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]."
On June 15, 2020, Japan External Trade Organization (JETRO) established the COVID-19 Helpline, a 24/7 consultative service for foreign companies and foreign-affiliated companies operating in Japan to provide support for their domestic operations. The service is available in three languages - Japanese, English, and Chinese.
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.”
- On June 18, 2021, the Cabinet Office formulated “The Startup City Acceleration Project 2021” and appointed the Kyoto-Osaka-Kobe Bay area as its global hub city. The project’s aim is to accelerate the global development of startups in the region by having “prefectures and cities join forces to attract outstanding international companies” in fields such as smart cities and healthcare.
- On March 5, 2021, the Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) selected Higashihiroshima City as a municipality to benefit from the Support Program for Regional Foreign Direct Investment in Japan. The program will help the municipality attract overseas companies, particularly R&D-based companies, including those in the bio-technology sector.
Information and Communication Technology
[Possible New Policy/Program] On October 19, 2021, according to Nikkei, the Japanese government is expected to introduce a ¥100 billion (US$ 880.5 million) fund for research and development of emerging high-technologies such as artificial intelligence, robotics, and big data. The fund for both companies and universities will likely be “co-administered by the Cabinet Office, Ministry of Economy, Trade, and Industry, the Ministry of Education, Culture, Sports, Science and Technology, and the National Security Secretariat.”
- 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 August 3, 2021, the Ministry of Economy, Trade and Industry (METI) announced that the Japan External Trade Organization selected 17 companies from ASEAN and 8 from India for its FY 2020 Tertiary Supplementary Budget’s Asia Digital Transformation Promotion Project. This initiative will allow these foreign companies to conduct pilot projects with Japanese companies aimed at promoting business-based digital transformation and accelerating economic growth.
- 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 January 12, 2021, the Financial Services Agency (FSA) and Local Finance Bureaus (LFB) established a Financial Market Entry Office in an effort to “expand Japan’s role as an international financial center” and “to create an environment that attracts foreign businesses and high-skilled foreign professionals.” The new office will handle all parts of the regulatory process, including “pre-application consultation, registration, supervision after the registration, for newly entering asset management firms.” The office will serve as a single point of contact with support available in English.
- 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."