JETRO Invest Japan Report 2021
Chapter1. Macroeconomic and Inward/Outward Foreign Direct Investment Trends in the World and Japan Section2. FDI Trends in the World and Japan
Trends in Inward FDI to Japan part1

In 2020, inward FDI to Japan (net, flow) was 7.1 trillion yen, up 61.8% from the previous year (Chart 1-20). This is the largest amount since 2014, for which comparable data is available, far exceeding the amount of 4.5 trillion yen in 2016.

Breaking down FDI flow to Japan in 2020 (7.1 trillion yen) by forms of capital, equity capital^*4 fell 49.8% year on year to 600 billion yen, reinvestment of earnings^*5 decreased 2.6% to 1.4 trillion yen, while debt instrument^*6 increased 183.7% to 5.1 trillion yen (Chart 1-21). Reflecting the economic and social impact of the global COVID-19 crisis, equity capital, which represents the trend of new investment and capital increase in Japan, halved compared to the record high in 2019. On the other hand, debt instrument, which include lending and borrowing between companies with capital ties, has increased significantly. This increase was the main factor behind increasing FDI flow to Japan in 2020. In particular, according to the announcement by the Ministry of Finance in June 2020^*7, when debt instrument rose significantly, the increase in debt instrument was attributable to "borrowings from overseas affiliates, etc." by Japanese companies. Because of the recording principle of these statistics (asset and liability principle^*8), borrowing by Japanese companies from their overseas subsidiaries, etc. is reflected in the amount of FDI flow to Japan, which has pushed up the overall amount.

By region, Europe accounted for the largest share of FDI flow to Japan in 2020 at 4.1 trillion yen, up 351.3% from the previous year, followed by North America at 2.3 trillion yen, up 20.6%, and Asia at 1 trillion yen, down 1.6% (Chart 1-22).

Among Europe that accounted for the largest share of FDI flow to Japan, the U.K. invested the largest amount of all countries and regions at 3.3 trillion yen, up 969.9% from the previous year, and Switzerland the third largest at 800 billion yen, up 704.4%. The investment from these two countries accounted for the majority of the investment from Europe. The U.S., the second largest, invested 2.3 trillion yen, a 21.1% year-on-year increase. Looking at investments from the U.K., the U.S., and Switzerland, the top countries in the amount of FDI flow to Japan in 2020, debt instrument accounted for the largest portion.^*9

As for Asia, where FDI to Japan has been on the rise in recent years, Singapore rose 98.3% year on year to 500 billion yen, but other major investor countries and regions saw declines across the board, including 31.5% down in China and 45.4% down in Hong Kong.

According to the statistics for FDI by industry, FDI flow to Japan fell 26.8% from the previous year to 1.1 trillion yen in 2020, the first year-on-year decline in three years since 2017. The non-manufacturing sector accounted for the majority with 1.1 trillion yen (96.8% of the total), and the manufacturing sector with 0.03 trillion yen (3.2% of the total) (Chart 1-24).

In terms of specific industries, the financial and insurance industry accounted for the largest share at 1.2 trillion yen, down 3.7% year on year, overwhelming other industries. It was about six times as much as the transportation equipment industry, which accounted for the next largest share (200 billion yen, down 18.4% YoY) (Chart 1-25). Looking at investment by country in the financial and insurance industry, the U.S. saw a 40.5% year-on-year decline to 700 billion yen, but Singapore nearly tripled its investment from the previous year to 400 billion yen. In addition, there was an increase in investment from European countries, resulting in an overall investment amount at the same level as the previous year. In the manufacturing industry, electrical machinery, which usually has a relatively large value, fell 90.4% year on year to 30 billion yen, and chemicals and pharmaceuticals saw a net withdrawal of 200 billion yen, constraining the overall figure.