Prologue

June 2022

The world as we know it has changed in many ways since the novel coronavirus (Covid-19) global pandemic began to spread in late 2019. Since then, topics such as climate change, global supply chain vulnerability, energy security, and geopolitical risks have all come to the fore—all at the same time.

And even before the Covid-19 pandemic, many nations, including Japan, were already facing a variety of challenges, from aging societies to labor shortages. Concerns around economic disparity between metropolitan and regional areas, and challenges around further improvement of work-life balance, including remote work, were also trending.

To overcome these challenges and achieve sustainable economic growth, innovation is indispensable; and, it is important to stimulate the global flow of human resources, technology, and capital that will be the source of such innovation. Japan is expected to be a leader in tackling these future challenges, and is changing to meet the moment. That is in part why the country is liberalizing its economy further, and laying the foundations necessary to attract even greater foreign direct investment (FDI) and talent from overseas.

As Prime Minister Fumio Kishida noted in a speech calling for “Invest in Kishida,” which was delivered at the City of London in May, Japan has enormous potential, not least of which is 2,000 trillion yen in personal financial assets and 320 trillion yen in corporate cash and deposits at its disposal.

Indeed, at the Council for Promotion of Foreign Direct Investment in Japan meeting held in June 2021, the government formulated the Strategy for Promoting Foreign Direct Investment in Japan, which includes the promotion of digital transformation (DX) and green transformation (GX). The establishment and development of an innovation ecosystem for global startups, and the immediate creation of a business and living environment conducive for foreign companies, are also being promoted.

Going forward, domestic stakeholders such as central government and local governments, academia, and Japanese companies, as well as overseas players including startups and investors, are expected to play a fundamental role in this strategy. Indeed, overseas players are already active in the Japanese market—and their activities are not limited to the establishment of conventional sales and manufacturing bases. They are creating opportunities for innovation through collaborative partnerships with Japanese companies and academia, and new businesses that start with solutions for Japan’s social priorities.

Who are they? They are global companies and organizations, particularly financial and academic institutions and startups. Highly skilled individuals from overseas are also part of the innovation mix. Together, global institutions and individuals are becoming more involved now than ever before in key areas of Japan’s economy and society, and they can do that in an environment designed to welcome them.

This article is the first in a series of articles. The purpose of this series is to provide useful insights into the changing investment and innovation environment—including new business opportunities—in post-Covid-19 Japan. We hope this series will be instrumental for companies and investors considering entry into the Japanese market or partnerships with Japanese companies and institutions.

The articles cover four themes: (1) business opportunities in key industries; (2) Japanese government policies to improve the business environment; (3) Japan’s hidden strengths and attractions; (4) trends in business fundamentals such as human resources and finance.

The first theme will look at trends in areas such as digitalization, the green sector, manufacturing, and healthcare. It will show opportunities for innovation and creating new markets in Japan and abroad through collaboration between Japanese and foreign companies with examples of foreign startups in Japan.

The second theme will discuss government-led policies and initiatives to improve Japan’s investment and innovation landscape while promoting a global, collaborative mindset. The focus here will be GX, DX, and other strategies to improve the business environment.

The third theme will showcase some of Japan’s hidden attractions. These include trends in the startup ecosystem and examples of collaboration between academia, local governments and companies from overseas. In addition, business opportunities utilizing Japan's resources —from agriculture to tourism and more—will be highlighted, again with examples of successful collaborations involving entities from abroad.

Finally, theme four will highlight the latest trends in business fundamentals, such as human resources development and finance. Here, the focus will be on efforts to stimulate the global flow of innovative technologies, capital, and highly skilled individuals. Specifically, we will look at use cases in environmental, social and governance (ESG) concepts, the creation of financial centers in Japan, and the facilitation of mergers and acquisitions (M&A) and venture capital markets. It will also highlight efforts to promote the success of foreign talent in Japan.

Which all leads to the question: Why Japan? In addition to the aforementioned reasons, there are many factors at play when entities and talent worldwide choose to invest in Japan. After all, Japan is the world's third largest economy, has a sophisticated market for its products, services, and technologies, and continues to enjoy stable economic growth.

It is also worth underlining that Japan has responded to global socioeconomic changes positively, and is rapidly developing its business environment as described above. And that’s not to mention the country’s modern infrastructure, which makes it easy to enjoy activities in the city and in the countryside while, at the same time, enjoying a harmonious society where people live in peace.