Japanese Foreign Direct Investment (FDI) into Australia continues to surge as the partnership once again breaks new ground in the depth and diversity of business opportunities. According to the latest data from the ABS, Japanese FDI into Australia in 2023 reached a new record of $141 billion, an increase of 5.5% over 2022.

This amount places Japan as the third largest investor behind the US and UK. However, there are a couple of statistics that provide extra context to understand these placings over time. Firstly, Japan is the only major investor to have increased its FDI in Australia in every single year in the past ten years, whereas the others have had reductions as well as increases. Secondly, in the five years from 2019-2024 Japanese FDI has risen by 22%, versus 10.5% from the UK and a reduction of -4.3% from the US and -2.4% from China. Japan accounts for 12% of the total stock of FDI in Australia. Curiously, the US share was 17.8% in 2023, significantly below its peak in 2015 of 24.0%. China’s share has fallen to 3.9% and been overtaken by Canada which is now in fourth position.

Furthermore, using the statistics from Japan’s Ministry of Finance, there was a surge of Japanese FDI in 2023 to reach YEN 25,724 billion worldwide, an increase of 11% and to Australia it was YEN 2,327 billion, an increase of 52% on 2022! Australia accounted for 9% of all Japanese FDI in 2023.

As I have mentioned before, Australia has become a key market for Japan, both as a partner in energy security and transition and also as an economic opportunity due to population growth and the continuing gap in demand and supply for housing and infrastructure. Australia’s median wealth per capita is the fourth highest in the world and has energy self-sufficiency around 340%.

It is fitting that the latest Japan-Australia Investment Report 2023 from Herbert Smith Freehills, this time in partnership with the Australia Japan research Centre of the ANU, is titled Partners in Prosperity ( https://www.herbertsmithfreehills.com/insights/2024-04/japan-australia-investment-report-2023-partners-in-prosperity ). The report shows a new record of 53 M&A transactions and an acceleration in the diversification of sectors. It's important to understand that diversification is not for the purpose of risk management but that more opportunities are arising in so many sectors.

The top trends were: real estate; innovation; consumer; decarbonisation; hydrogen; ammonia; LNG; minerals; financial services; and infrastructure. Also of interest is the emergence of new trends in medical and healthcare, defence, cyber, space and tourism. Although it’s impossible to summarise for this article the breadth of the partnership, I will use two examples to highlight the leading edge of new opportunities.

Firstly, Mitsubishi Electric signed an agreement with the Australian Department of Defence for the joint development of a new capability utilising Mitsubishi electric’s laser technology to enhance surveillance and survivability of Australian Defence Force platforms. Secondly, Mitsubishi Heavy Industries has been named as one of four possible candidates for procurement of navy frigates. These are small but momentous steps and support the entire range of shared interests between Australia and Japan, the strongest partnership in our region.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence