#90-DF-11 "Japan's Foreign Direct Investment" 
          (Ryutaro Komiya and Ryuhei Wakasugi, May 1990.)

A WHOLE SENTENCE

ABSTRACT

    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.