Japan's Foreign Direct Investment

After the Second World War, Japan's foreign direct investment (FDI) has expanded through a number of stages. FDI began in the early 1950s, but was conducted only on a small scale until the beginning of the 1970s, when large surpluses in the balance of payments on current account, the shift to floating exchange rates, and an easing of direct investment regulations led to a rapid increase in FDI. This period can be said to be practically the beginning of Japan's FDI. Until the 1970s, a large part of Japan's FDI was in the mining sector for resource development, in the commercial sector for export marketing and in the labor intensive manufacturing sector, and was mainly directed towards developing countries. With the 1980s came deregulations of the financial sector as well as heightening of import barriers by major developed countries in North America and Western Europe, and this has led to an unprecedented increase in Japan's FDI in the finance and manufacturing sectors of these countries.

The latter half of the 1980s was another period of a sharp increase in Japan's FDI resulting from the large appreciation of the yen, and Japan has emerged as one of the top investor countries of the World. Japan's FDI in North America. Western Europe and Asian countries has increased sharply in all sectors except those related to natural resources, but the increase has been most conspicuous in the non-manufacturing sectors such as finance, insurance, real estate and marine transport, and the share of the manufacturing sector has declined. Among the distinctive features of Japan's FDI when compared to other major investor countries, the relatively low share of the manufacturing industry in FDI stands out, while shares of the finance, insurance, real estate, and transport sectors have been high. In this period, not only large corporations, but also small- and medium-sized firms have been actively participating in Japan's FDl especially in the Asian Region. Except for certain measures to promote FDI related to resource development, government policies have neither restrained nor promoted FDI directly, but have instead aimed at creating a generally favorable business environment in which FDI could be conducted.

The high and rapidly rising level of Japan's FDI in recent years stands out when compared to those of other major developed countries. Still, because Japan's FDI has been going on only for a period of about twenty years, the scale of production of the Japanese subsidiaries located in host countries is generally still small; most of them sell their products in the domestic markets of the respective host countries, and have not reached the stage where they export large amounts of products to surrounding countries and other countries of the world including Japan. Most of these subsidiaries are not yet bringing substantial profits to their parent corporations. Some of the companies which started FDI in Asian countries in the early years, however, are now beginning to operate profitably on a global scale. It is expected that if the Japanese owned subsidiaries, especially those in developed countries, continue to develop at more or less the same pace as in the past twenty years, they will be run more and more as part of global strategies of their parent, and the latter will developed into full-fledged multinational corporations.