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 part2

Greenfield investment declined for the second consecutive year

The number of greenfield investments in Japan in 2020 (based on the date of publication) fell 14.3% from 2019 to 197, marking the second consecutive year-on-year decline (Chart 1-26).

Chart 1-26: Trends in Number of Greenfield Investments in Japan
The Number of Greenfield Investments in Japan: 106 cases in 2003, 132 cases in 2004 (up 24.5% YoY), 110 cases in 2005 (down 16.7% YoY), 140 cases in 2006 (up 27.3% YoY), 165 cases in 2007 (up 17.9% YoY), 180 cases in 2008 (up 9.1% YoY), 144 cases in 2009 (down 20.0% YoY), 166 cases in 2010 (up 15.3% YoY), 133 cases in 2011 (down 19.9% YoY), 132 cases in 2012 (down 0.8% YoY), 174 cases in 2013 (up 31.8% YoY), 209 cases in 2014 (up 20.1% YoY), 157 cases in 2015 (down 24.9% YoY), 176 cases in 2016 (up 12.1% YoY), 213 cases in 2017 (up 21.0% YoY), 268 cases in 2018 (up 25.8% YoY), 230 cases in 2019 (down 14.2% YoY), 197 cases in 2020 (down 14.3% YoY). In January-August 2020, it was 83 cases, down 42.4% from the previous year.

Source: "fDi Markets"(Financial Times)(as of Oct. 5th, 2021)

By investor countries and regions, the U.S. recorded the highest number of 61 cases, more than three times as many as Singapore, which came in second. Although the U.S. far exceeded other countries and regions, its number decreased by nearly 30% from the previous year (Chart 1-27). Singapore more than doubled its number of investments from 8 in 2019 to 19, while Germany marked the same number as the previous year (17 cases), and France (13 cases, -50.0% YoY) and the U.K. (12 cases, -36.8% YoY) both saw declines.

Chart 1-27: Number of Greenfield Investments in Japan in 2020 by investor country and region (# of Projects, %)
Ranking Country/Region Change in
Ranking
# of Projects YoY Share
1 US No change 61 -29.9 31
2 Singapore Rank up 19 137.5 9.6
3 Germany Rank up 17 0 8.6
4 France Rank down 13 -50 6.6
5 UK Rank down 12 -36.8 6.1
Total 197 -14.3 100

Looking at greenfield investment in Japan in 2020 by industry, as in previous years, software (63 cases) was the largest, but down 12.5% from the previous year. Real estate (19, up 5.6% YoY) and renewable energy (17, up 21.4% YoY) followed. While the overall number of investments declined, these two industries saw year-on-year increases.

Chart 1-28: Number of Greenfield Investments in Japan in 2020 by industry (# of Projects, %)
Ranking Industry
Sector
Change in
Ranking
# of Projects YoY Share
1 Software & IT services No change 63 -12.5 32
2 Real estate Rank up 19 5.6 9.6
3 Renewable energy Rank up 17 21.4 8.6
4 Business services Rank down 16 -30.4 8.1
5 Industrial equipment Rank down 13 -7.1 6.6
Total 197 -14.3 100

Number of M&A deals in Japan in 2020 increased from the previous year

In 2020, the number of cross-border M&A deals to Japan (hereafter, M&A deals in Japan), based on the date of completion, increased 11.6% from the previous year to 135 (Chart 1-29). The number of M&A deals in Japan had declined year on year for four consecutive years until 2018, but increased year on year in 2019 and 2020, marking the second consecutive year of growth.

Chart 1-29: Trends in M&A Deals in Japan
The number of M&A deals in Japan was 170 in 2000, 125 in 2001 (down 26.5% YoY), 119 in 2002 (down 4.8% YoY), 123 in 2003 (up 3.4% YoY), 141 in 2004 (up 14.6% YoY), 134 in 2005 (down 5.0% YoY), 139 in 2006 (up 3.7% YoY), 221 in 2007 (up 59.0% YoY), 194 in 2008 (down 12.2% YoY), 143 in 2009 (down 26.3% YoY), 179 in 2010 (up 25.2% YoY), 115 in 2011 (down 35.8% YoY), 140 in 2012 (up 21.7% YoY), 92 in 2013 (down 34.3% YoY), 158 in 2014 (up 71.7% YoY), 142 in 2015 (down 10.1% YoY), 140 in 2016 (down 1.4% YoY), 102 in 2017 (down 27.1% YoY), 95 in 2018 (down 6.9% YoY), 121 in 2019 (up 27.4% YoY), 135 in 2020 (up 11.6% YoY), and 114 in the period from January to September 2021.

Source: "Workspace"(Refinitiv)(as of Jun.3rd, 2021)

Looking at the number of M&A deals in Japan in 2020 by country and region, the U.S. claimed the largest number with 31 deals (23.0% of the total), followed by Hong Kong (12 deals, 8.9%) and Singapore (10 deals, 7.4%) (Chart 1-30). The top five countries and regions were all Asian countries except for the U.S. and Germany.

Chart 1-30: Number of M&A Deals in Japan in 2020 by Investor Country and Region (# of Project, %)
Ranking Country/ Region # of Project YoY Share
1 US 31 14.8 23
2 Hong Kong 12 -14.3 8.9
3 Singapore 10 0 7.4
4 South Korea 9 80 6.7
5 Germany 7 250 5.2
Total 135 15.4 100

Major M&A deals in Japan since 2020 include the acquisitions of UNIZO Holdings Company, Limited by Chitosea Investment Co., Ltd. (location of the ultimate parent company: Cayman Islands), and Takeda Consumer Healthcare Co., Ltd. by Oscar A-Co KK (location of the ultimate parent company: US) (Chart 1-31).

Chart 1-31: Major M&A Deals in Japan since 2020
Rank Target Company Target Company
Industry
Acquirer Acquirer
Parent country/region
Acquirer
Industry
Date(Completion) Transaction value(1 million dollars)
1 UNIZO Holdings Company, Limited Real Estate Chitocea Investment Co., Ltd. Cayman Isl. Finance June 2020 4,375
2 Takeda Consumer Healthcare Co., Ltd. Healthcare Oscar A-Co K.K. US Finance March 2021 2,288
3 Shiseido Company, Limited - Personal Care Business Wholesale and services Oriental Beauty Holding Co., Ltd. UK Finance July 2021 1,524
4 Showa Aircraft Industry Co., Ltd. Industry BCPE Planet Cayman LP US Finance April 2020 851
5 Accordia Golf Asset Media and entertainment Accordia Golf Co., Ltd. Spain Media and entertainment September 2020 618
6 Rakuten Group, Inc. High-tech Image Frame Investment (HK) Ltd. China Finance March 2021 606
7 Aspen Japan K.K. Healthcare Sandoz International GmbH Switzerland Healthcare January 2020 441
8 Takeda Pharmaceutical Company Limited-TachoSil Business Healthcare Corza Health, Inc. US Finance February 2021 415
9 ESR Redwood Kuki Distribution Center Industry Logistics-related joint venture France Finance August 2020 369
10 Hulic Co., Ltd. - Hewlett Packard Japan, G.K. Office Building (98.47%) Real Estate Tsubaki special-purpose company Singapore Finance June 2021 353

Sluggish FDI Flow to Japan in the first half of 2021

As mentioned earlier, in World Investment Report 2021 released in June 2021, UNCTAD predicted global inward FDI in 2021 to increase by around 10 to 15% over the previous year. The amount of inward FDI to Japan from January to August 2021 was sluggish compared to the same period of the previous year. In terms of trends in greenfield investment (based on the date of publication) that indicates the establishment and expansion of bases in Japan by foreign companies, the number of cases from January to August 2021 was 83, less than 60% of 144 during the previous year's same period. Regarding countermeasures against COVID-19, although Japan lagged behind other countries in starting vaccination, 65.8% of the total population has been fully vaccinated as of October 14, 2021, boding well for the country’s future progress in economic activities. Also, if the easing of restrictions on travel from abroad progresses, it is expected to lead to the establishment of new bases and the expansion of existing bases by foreign companies, which have been sluggish since 2020.

FDI Stock in Japan
FDI stock in Japan at the end of 2020 was 39.7 trillion yen

The outstanding balance of FDI in Japan at the end of 2020 reached a new high of 39.7 trillion yen, up 15.6% from the previous year, reflecting the large amount of inward FDI to Japan in the same year (Chart 1-32). The ratio of the balance to GDP increased from 6.1% to 7.4%.

Chart 1-32: FDI Stock in Japan
FDI Stock in Japan since 2000 (by country and region): 6.1 trillion yen in 2000, 1.1% of GDP; 6.9 trillion yen in 2001, 1.3% of GDP; 9.9 trillion yen in 2002, 1.9% of GDP; 10.3 trillion yen in 2003, 2.0% of GDP; 10.6 trillion yen in 2004, 2.0% of GDP; 12.4 trillion yen in 2005, 2.3% of GDP; 12.4 trillion yen in 2005, 2.3% of GDP; 13.4 trillion yen in 2006, 2.5% of GDP; 15.7 trillion yen in 2007, 2.9% of GDP; 19.4 trillion yen in 2008, 3.7% of GDP; 19.6 trillion yen in 2009, 4.0% of GDP; 18.7 trillion yen in 2010, 3.7% of GDP; 18.8 trillion yen in 2011, 3.8% of GDP; 19.2 trillion yen in 2012, 3.8% of GDP; 19.6 trillion yen in 2013, 3.8% of GDP; 23.7 trillion yen in 2014, 4.6% of GDP; 24.8 trillion yen in 2015, 4.6% of GDP; 28.2 trillion yen in 2016, 5.2% of GDP; 28.9 trillion yen in 2017, 5 .2% of GDP; 30.7 trillion yen in 2018, 5.5% of GDP; 34.3 trillion yen in 2019, 6.1% of GDP; 39.7 trillion yen in 2020, 7.4% of GDP. FDI Stock in Japan was 42 trillion yen in the first quarter of 2021, and 42.4 trillion yen in the second quarter of 2021.

Source: "International Investment Position of Japan" (Ministry of Finance, Bank of Japan), "National Accounts of Japan" (Japan Cabinet Office)

Looking at the FDI stock at the year-end by forms of capital, equity capital increased 1.5% YoY to 19 trillion yen (46.9% of the total), debt instrument increased 63.1% YoY to 13 trillion yen (33.6%), and reinvestment of earnings decreased 1.1% YoY to 8 trillion yen (19.5%). As mentioned earlier, the share of debt instrument in the outstanding balance also increased to more than 30% from 23.8% at the end of 2019, reflecting the large inflow of debt instrument in FDI in 2020. As for the balance of debt instrument by country and region, the U.K. saw a 335.5% increase from the previous year to 4.4 trillion yen, the U.S. increased by 84.8% to 2.7 trillion yen, and the Swiss increased by 272.5% to 900 billion yen, evidencing significant inflow of debt instrument from these countries in 2020.

As for the FDI stock in Japan by investor region, Europe had the largest share at 18.5 trillion yen (46.7% of the total), followed by North America at 9.6 trillion yen (24.2%), and Asia at 9 trillion yen (22.6%) (Chart 1-33). By country and region, the U.S. remained the largest at 9.4 trillion yen (23.7% of the total), followed by the U.K. at 5.8 trillion yen (14.7%) (Chart 1-34). The top 10 countries and regions accounted for 86.0% of the total FDI stock in Japan, which were mainly countries of Europe and Asia except for the U.S.

Chart1-33: FDI Stock in Japan by Region
FDI Stock in Japan by Region was 46.7% in Europe, 24.2% in North America, 22.6% in Asia, 4.4% in Latin America, and 2.2% in other areas.

Source: "International Investment Position of Japan" (Ministry of Finance, Bank of Japan)

Chart1-34: FDI Stock in Japan by Country and Region (Unit: Billion yen, %)
Rank Country/region Stock Ratio
1 U.S. 9,405 23.7
2 U.K. 5,832 14.7
3 Singapore 4,294 10.8
4 Netherlands 4,228 10.7
5 France 3,320 8.4
6 Switzerland 2,337 5.9
7 Hong Kong 1,466 3.7
8 Cayman Isl. 1,285 3.2
9 Germany 997 2.5
10 South Korea 936 2.4
- Others 5,565 14.0
- Total 39,669 100

Non-manufacturing industry accounted for over 60% of FDI stock in Japan by industry at the end of 2020

The FDI stock in Japan by industry at the end of 2020 was 24.1 trillion yen, down 1.4% from the previous year. The manufacturing sector accounted for 37.2%, and the non-manufacturing sector accounted for 62.8% (Chart 1-35). The large proportion of FDI inflow into the non-manufacturing sector during 2020 increased the stock in this sector.

Chart1-35: FDI Stock in Japan by Industry
Looking at the FDI Stock in Japan by Industry, manufacturing industry accounts for 37.2% and non-manufacturing industry accounts for 62.8% of the total.

Note: Based upon different prindples from statistics for FDI by region.
Source: "International Investment Position of Japan" (Ministry of Finance, Bank of Japan)

Looking at detailed industries, the stock of finance and insurance increased 41.6% year on year to 10 trillion yen, accounting for the largest share (41.6% of the total) due to substantial investments in 2020 (Chart 1-36). Transportation equipment, down 9.7% YoY to 3.3 trillion yen (13.6%), and electrical machinery, down 9.2% YoY to 2.3 trillion yen (9.5%), followed.

Chart 1-36: FDI Stock in Japan: Top Ten Industries (Billion yen, %)
Rank Industry Stock Ratio
1 Finance and insurance 10,015 41.6
2 Transportation equipment 3,276 13.6
3 Electric machinery 2,290 9.5
4 Communications 2,045 8.5
5 Chemicals and pharmaceuticals 1,793 7.4
6 Services 1,363 5.7
7 Real estate 531 2.2
8 General machinery 495 2.1
9 Transportation 422 1.8
10 Glass and ceramics 372 1.5
- Others 1,474 6.1
- Total 24,075 100

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