Supply Chains: Japan
Japan is the world’s third-largest economy, an advanced technology powerhouse, and an important source of and destination for foreign investment. Although the Japanese government actively welcomes foreign direct investment (FDI), foreign participation remains low and Japan’s stock of FDI, as a percentage of GDP, is among the lowest in the OECD. In 2020, it received US$10.3 billion of inbound FDI versus US$3 billion five years earlier, an increase of 243 percent. Due to the COVID-19 pandemic and economic fallout, Japan’s real GDP decreased in 2020 by 4.6 percent.
Japan continues to be an attractive destination for FDI due to its world-leading technology and high-end manufacturing firms. However, slow domestic growth, coupled with an already saturated investment market, and informal barriers for foreign investors have lowered Japan’s attractiveness as an FDI destination. Japan currently represents the world’s most complex economy, 1 out of 146 in economic complexity, due to its high-tech intensive industries and cutting-edge research and development engine.
In recent years, the Japanese government has made increasing inbound investment, whether through FDI or the re-shoring of Japanese production, a priority. In its Supplementary Budget for FY2020, Japan allocated a total of ¥220 billion (US$2 billion) to companies looking to re-shore their supply chains back to Japan. In 2019, the Diet amended the Foreign Exchange and Foreign Trade Act to further promote FDI conducive to economic growth and ensure minimal review of foreign investment that may pose risks to national security. In 2018, Japan’s FDI Promotion Council also launched the Support Program for Regional Foreign Direct Investment, which advises local governments in developing policies to attract foreign companies into their districts. Top sources of foreign investment in recent years have been the United States, France, and the Netherlands.
Recent Investment/Supply Chain Policies
- On December 10, 2020, Japan's leading parties released their proposals for the 2021 Tax Reform Bill, which contain plans for (1) economic revitalization with/post-COVID, (2) forging a digital society, and (3) de-carbonization of society." Specific measures include tax credits for companies developing a "connectable digital environment,” raising the upper limit of tax credits for companies that increase research and development (R&D) investment, and widening the scope of R&D activities subject to tax credits.
On July 2, 2021, the Ministry of Economy, Trade, and Industry announced that 151 applicants have been selected for its 2021 Program for Promoting Investment in Japan to Strengthen Supply Chains. According to the application guidelines released by the government, the program aims to “enhance viability of industries by strengthening supply chain resilience” through the subsidization of equipment and facility costs of certain companies.
On December 15, 2020, the Japanese Ministry of Finance released a Third Supplementary Budget for FY2020, in which an additional ¥222.5 billion (US$2 billion) was allocated to strengthening domestic and overseas supply chain resilience.
On November 20, 2020, the Ministry of Economy, Trade, and Industry announced that 146 applicants have been selected for its 2020 Program for Promoting Investment in Japan to Strengthen Supply Chains.
On April 7, 2020, the Japanese Ministry of Finance released a Supplementary Budget for FY2020, in which ¥220 billion (US$2 billion) was allocated to companies reshoring supply chains back to Japan and another ¥23.5 billion (US$214 million) for companies looking to move production to other countries in Southeast Asia.
In January 2020, a Ministry of Economy, Trade, and Industry official who oversees Japan’s “China exit” repatriation subsidy program –– which subsidizes the facility, equipment, and moving costs of more than 200 Japanese companies looking to relocate operations back to Japan from abroad –– told Nikkei Asia that "a third round [of subsidies] is included in the next annual budget [FY 2021]."
SPECIAL ECONOMIC ZONES
- On May 27, 2020, the Japanese Diet enacted Act No. 34 of 2020, or the Bill for the Amendment of the National Strategic Special Zones Law. Also known as the Super City Bill, it amends a 2013 bill on strategic special zones by making significant changes to regulatory measures. The bill aims to develop smart cities that utilize artificial intelligence, big data and other cutting-edge technologies to address social policy challenges including a rapidly aging population.
- On April 27, 2021, the Trade Ministers of Australia, India, and Japan launched the Supply Chain Resilience Initiative (SCRI) to share best practices on supply chain resilience and hold “investment promotion events and buyer-seller matching events to provide opportunities for stakeholders to explore the possibility of diversification of their supply chains.” The Ministers agreed to “convene at least once a year to provide guidance to the implementation of the SCRI as well as to consult on how to develop the Initiative.”
Information and Communication Technology
- On March 27, 2020, the Japanese Diet passed a 2020 Tax Reform Bill that closely follows a tax reform outline announced by Japan's leading parties in December 2019. Among the reforms are "measures on open-innovation activities" –– more specifically a "corporate income deduction equivalent to 25% of investment in certain startups by business firms” to promote business innovation –– as well as "tax measures to promote 5G-related equipment installation."
- On June 4, 2021, the Japanese Ministry of Economy, Trade and Industry (METI) announced a Semiconductor Digital Industry Strategy supporting the establishment of manufacturing bases in Japan including through joint ventures with overseas chip foundries. The strategy seeks to drive growth in the nation’s chip manufacturing capacity as a “national project”. This includes drawing from the ¥200 billion (US$1.8 billion) domestic chip-making fund and ¥2 trillion (US$18.2 billion) green innovation fund, as well as utilizing special industrial policies to promote development of a digital industrial infrastructure ecosystem.
- On December 10, 2020, Japan's leading parties released their proposals for the 2021 Annual Tax Reform Bill, containing plans for (1) economic revitalization with/post-COVID, (2) forging a digital society, and (3) de-carbonization of society. Measures specific to the financial services sector include the inclusion of "performance-based compensation" as a deductible expense, changes to the inheritance tax, and changes to the "carried interest" tax.
- On December 4, 2020, the Tokyo Metropolitan Government (TMG) announced the launch of its Project for Temporary Office Allocation for Foreign Financial Companies and Human Resources, which provides subsidies for foreign financial companies and employees looking to move to Tokyo from other Asian countries. More specifically, TMG will subsidize office space costs for companies or employees temporarily staying in Tokyo while they conduct preliminary surveys of the city.
- On November 30, 2020, the Tokyo Metropolitan Government announced the launch of its Global Financial City: Tokyo Vision, which aims to support foreign startup companies in the Fintech industry. The program provides foreign startups “with mentoring from leading companies in Japan, as well as business matching with companies in Tokyo."