Japan regained the position as the second largest source of direct investment (FDI) into Australia at the end of 2024. In fact Japan has had the second position in 8 of the past 10 years, showing a consistently high level of commitment to Australia and the mutual benefit of the bilateral relationship. The amount of Japanese FDI into Australia at the end of 2024 had reached a total of $159.5 billion, an increase of 11% over the previous year and higher than the increase of total FDI into Australia of 8.3%. Japan’s share was 12.5%, a record high. The US was the largest source of FDI ($235 billion), with the UK third ($156 billion) and Canada fourth ($84 billion). Counting China and Hong Kong together, their total was $73 billion or 4.9%.

An interesting feature of the data is that the US share was 21-24% between 2015-19 and between 16-19% in 2020-24, which highlights the relative rise of Japan’s investment value for Australia. A second interesting feature is that the combined share of the countries most aligned with Australia in political and strategic terms (US, Japan, UK, Canada) accounts for 50% of all FDI into Australia. This intense complementarity between economic prosperity and security is the bedrock of future growth.

There is an accurate reflection of the above ABS data in the newly published report on Japanese Investment in Australia by the Herbert Smith Freehills Kramer and the ANU ( https://marketing.hsfkramer.com/420/34460/uploads/japan-australia-investment-report-2024-record-breaking-investment-(english).pdf ) which showed an unprecedented level of investment deals in 2024.

The report shows a record 72 M&A deals and 55 partnerships, which is the third consecutive year of record activity. It is impossible to overstate the strength and longevity of the Japan-Australia business relationship and these investments and partnerships are made with the long term vision. This symbiosis is shown by the continued investments in the core complementarity of energy and raw materials (LNG, coal and iron ore).

Of equal importance are the array of new sectors attracting investment and partnerships: IT; start-ups; clinical trials; data centres; life insurance; energy transition; and the hottest sector at the moment, which is real estate. Japanese companies are making serious investments into the Australian property market, from residential housing to luxury apartments, office buildings, build to rent and build to sell, affordable housing, etc. Japan is making a real contribution to alleviating the housing crisis.

To tie the report back to the major country investors in the ABS statistics, two emerging sectors which have outstanding potential are defence (and space) and critical minerals. Both of these sectors have strong synergies with the geopolitical alignment of Australia’s major investors, including Japan, especially as supply chains for strategic materials require diversification to be resilient. Growth in these sectors is not straightforward and will depend on increasingly regular communication between the respective governments and private sector to achieve commitment.

Finally, there is one sector that I consider to be of crucial importance but can only mention in passing, which is AI. There is an enormous race for AI development (and perhaps dominance), which will reshape the world. Japanese and Australian collaboration can and should make a significant contribution to this future.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence