP) and provides reasonably strong enforcement to rights holders.  The U.S. Chamber of Commerce International IP Index ranked Japan’s intellectual property framework eighth worldwide in its 2019 report7.  While IP piracy remains a problem, its prevalence in Japan is similar to other developed markets.

Japan established a dedicated IP High Court in 2005 to speed decisions in intellectual property cases.  In 2017, cases before the court required an average of 7.3 months from commencement to disposition.  The number of cross-border IP-related litigations is increasing due to the globalization of business activities.  IP High Court judges have access to neutral technical advisors to aid in interpreting complex cases, but a constrained discovery system can limit the evidence that can be used at trial.  Typical awarded damages are considerably lower than those seen in the United States.

On December 8, 2017, Japan and the European Union (EU) finalized negotiations on an Economic Partnership Agreement, which includes provisions related to IP including geographic indications.  The agreement entered into force on February 1, 2019.

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) which entered into force on December 30, 2018 harmonizes intellectual property rights among the 11 member nations (including Japan).  However, the CPTPP suspended a number of provisions considered U.S. priorities in the original Trans-Pacific Partnership Agreement (TPP) chapter on IP in areas such as patents and pharmaceuticals, copyright, Internet service provider (ISP) liability, and IP rights enforcement.

Japan’s Customs and Tariff Bureau publishes a yearly report on good seizures, available online in English (http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm  ).  Japan seized USD 13.5 billion yen (USD 121.5 million) of goods in 2018, mostly due to intellectual property infringement.  China is by far the largest source of seized goods in Japan, accounting for 94 percent of all seizure cases and 89 percent of all seized goods by value.

U.S. stakeholders have recently expressed concern that Japan’s pharmaceutical reimbursement system does not adequately reward innovation and provide incentives for companies to invest in the research and development of advanced medical devices and innovative pharmaceuticals. Specifically, there are concerns that recent policy changes to the Price Maintenance Premium put Japanese companies at an advantage over U.S. companies.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment.  Foreign capital plays an important role in Japan’s financial markets, with foreign investors responsible for the majority of trading volume in the country’s stock market.  Historically, many company managers and directors have resisted the actions of activist shareholders, especially foreign private equity funds, potentially limiting the attractiveness of Japan’s equity market to large-scale foreign portfolio investment, although there are signs of change.  Some firms have taken steps to facilitate the exercise of shareholder rights by foreign investors, including the use of electronic proxy voting. The Tokyo Stock Exchange (TSE) maintains an Electronic Voting Platform for Foreign and Institutional Investors. All holdings of TSE-listed stocks are required to transfer paper stock certificates into electronic form.

The Japan Exchange Group (JPX) operates Japan’s two largest stock exchanges – in Tokyo and Osaka – with cash equity trading consolidated on the TSE since July 2013 and derivatives trading consolidated on the Osaka Exchange since March 2014.

In January 2014, the TSE and Nikkei launched the JPX Nikkei 400 Index.  The Index puts a premium on company performance, particularly return on equity.  The inclusion in the Index is determined by such factors as three year average returns on equity, three year accumulated operating profits, and market capitalization, along with other metrics such as the number of external board members.  Inclusion in the index has become an unofficial “seal of approval” in corporate Japan, and many companies have taken steps, including undertaking share buybacks, to improve their return on equity. The Bank of Japan purchases JPX-Nikkei 400 ETFs as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) uses the JPX-Nikkei 400 index as an outside asset managers’ benchmark, putting an additional premium on membership in the index.

Japan does not restrict financial flows, and accepts obligations under International Monetary Fund (IMF) Article VIII.

Credit is available via multiple instruments, both public and private, although access by foreigners often depends upon visa status and the type of investment.

Money and Banking System

Banking services are easily accessible throughout Japan; it is home to three of the world’s largest private commercial banks as well as an extensive network of regional and local banks.  Most major international commercial banks are also present in Japan, and other quasi-governmental and non-governmental entities, such as the postal service and cooperative industry associations, also offer banking services (e.g., the Japan Agriculture Union offers services through its bank, Norinchukin Bank, to members of the organization).  Japan’s financial sector is generally acknowledged to be sound and resilient, with good capitalization and with a declining ratio of non-performing loans. While still healthy, most banks have experienced pressure on interest margins and profitability as a result of an extended period of low interest rates capped by the Bank of Japan’s introduction of a negative interest rate policy in 2016. 

The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are Mitsubishi UFJ Financial, Mizuho Financial, and Sumitomo Mitsui Financial.  Collectively, they hold assets approaching USD 7 trillion. Japan’s second largest bank by assets – with USD 2 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Group that is still majority state-owned.  Japan Post Bank offers services via 24,000 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of 29,100 ATMs nationwide.

A large number of foreign banks operate in Japan offering both banking and other financial services.  Like their domestic counterparts, foreign banks are regulated by the Japan Financial Services Agency. According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan.  There are 443 correspondent banking relationships available to the country’s central bank (main banks: 125; trust banks: 13; foreign banks: 50; credit unions: 251; other: 4).

Foreigners wishing to establish bank accounts must show a passport, visa, and foreigner residence card; temporary visitors may not open bank accounts in Japan.  Other requirements (e.g., evidence of utility registration and payment, Japanese-style signature seal, etc.) may vary according to institution. Language may be a barrier to obtaining services at some institutions; foreigners who do not speak Japanese should research in advance which banks are more likely to offer bilingual services.

Japan accounts for approximately half of the world’s trades of Bitcoin, the most prevalent blockchain currency (digital decentralized cryptographic currency).  Japanese regulators are encouraging “open banking” interactions between financial institutions and third-party developers of financial technology applications through application programming interfaces (“APIs”) when customers “opt-in” to share their information.  The government has set a target to have 80 banks adopt API standards by 2020.  Many of the largest banks are participating in various proofs of concept using blockchain technology.  While commercial banks have not yet formally adopted blockchain-powered systems for fund settlement, they are actively exploring options, and the largest banks have announced intentions to produce their own virtual currencies at some point.  The Bank of Japan is researching blockchain and its applications for national accounts, and established a “Fintech Center” to lead this effort.  The main banking regulator, the Japan Financial Services Agency (FSA) also encourages innovation with financial technologies, including sponsoring an annual conference on “fintech” in Japan.  In April 2017, amendments to the Act on Settlements of Funds went into effect, permitting the use of virtual currencies as a form of payment in Japan, but virtual currency is still not considered legal tender (e.g., commercial vendors may opt to accept virtual currencies for transactional payments, though virtual currency cannot be used as payment for taxes owed to the government).  The law also requires the registration of virtual currency exchange businesses.  There are currently 19 registered virtual currency exchanges; 1 other exchange operates while its registration is pending with FSA.

Foreign Exchange and Remittances

Foreign Exchange Policies

Generally, all foreign exchange transactions to and from Japan—including transfers of profits and dividends, interest, royalties and fees, repatriation of capital, and repayment of principal—are freely permitted.  Japan maintains an ex-post facto notification system for foreign exchange transactions that prohibits specified transactions, including certain foreign direct investments (e.g., from countries under international sanctions) or others that are listed in the appendix of the Foreign Exchange and Foreign Trade Act.

Japan has a floating exchange rate that fluctuates based on market principles.  Japan has not intervened in the foreign exchange markets since November 2011, and has joined statements of the G-7 and G-20 affirming that countries would not target exchange rates for competitive purposes.

Remittance Policies

Investment remittances are freely permitted.

Sovereign Wealth Funds

Japan does not operate a sovereign wealth fund.

Japan has privatized most former state-owned enterprises (SOEs).  Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies.  The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an initial public offering that sold 11 percent of available shares in each of the three entities.  The postal service subsidiary, Japan Post Co., will remain a wholly owned subsidiary of Japan Post Holdings (JPH). The Japanese government conducted an additional public offering of stock in September 2017, reducing the government ownership in the holding company to approximately 57 percent.  There were no additional offerings of the stock in the bank or insurance subsidiaries: JPH currently owns 88.99 percent of the banking subsidiary and 89.00 percent of the insurance subsidiary. Follow-on sales of shares in the three companies will take place over time, as the Postal Privatization Law requires the government to sell a majority share (up to two-thirds of all shares) in JPH, and JPH to sell all shares of JPB and JPI, as soon as possible.  The Ministry of Finance announced in April 2019 that the government will sell additional shares of JPH. Media reported that as a result of the third sale of the government JPH share holdings possibly to be implemented as early as this fall, its holdings would account for slightly above one-third of outstanding shares, the lower limit specified in the Postal Privatization Law.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi almost a decade ago, and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.

While there has been significant progress since 2013 with regard to private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field.  A full description of U.S. government concerns with regard to the insurance sector, and efforts to address these concerns, is available in the United States Trade Representative’s National Trade Estimate (NTE) report for Japan.

Privatization Program

In sectors that were once dominated by state-owned enterprises but have been privatized, such as transportation, telecommunications, and package delivery, U.S. businesses report that Japanese firms sometimes receive favorable treatment in the form of improved market access and government cooperation.

The liberalization of Japan’s power sector, now more than 25 years in the making, took a step forward in April 2016 with the full liberalization of the retail sector. This has led to an influx of new electricity retailers, though the generation and transmission of electricity remain in the hands of the legacy utility companies, which have been privatized.  The liberalization is expected to come to a head with the legal “unbundling” of the monopolies by 2020.

American energy companies have reported increased opportunities in this sector, but the former utility monopolies still have immense power over the regulatory regime, market, and infrastructure.  For example, there is a wholesale market on which new retailers can buy electricity to sell to their customers, but the legacy utilities, which control most of the generation, sell very little power into that market.  This leaves new retailers in a supply crunch. Also, new entrants in power generation are given limited access to the power grid because the system is already at capacity with baseload generation from the legacy firms.

More information on the power sector from the Japanese Government can be obtained at: http://www.enecho.meti.go.jp/en/category/electricity_and_gas/electric/electricity_liberalization/what/  

Political violence is rare in Japan.  Acts of political violence involving U.S. business interests are virtually unknown.

Japan currently faces one of the tightest labor markets in decades, in part due to demographic decline, with a shortage of workers in sectors such as information services, hospitality, construction, transportation, maintenance, and security.  Unemployment is near a 25 year low, at 2.3 percent in March 2019. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment.  Non-regular employees are hired for a fixed period. Companies have increasingly relied on non-regular workers to fill short-term labor requirements and to reduce labor costs.

Japan has a robust structure for collective bargaining in which roughly 17 percent of workers are represented by unions active in nearly every industry, including textiles.  The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are  subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.

The number of foreign workers is rising, but at just over 1.46 million as of October 2018, they still represent a fraction of Japan’s nearly 68 million-worker labor force.  The Japanese government has made additional changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. For example, the Immigration Control and Refugee Recognition Law was revised in 2014 to improve the “Points System” for highly skilled foreign professionals, easing the requirements for residency.  Special economic zones may permit foreign workers in certain categories, such as domestic employees and agricultural workers.

The Japanese government has also taken steps to expand the Technical Intern Training Program (TITP).  Originally intended as a skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in specific sectors, such as construction and agriculture.  In 2014, the Japanese government expanded TITP in the construction sector through FY2020, the year of the Tokyo summer Olympics, extending the period of stay for construction workers under TITP from three years to five, and permitting re-entry of former interns and trainees for another two to three years.  In November 2017, the legislation that passed the Diet in November 2016 went into effect, which extended the period of stay under TITP to five years for more categories of workers, and strengthened supervision of the program and companies to deter human rights abuses. At the same time, nursing care service was added to the list of work categories permitted for TITP, and the government expanded oversight to address abuses of the program.

To address Japan’s acute labor shortage in specific industries, the Japanese government revised the Immigration Control and Refugee Recognition Law again in December 2018, to create new visa categories for lower-skilled foreign workers.  This marks a major turning point in Japan’s policy on foreign workers, which encouraged the entry of highly-skilled professionals, but had no visa category specifically for low-skilled foreign workers.  Ministerial Ordinances, Cabinet Orders, and Operating Guidelines were released in March 2019, laying out details of the program. Fourteen industries have been identified to be suffering from acute labor shortage, in which lower-skilled foreigners will be permitted to work under the “Specific Skills” status of residence.   The new system began on April 1, 2019. The Japanese government estimates that approximately 47,550 foreign workers will be accepted within the first year, and 345,000 will be accepted within five years.

Also, to address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force.  A law that went into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until age 65. Since 2013, the government has committed to increasing women’s economic participation as well.  The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women, and to adopt action plans to improve their numbers. In the six years under the second Abe Administration since he became Prime Minister in 2012, approximately 3 million women have joined the labor force.

On June 29, 2018, the Diet passed the Workstyle Reform package bills.  The legislation revised eight labor laws, including the Labor Standards Law and Labor Contract Law.  The package introduces a legal cap on overtime work at less than 100 hour per month and 720 hours per year with penalties for violators, such as imprisonment of up to six months or fines of up to 300,000 yen.  A key provision, however, is the so-called “White Collar Exemption,” originally submitted to the Diet in 2015, which would implement a merit-based wage system for certain highly-skilled professionals and exempt firms from paying such workers overtime or premium overtime pay for late night, weekend, or holiday work.  In addition, an “equal-pay-for-equal-work” provision seeks to reduce compensation gaps between regular and non-regular employees.  Most measures took effect in April 1, 2019, although equal-pay provisions would be implemented from 2020.  The package offers some flexibility on implementation for small and medium-sized enterprises (SMEs).

Although independent labor unions play a role in the annual determination of wage scales throughout the economy, that role has been declining along with union membership.  Union members today make up only 17 percent of the labor force, down from 25 percent in 1990.

Japan has ratified 48 International Labor Organization (ILO) Conventions (including six of the eight core Conventions).  As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 other trading partners, Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor.  CPTPP entered force in Japan on December 30, 2018.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*2017 Nominal GDP data (Calendar Year Data) from “Annual Report on National Accounts for 2017”, Economic and Social Research Institute, Cabinet Office, Japanese Government, released on December 25, 2018  . (Note: uses 2017 yearly average exchange rate of 112.2 Yen to 1 U.S. Dollar)

** 2017 FDI data from “JETRO Invest Japan Report 2018 (Summary) and FDI stock, Japan’s Outward and Inward Foreign Direct Investment,” Japan External Trade Organization (JETRO).

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.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment