2022 Investment Climate Statements: Japan

Policies Towards Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Diet amended 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 Diet further amended FEFTA 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 2020, Japan’s inward FDI stock was JPY 39.7 trillion (USD 386 billion), a 15.6 percent increase over the previous year, achieving the target. The previous administration set a target for inward FDI stocks to double to JPY 80 trillion ($672.3 billion with 1.0 USD = ¥119) by 2030, set out in the Basic Policies released in June 2021 by then-Prime Minister Suga. Achieving this goal would put Japan’s FDI stock as a percentage of GDP at around 20 percent of the OECD average.

From time to time, 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, however, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. Such 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 (although 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 longstanding labor practices that tend to inhibit labor mobility. Business leaders have communicated to the U.S. 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. Authorities count foreign ownership of Japanese companies invested in terrestrial broadcasters against these limits. The 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 July 2020 (available at directdoc.aspx (wto.org) ).

The OECD released its biennial Japan economic survey results in December 2021 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

Business Facilitation

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. Japan established a new Digital Agency in September 2021 to promote the digital provision of government services and digital transformation in the private sector.

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. Although 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, Labour, 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 at 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.

Outward Investment

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. (Note: Days after Russia’s invasion of Ukraine, JBIC announced on March 3, 2022, that it would review the agreement it signed in November 2021 providing for a JPY 220 billion ($1.8 billion) in loans regarding LNG development in Russia.) More information on JBIC 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, except under certain circumstances (e.g., with countries under international sanctions) that are listed in the appendix of the FEFTA.

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 February 2022, Japan had concluded 36 bilateral investment treaties (BITs), available online (https://investmentpolicy.unctad.org/international-investment-agreements/countries/105/japan). In addition, Japan has a trilateral investment agreement with China and the Republic of Korea, which became effective in May 2014. Japan also has 20 economic partnership agreements (EPA) that include investment chapters (https://www.mofa.go.jp/policy/economy/fta/index.html), as of January 2022.

On January 1, 2021, the Japan-UK Comprehensive Economic Partnership Agreement entered into force. It includes a chapter on investment liberalization. The text of the agreement is available online ( https://www.mofa.go.jp/files/100111408.pdf ).

On November 15, 2020, Japan signed the Regional Comprehensive Economic Partnership (RCEP) with the ten ASEAN nations, Australia, China, the Republic of Korea, and New Zealand. RCEP, which entered into force on January 1, 2022, also includes a chapter on investment. The text of the agreement is available online ( https://rcepsec.org/legal-text ).

On February 1, 2019, the Japan – European Union Economic Partnership Agreement entered into force, which includes provisions related to investment. The text of the agreement is available online ( http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684&title=EU-Japan-Economic-Partnership-Agreement-texts-of-the-agreement ).

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) went into effect on December 30, 2018. The agreement, to which the United States is not a signatory, includes an investment chapter. Japan ceded the chair of the CPTPP commission to Singapore on January1 but remains responsible for managing the UK’s application for accession to the CPTPP, which was pending as of March 2022.

Japan is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and party to the Framework’s October 2021 agreement on a global minimum corporate tax.

The United States and Japan have a double taxation treaty in effect, which allows Japan to tax the business profits of a U.S. resident only to the extent that 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 corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations offshore.

On January 24, 2013, the United States and Japan signed a revision to the 2003 bilateral Convention on Double Taxation, to bring it into closer conformity with the current tax treaty policies of the United States and Japan. The revision went into effect on August 30, 2019.

Japan has concluded 82 double taxation treaties that cover 149 countries and jurisdictions, as of February 1, 2022. 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 ( http://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 with adequate time for them to prepare, relying instead on formal and informal connections between regulators and domestic firms to arrive at regulatory decisions. This practice may have the effect of disadvantaging foreign firms that 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 (NTE), 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.

The Japanese government encourages environmental, social, and governance disclosure (ESG) to assist investors. The Financial Services Agency is coordinating closely with the international community on harmonizing these standards in the G20 and the Financial Stability Board, among other multilateral groups, and is working to implement these best practices domestically. It is working with the Tokyo Stock Exchange to catalogue ESG bonds issued within the exchange.  The Tokyo Metropolitan Government provides subsidies that aim to partially cover certification and consulting costs incurred by entities issuing green bonds.  Combined with subsidies funded by the Ministry of the Environment, the additional burden incurred by issuing entities can be reduced by as much as 90 percent.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry, plays a central role in maintaining Japan Industrial Standards (JIS). JISC aims to align JIS with international standards. According to JISC, as of March 31, 2021, 59 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 basis 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 into Japan include the 1949 Foreign Exchange and Foreign Trade Act, the 2005 Companies Act, and the 1948 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 amended the Foreign Exchange and Foreign Trade Act in 2019.

Competition and Antitrust Laws

The Japan Fair 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 finding. In fiscal year 2020, the JFTC investigated 101 suspected Antimonopoly Act (AMA) violations and completed 91 investigations. During this same time period, the JFTC issued 15 cease and desist orders and issued a total of JPY 4.3 billion (USD 42 million) surcharge payment orders to four companies. In 2019, the Diet amended the AMA and granted the JFTC discretion to incentivize cooperation with investigations and adjust surcharges according to the nature and extent of the violation.

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.” In December 2019, amended merger guidelines and policies entered into force to “deal with business combinations in the digital market.” Data enjoys consideration as a competitive asset under these new guidelines along with the network effects characteristic of digital businesses. The JFTC has expanded authority (but under no legal obligation) to review merger cases, including “Non-Notifiable Cases,” when the transaction value is more than JPY 40 billion (USD 370 million) and the merger is expected to affect domestic consumers. Further, the amended policies suggest that parties consult with the JFTC voluntarily when the transaction value exceeds JPY40 billion and when one or more of the following factors is met:

(i) When an acquired company has an office in Japan and/or conducts research and development in Japan;
(ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or
(iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)

Expropriation and Compensation

Since 1945, the Japanese government has not expropriated any enterprise, 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).

Japan’s Arbitration Law provides for enforcement of arbitral awards in Japan. Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however. The Arbitration Law provides that an arbitral award (regardless of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment. The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.

Investor-State Dispute Settlement

There has been only one public major bilateral investment dispute with Japan as a respondent in the past ten years. In 2021 a Hong Kong-based investor brought the first known investment treaty claim against the Japanese government over reductions to the feed-in tariff rates for renewable energy products, according to media reports.

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 .

The Japan International Dispute Resolution Center (JIDRC) was established in 2018 to promote international arbitration and mediation in Japan. In 2021 it opened a purpose-built facility in Tokyo to host arbitration proceedings, with a professed goal of increasing the use of arbitration as a means for cross-border dispute resolution proceedings in Japan. More information is available online: https://idrc.jp/en/

Bankruptcy Regulations

The World Bank 2020 “Doing Business” Report ranked Japan third 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.

There are three domestic credit reporting/credit monitoring agencies in Japan. They are not government-run.  They are: Japan Credit Information Reference Center Corp. (JICC, https://www.jicc.co.jp/english/index.html ‘, member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC, https://www.cic.co.jp/en/index.html , member companies deal in credit cards and credit); and Japan Bankers Association (JBA, https://www.zenginkyo.or.jp/pcic/ , member companies deal in banking and bank-issued credit cards). Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.

Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes.  This information is provided to credit card holders themselves through services provided by credit reporting/credit monitoring agencies.   Increasingly, however, to get around the law, real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services. According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, do not necessarily share data with each other.  As such, consumer credit information is generally underutilized and vertically siloed.

A government-operated database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations. The database is strictly confidential, government-controlled, and not shared with third parties or private companies.

For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank. See Section 9 for more information on business vetting in Japan.

Investment Incentives

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

Japan established a feed-in-tariff (FIT) system in 2012 to incentivize the diversification of its power supply. Under the FIT, approved renewable energy projects – including solar photovoltaic (PV), wind, geothermal, small-scale hydropower, and biomass – sell electricity to the transmission and distribution utilities at a fixed price for 20 years, and the utilities pass these costs on to end users through electricity rates. Solar PV has benefited most from the FIT scheme, with Japan now the world’s third largest solar market by installed capacity. Prices are set annually according to resource type and other conditions. Due to the cost of the FIT system – estimated at JPY 80.2 billion ($671 million) for 2022 – METI has reduced subsidy levels over time, particularly for solar PV projects. It has also taken other measures to control costs, such as introducing a capacity auction system for projects over a certain size.

In line with recent revisions to Japan’s Renewable Energy Act, a new “feed-in-premium” (FIP) scheme will go into effect in April 2022 alongside the existing FIT scheme. Under the FIP, approved projects can receive a premium – based on the variable wholesale power market price – in addition to any revenue earned through market or bilateral transactions. FIP projects over a certain size must also participate in the existing auction system. The revised Renewable Energy Act also established a limit on the time period within which new FIT or FIP projects must commence operations before losing their access to grid interconnection. Further, the revised act requires that new commercial solar projects secure funds necessary for end-of-life decommissioning. These changes to Japan’s renewable energy support scheme, while necessary to address the growing economic costs of the existing FIT scheme, is forcing project developers to change their business models and sharpen their ability to predict revenues. We cannot yet estimate the impact these changes will have on the growth of Japan’s renewable energy market.

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 ten 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. 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.

The Diet approved a revision to add “advanced data technologies” as one of targeted growth areas for NSSZs in May 2020, which went into effect on September 1, 2020. The revision allowed regions to create “Super City National Strategic Zones,” on the condition that the zone will provide advanced services to its citizens through utilizing artificial intelligence (AI), big data or other data linkage platforms. The Cabinet Office website cited remote schooling/healthcare, cashless payment services, and one-stop administrative services as examples of such projects.

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. On January 1, 2020, the U.S.-Japan Digital Trade Agreement went into effect and specifically prohibits data localization measures that restrict where data can be stored and processed. These rules are extended to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.

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 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 down payment required of the purchaser, as the bank will provide financing only up to the appraisal value.

Japan currently has no laws that ban or control land purchases by foreign nationals who live in the country. Foreign individuals and entities located outside of Japan also have the right to purchase property. On June 16, 2021, Japan’s Diet passed the Law to Investigate and Regulate Land Use around Important Facilities and Remote Border Islands, tightening oversight of land use near designated areas such as military defense facilities by allowing the Japanese government to collect personal information of individuals, both foreign nationals and Japanese citizens, to investigate their land usage. The law and its implementing guidelines may enter into effect as early as April 2022.

The Japanese government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land. 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 taxes. 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 2021, Japan ranked fifth 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 and medical devices. 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 and 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.

On May 19, 2021, Japan’s National Diet amended the country’s Trademark Act, closing a loophole that had permitted unlimited importation of counterfeit goods delivered by mail to individuals who claimed the items were for personal use. Previously, only imports for business purposes were within the scope of the Trademark Act. Items claimed for personal use were exempted, and there was no restriction on the quantity of items imported for personal use, nor any limit on the number of times an individual could apply the personal use exemption.

On May 26, 2021, Japan’s National Diet amended the country’s Copyright Act, a move that U.S. rights holders have flagged as potentially compromising intellectual property rights.  The amendment went into effect on January 1, 2022.  It stipulates that any license obtained to transmit content through traditional television broadcasting systems can be presumed to include a grant of rights to simulcast the content via other means, including Internet transmission. Lawmakers crafted the presumption of rights extension to overcome “difficulties” expressed by domestic broadcasters associated with obtaining rights from “non-professional” creators and licenses obtained via non-contract scenarios.  U.S. stakeholders have expressed concern about the revision creating potential uncertainty for commercial licensing and the potential for unintended consequences without due consideration of global perspectives. In response, officials of Japan’s Agency for Cultural Affairs (ACA) stressed that business contracts, such as those under which major international content distributors operate, would not be affected, and the ACA does not foresee the amendment materially altering such existing business practices.

U.S. Embassy Tokyo is aware of isolated claims of U.S. IP misappropriation by Japanese state-owned or affiliated entities and presumes, and 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. In July 2019 revisions to the Unfair Competition Prevention Act (UCPA) went into effect. They classify the improper acquisition, disclosure, and use of specified protected data as an act of unfair competition and offer 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: The Regional Comprehensive Economic Partnership includes a comprehensive IP chapter, much of it repeating norms set out in the Trade-Related Aspects of Intellectual Property Rights Agreement, 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 entered into force February 1, 2019, also includes a substantial IP chapter.
• CPTPP: As part of its 2018 accession to the CPTPP, 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 USD 118.3 million worth of IP-infringing goods in 2020, a decrease of 2.4 percent over 2019. 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/ .

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment except for certain provisions covering national security. Foreign capital plays an important role in Japan’s financial markets, with foreign investors accounting for the majority of trading shares 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 (ROE). Companies included are determined by such factors as three-year average returns on equity, three-year accumulated operating profits and market capitalization, along with others 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 ROE. The Bank of Japan has purchased JPX-Nikkei 400 exchange traded funds (ETFs) as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) has also invested in JPX-Nikkei 400 ETFs, putting an additional premium on membership in the index. The TSE and FSA revised the Corporate Governance Code in 2021 to reflect the realignment of TSE segmentations to be implemented in 2022. The revised guidelines require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors.

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 many 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. For example, the National Federation of Agricultural Cooperative Associations 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, especially some of the regional banks.

The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are MUFG Bank (a banking subsidiary of Mitsubishi UFJ Financial Group), Mizuho Bank (Mizuho Financial Group), and SMBC (Sumitomo Mitsui Financial Group). Collectively, they hold assets reaching USD 6.0 trillion at September end of 2021. Japan’s second largest bank by assets – with more than USD 2.0 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Holdings(which holds 88.99 percent of the bank’s shares as of September 2021). Japan Post Bank offers services via 23,815 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of 31,901 ATMs nationwide, as of the end of March 2021.

Many 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 (FSA). According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan. There are 518 correspondent financial institutions that have current accounts at the country’s central bank (including 123 main banks; 11 trust banks; 50 foreign banks; and 247 credit unions).

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.

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.  As a result of the government having set a target to have 80 banks adopt API standards by 2020, more than 100 subject banks reportedly have done so.  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 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 30 registered virtual currency exchanges in Japan, as of January 2022.

Foreign Exchange and Remittances

Foreign Exchange

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 and has not intervened in the foreign exchange markets since November 2011. It 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 IPO that sold 11 percent of available shares in each of the three entities. The postal service subsidiary, Japan Post Co., remains a wholly owned subsidiary of JPH. The Japanese government conducted additional public offerings of stock in September 2017 and October 2021, reducing the government ownership in the holding company to a little over one third. There were offerings in the insurance subsidiary in April 2019 and June 2021. JPH currently owns 88.99 percent of the banking subsidiary and 49.9 percent of the insurance subsidiary. Follow-on sales of shares in the two subsidiary companies will take place over time, but the government’s sale of JPH stocks in October 2021 is considered to be the last. The Postal Privatization Law requires the government to sell a majority share so that the government ownership would be “a little over one third” of all shares in JPH (which was completed in 2021), and JPH to sell all shares of JPB and JPI, as soon as possible.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi (2001-2006) 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 on 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 regarding the insurance sector and efforts to address these concerns is available in the annual United States Trade Representative’s National Trade Estimate on Foreign Trade Barriers report for Japan.

Privatization Program

In sectors previously dominated by state-owned enterprises but now 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.

Deregulation of Japan’s power sector took a step forward in April 2016 with the full liberalization of retail electricity supply, allowing all consumers to choose their electricity provider. This change has led to increased competition from, and rapid growth in the number of, new entrants; as of March 2022, there were almost 750 registered electricity retailers nationwide. While the generation and transmission of electricity remain mostly in the hands of the legacy power utilities, new electricity retailers reached a 21-percent market share of the total volume of electricity sold as of November 2021. Japan implemented the third phase of its power sector reforms in April 2020 by requiring vertically integrated regional monopolies to “legally unbundle” the electricity transmission and distribution portions of their businesses from the power generation and retailing portions. The transmission and distribution businesses retain ownership of, and operational control over, the power grid in their regional service territories. In addition, many of the former vertically integrated regional monopolies created electricity retailers to compete in the fully deregulated retail market.

American energy companies have reported increased opportunities in this sector, but also report that the regional power utilities have advantages over new entrants with regard to understanding the regulatory regime, securing sufficient low-cost generation in the wholesale market, and accessing infrastructure. For example, while the wholesale market allows new retailers to buy electricity for sale to customers, legacy utilities, which control most of the generation, sell relatively little power into that market. This limits the supply and increases the cost of electricity that new retailers can sell to consumers. While the liquidity of the wholesale electricity market has increased in recent years, new entrants — including American companies — report that they have few other options for cost-effectively securing the electricity they need to meet their supply obligations. In addition, as the large power utilities still control transmission and distribution lines, new entrants in power generation are not able to compete due to limited access to power grids.

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/ 

Japanese corporate governance has often been criticized for failing to sufficiently prioritize shareholder interests and detect wrongdoing by company executives in a timely way, due in part to a lack of independent corporate directors and to cross-shareholding agreement among firms. Previous governments made corporate governance reform a core element of their economic agendas with the goal of reinvigorating Japan’s business sector through encouraging a stronger focus by management on earnings and shareholder value. PM Kishida has pledged that his administration will facilitate reforms further, with an added emphasis on additional stakeholders, such as labor and the environment.

Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and adoption of a Corporate Governance Code (CSR) in 2015. Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives have encouraged companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth. Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members.  According to a TSE survey conducted in December 2018, 85.3 percent of companies had a compliance rate of 90 percent out of the 66 principles of the new code. As of August 2021, 97 percent of TSE First Section-listed firms had at least two independent directors, according to an August 2021 TSE report. In December 2019, the Diet approved a revision of the Companies Act, which will enable companies to provide documents for shareholders’ meetings electronically. Listed companies will be obligated to have at least one outside director. The bill went into effect on March 1, 2021.

Following Stewardship Code revision in March 2020, the TSE and FSA revised the Corporate Governance Code in spring of 2021 to reflect the realignment of the TSE segmentations, which will be implemented in 2022. The revised guidelines require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors. As of October 2021, 72.8 percent had one-third external directors. The guidelines also urge listed companies to have more diversity in mid-level and managerial posts by hiring and training female and foreign workers. Awareness of corporate social responsibility (CSR) 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.

Additional Resources

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Climate Issues

Changes to Japan’s Climate Law, enacted in May 2021 and taking full effect on April 1, 2022, codify Japan’s decarbonization commitments under the Paris Agreement. The revisions mark the first time that a specific reduction target was written into Japanese law. The new legislation amends the law in three areas: requiring Japan to achieve net-zero greenhouse gas emissions by 2050, bolstering mechanisms to support and expedite decarbonization at the subnational level, and requiring digitalization and transparency of emissions-related information published by the Government of Japan (GOJ). Diet approval of the revised law was unanimous.

The government had previously been less forward leaning on implementing policy and taking legislative action on Japan’s near-term 2030 climate goals. The new climate law aims to address this by expediting decarbonization projects through simplified licensing and approvals from GOJ ministries. The Ministry of Environment also plans to submit additional amendments to the law in April that would provide JPY 20 billion (USD 174 million) in funding for private sector entities and another JPY 20 billion to subnational governments to accelerate decarbonization efforts.

The 2021 revisions to the climate law also expand the standards for prefectural environmental policy and establish mechanisms to overcome local resistance and red tape for green project implementation. The law now calls for prefectural policies to specifically address renewable energy promotion, low-carbon products and operations, public transportation and greening of public spaces, and promotion of Japan’s “recycling-oriented society.” The changes also authorize ministries to establish standards for designating “promotion areas” for project development, following consultation with stakeholders and consideration of the “natural and societal conditions of each region.” In addition, municipalities must establish criteria for renewable energy promotion and work to identify local “promotion areas.” The new climate law streamlines and expedites approvals for decarbonization projects. Implementers, upon confirmation that a project aligns with municipal environmental plans, will benefit from consolidated and simplified licensing and approvals from GOJ ministries.

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 over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case was prosecuted in March 2018.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission 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.

Japan ratified the Organisation for Economic Co-Operation and Development (OECD) Anti-Bribery Convention, which bans bribing foreign government officials, in 1999. Japan detected only 46 allegations of foreign bribery, half of which the OECD brought to Japan’s attention, through 2019.

For vetting potential local investment partners, companies may review credit reports on foreign companies available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International.  Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by the U.S. Commercial Service at the U.S. Embassy, Tokyo.

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.

The Government of Japan has provided extensive and expanded employment subsidies to companies to encourage them to maintain employment during the COVID-19 pandemic. Despite the pandemic, worker shortages remain in sectors such as information service, restaurants, and construction. The unemployment rate as of January 2022 was 2.8 percent. The fact that Japan’s unemployment rate has risen so slowly during the pandemic is likely due to the social contract between worker and employer in Japan, as well as the continued government subsidies that expanded substantially under the pandemic. 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 such non-regular workers to fill short-term labor requirements and to reduce labor costs. The pandemic has particularly hurt non-regular workers whose employment was concentrated in hard-hit service sectors such as tourism, hospitality, restaurants, and entertainment.

Major employers and labor unions engage in collective bargaining in nearly every industry. Union members as of June 2021 made up 16.9 percent of employees (“koyo-sha”), down slightly compared to 2020 and in decline from 25 percent of the workforce in 1990. 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 still 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 has been rising but slowed down slightly during the past year due to the pandemic. At just over 1.73 million as of October 2021, they still represent a small fraction of Japan’s 68.6-million-worker labor force. The Japanese government has made changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. A revision to the Immigration Control and Refugee Recognition Law in December 2018, implemented in April 2019, created the “Specified Skilled” worker program designed specifically for lower-skilled foreign workers. Prior to this change, Japan had never created a visa category for lower-skilled foreign workers, and this law created two. Category 1 grants five-year residency to low-skilled workers who pass skills exams and meet Japanese language criteria and permits them to work in 14 designated industries, such as agriculture or nursing care, identified by the Japanese government to be experiencing severe labor shortage. Category 2 is for skilled workers with more experience, granting them long-term residency and a path to long-term employment, but currently permitted only in a few designated industries, such as construction and shipbuilding.

The Japanese government also operates the Technical Intern Training Program (TITP). Originally intended as an international skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in over 85 designated occupations, such as jobs in the construction, agriculture, fishery, and elderly nursing care industries. As noted previously, the 2018 Immigration Control Law revision enabled TITP beneficiaries with at least three years of experience to qualify to apply for the Category 1 status of the Specified Skilled worker program without any exams.

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 entered 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. The law was revised again in March 2020 and entered into force in April 2021, asking companies to “make efforts” to secure employment for workers between 65 and 70.

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. The COVID-19 pandemic has, however, had a disproportionately negative effect on women in Japan. Women were more likely than men to occupy non-regular positions, work in industries hardest hit by the downturn, and face greater pressure to prioritize family over work. As a result, women have experienced reductions in working hours, departure from the labor force, or furloughs in greater numbers than men, erasing part of the rise in their workforce participation through 2019. The Government of Japan has acknowledged this impact on women’s economic participation and convened a study group in September 2020 to consider solutions. Its final report, issued on April 28, 2021, urged that changes be made to systems and practices which persist in Japanese society, such as gender-based roles. The report also noted the importance of gender segregated data to be taken at the national and local government level, to help create effective measures.

In May 2019, a package law that revised the Women’s Empowerment Law, expanded the reporting requirements to SMEs that employ at least 101 persons (starting in April 2022) and increasing the number of disclosure items for larger companies (from June 2020). The package law also included several labor law revisions requiring companies to take preventive measures for power and sexual harassment in the workplace.

In June 2018, the Diet passed the Workstyle Reform package.  The three key provisions are:  (1) the “white collar exemption,” which eliminates overtime for a small number of highly paid professionals; (2) a formal overtime cap of 100 hours/month or 720 hours/year, with imprisonment and/or fines for violators; and (3) new “equal-pay-for-equal-work” principles to reduce gaps between regular and non-regular employees.

Japan has ratified 49 International Labor Organization (ILO) Conventions (including six of the eight fundamental conventions). As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership 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. The CPTPP entered into force on December 30, 2018.

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.

* Source for Host Country Data: *2020 Nominal GDP data from Economic and Social Research Institute, Cabinet Office, Japanese Government. February, 2022. (Note: uses exchange rate of 106.78 Yen to 1 U.S. Dollar and Calendar Year Average 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.

Pam Pontius
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku, Tokyo 107-8420
Japan+81 03-3224-5035
pontiuspr@state.gov