[ Nippon Keidanren ] [ Journal ]
Messages from "Economic Trend", September 2006

Significance of Promoting FDI to Japan

Mikio SASAKI
Vice Chairman of the Board of Councillors, Nippon Keidanren
Chairman, Mitsubishi Corporation

Measures initiated by Prime Minister Koizumi to increase foreign direct investment (FDI) to Japan have had a positive effect. Accumulated FDI in Japan increased from 6.6 trillion yen at the end of 2001, to 11.9 trillion yen at the end of 2005. That said, this amount represents a mere 2% of Japan's GDP and trifles in comparison with England and France, where accumulated FDI represents 33% and 26% of GDP respectively. I think this reflects the feeling amongst foreign companies that the Japanese economy and market "have little allure", and that "investing in Japan will prove unprofitable". At the Japan Investment Council, Prime Minister Koizumi pledged to "double the percentage of FDI (5%) in Japan's GDP by 2010".

When discussing Japan's future, a number of grave issues are certain to come up, including a tendency towards fewer children, an aging society and decreased savings. By promoting FDI, however, Japan can gain cutting-edge technologies, high-caliber human resources and management know-how from overseas. This will stimulate the principle of competition, raise productivity and vastly broaden the future possibilities for Japan's economy.

One method of promoting FDI to Japan is through Economic Partnership Agreements (EPAs). It is important to promote EPAs along with trade liberalization through the World Trade Organization, and strengthen economic relationships with other nations, including those in Asia. When one talks about the promotion of EPAs, there is a tendency to focus on trade liberalization in goods and services, however, promotion of investments in both directions is an important part of the economic partnership concept. EPAs will not result merely in Japan increasing its overseas investments, but will also invigorate investment in Japan by partner nations. In this fashion, we will be able to foster close, mutually-beneficial economic relationships over the long term.

While there is still little FDI to Japan, there are some unique cases. Some of the projects the government is touting as successful examples include a ski resort in Hokkaido that targets Australians, and the American business model of outlet malls, which are also capitalizing on tourist attractions such as Mount Fuji. If we apply our ingenuity, I think we can find a great many areas that still have the power to attract overseas investors to the Japanese market. Both the public and private sectors will need to work together to build the most appealing environment possible, thereby stimulating a surge in investment by foreign companies. I expect that this will realize the desired changes in the future of Japan's economy.


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