2017 Investment Climate Statements: Japan

Policies Towards Foreign Direct Investment

The Government of Japan explicitly promotes inward FDI and has established formal programs to attract it. Soon after taking office, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion ($314 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2015, Japan’s inward FDI stock was JPY 24.4 trillion ($202 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 a new “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. Its most recent report (http://www.invest-japan.go.jp/promotion/policy_package_en.pdf ), released May 2016, recommends a set of reforms to ease the entry of foreign firms into Japan, including simplification of relevant regulation, expanded translation of Japanese law into English, and simplification and centralization of business registration procedures.

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 to acquire a Japanese firm through corporate takeover may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations. 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; a lack of independent directors on many company boards (even though this 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.

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 date, six 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.

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, 2015 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

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/laws.html ), 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 2017 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. 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 2017.

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/finance/investment .

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 2017, Japan had concluded bilateral investment treaties (BITs) with 29 countries: Bangladesh, Cambodia, China, Colombia, Egypt, Hong Kong SAR, Iran, Iraq, Israel, Kazakhstan, South Korea, Kuwait, Laos, Mongolia, Mozambique, Myanmar, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, Uruguay, Uzbekistan, Vietnam, Oman, and Kenya. In addition, Japan has a trilateral investment agreement with China and South Korea. Japan also has 16 EPAs that include investment chapters (Singapore, ASEAN, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Philippines, Switzerland, Vietnam, India, Peru, Australia and Mongolia) and continues to negotiate an EPA with the European Union that includes provisions related to investment. In 2016, Japan’s parliament ratified the Trans-Pacific Partnership, an agreement among 11 countries that includes an investment chapter, but the agreement has yet to enter into force.

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 55 double taxation treaties that cover 66 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 .

Transparency of the Regulatory System

Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role. Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal (https://www.e-gov.go.jp ). Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette. The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws (http://www.japaneselawtranslation.go.jp/ ).

Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on informal connections between regulators and domestic firms to arrive at regulatory decisions. This may have the effect of disadvantaging foreign firms which lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures, to ensure consistency and transparency in rule-making, and to give fair consideration to comments received. The National Trade Estimate Report on Foreign Trade Barriers, issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry (METI), plays a central role in maintaining the Japan Industrial Standard (JIS), the country’s main body of standards. JISC aims to align JIS with international standards: in 2016, the organization estimated that 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country. Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.

Legal System and Judicial Independence

Japan is primarily a civil law country based on codified law. The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal base of the system. Japan has a fully independent judiciary and a consistently applied body of commercial law. An Intellectual Property High Court was established in 2005 to expedite trial proceedings in IP cases. Foreign judgments are recognized and enforced by Japanese courts under certain conditions.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign direct investment (FDI) into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act. The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008. The Japanese government has not promulgated any significant new laws or regulations related to FDI in the past year.

Competition and Anti-Trust Laws

The Japan Free Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC accusation. The JFTC also reviews proposed “business combinations” (i.e. mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially […] restrain competition in any particular field of trade.” There have been no significant changes to Japanese competition and anti-trust law in the past year.

Expropriation and Compensation

In the post-war period since 1945, the Japanese government has not expropriated any enterprises and the expropriation or nationalization of foreign investments in Japan is highly unlikely.

Dispute Settlement

ICSID Convention and New York Convention

Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Investor-State Dispute Settlement

There have been no major bilateral investment disputes in the past ten years.

International Commercial Arbitration and Foreign Courts

The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan. Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law). Local courts recognize and enforce foreign arbitral awards.

A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan. The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups. A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html .

Bankruptcy Regulations

The World Bank 2017 “Doing Business” Report ranked Japan second worldwide for resolving insolvency. An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement. The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.

Out-of-court settlements in Japan tend to save time and expense but can lack transparency. In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.

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. However, separate and inconsistent privacy guidelines among Japanese ministries have created a burdensome regulatory environment with regard to the storage and general treatment of personally identifiable information in Japan. In September 2015, the Japanese Diet passed an amendment to the Personal Information Protection Act, seeking to “enhance the use of personal data for business purposes while protecting privacy.” The amendment created new rules for the protection of personal data including the transfer of personal data over the Internet, and established a third party authority similar to the EU’s Privacy Commissioner as regulator. On January 1, 2016, the Personal Information Protection Commission was established. The Commission issued its guidelines for businesses on the protection of personal data on November 30, 2016. The 2015 amendment to the Personal Information Protection Act will be fully enforced starting May 30, 2017.

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 2017 “Doing Business” Report, Japan ranks 48 out of 189 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.

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 fourth worldwide in its 2017 report, up from seventh in 2016. While IP piracy remains a problem, it 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 2015, cases before the court required an average of 7.8 months for disposal. 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.

In 2016, Japan’s legislature approved a series of reforms to the country’s IP framework as part of the legislative package ratifying and implementing the Trans-Pacific Partnership (TPP). Among several changes were an extension of the term of copyright protection for most works to seventy years, the establishment of a system for pre-established damages, an allowance for ex officio prosecutions of copyright violators, and provision for the recognition of foreign geographic indications. With the exception of the provision related to geographic indications, these changes will not come into effect unless the TPP enters into force.

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 11.4 billion yen ($100.5 million) of goods in 2016, mostly due to intellectual property infringement. China is the largest source of seized goods in Japan, accounting for 92% of all seizure cases and 78% of all seized goods by value.

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 comprising the majority of the investment 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. Companies included should have returns on equity exceeding 11 percent in the past two years, and also should have two or more 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 ROE. The Bank of Japan has indicated it will purchase JPX-Nikkei 400 ETFs as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF), also has indicated it will invest in JPX-Nikkei 400 ETFs, putting an additional premium on membership in the index.

Japan does not restrict financial flows, and accepts obligations under 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 $7 trillion. Japan’s second largest bank by assets – with more than $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 234 branches as well as Japan Post’s network of more than 240,000 post offices 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.

Foreigners wishing to establish bank accounts must show 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.

Foreign Exchange and Remittances

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.

Sovereign Wealth Funds

Japan does not operate a sovereign wealth fund.

Japan has privatized most former state-owned enterprises (SOEs). Privatization of Japan Post Holdings Co. and its financial subsidiaries, Japan Post Insurance and Japan Post Bank, began in November 2015 with an IPO that sold 11 percent of available shares in each of the three entities. The final Japan Post entity, the postal service subsidiary Japan Post Co., will remain a wholly owned subsidiary of JP Holdings. 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 all shares of JPB and JPI, as soon as possible. Media has reported the possibility of an additional offering of Japan Post Holdings Co. stock, perhaps during 2017, and selection of underwriters for the offering was underway as of March 2017.

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.

Japanese corporate governance has traditionally suffered from insufficiently independent corporate directors and cross-shareholding agreements not necessarily aligned with the interests of shareholders. The Abe government has made improving Japanese corporate governance a prominent component of its economic reform agenda. The number of Japanese firms with at least one independent director has increased dramatically, thanks in part to non-binding recommendations introduced by 2014 reforms to Japan’s Companies Act and the creation of a corporate “Code of Conduct” by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE). Japan’s corporate governance code also calls for firms to explain cross-shareholdings and to increase transparency in corporate capital plans.

The Abe Administration hopes the Code will help reinvigorate Japan’s corporate sector by encouraging a stronger focus by corporate management on earnings and shareholder value. Together with the “Stewardship Code” for institutional investors launched by the FSA in April 2014, the Code encourages companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth.

Awareness of corporate social responsibility among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles. Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines. With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.

The direct exchange of cash for favors from government officials in Japan is extremely rare. However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular— business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased significantly over the past decade.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission (JFTC) to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Japan has ratified the OECD Anti-Bribery Convention, which bans bribing foreign government officials. However, there are continuing concerns over the effectiveness of Japan’s anti-bribery enforcement efforts, particularly the very small number of cases prosecuted by Japanese authorities compared to other OECD members.

Resources to Report Corruption

Businesses or individuals may contact the Japan Fair Trade Commission (JFTC), with contact details at: http://www.jftc.go.jp/en/about_jftc/contact_us.html .

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 20 years, in part due to demographic decline, with a shortage of workers in sectors such as construction, medical services, and caregiving. Unemployment of 3.1 percent is at a twenty year low. 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.

The number of foreign workers is rising, but at roughly 1 million, still represents a tiny fraction of Japan’s 66 million-worker labor force. The Japanese government has made additional changes to labor and immigration law 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.

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 2016, the Diet passed legislation that extended the period of stay under TITP to five years for more categories of workers, and to strengthen supervision of the program and companies to deter human rights abuses.

To address the impending 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 65. Since 2013, the government has committed to increasing women’s economic participation. 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 the numbers.

In April 2015, the so-called “White Collar Exemption” Bill (Bill to Revise the Labor Standards Law) was submitted to the Diet to implement a merit-based wage system for certain highly-skilled professionals and to exempt firms from paying such workers overtime or premium overtime pay for late night, weekend, or holiday work. Deliberation on the bill was delayed again in 2016 and it has been carried over for consideration by the Diet in the 2017 session.

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 18 percent of the labor force, down from 25 percent in the 1990s.

Japan has ratified 48 ILO Conventions (including six of the eight core Conventions). As part of the Trans-Pacific Partnership, Japan agreed to adopt the fundamental labor rights as recognized by the International Labor Organization (ILO), including elimination of forced labor and the abolition of child labor.

Overseas Private Investment Corporation (OPIC) insurance and finance programs are not available in Japan.

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.

*2015 Nominal GDP data from “Annual Report on National Accounts for 2015”, Economic and Social Research Institute, Cabinet Office, Government of Japan. December 22, 2016. (Note: uses exchange rate of 121.0 Yen to 1 U.S. Dollar)

** 2015 FDI data from “Japan’s Total Inward FDI by Country/Region (International Investment position),” Japan External Trade Organization (JETRO).
Table 3: Sources and Destination of FDI

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 4: Sources of Portfolio Investment

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