In 2024, Japan’s investment in the United States reached an unprecedented $77.3 billion, marking the highest level on record. This surge reflects a strategic pivot by Japanese companies toward the U.S. market. According to Japan’s Ministry of Finance, the U.S. accounted for nearly 40% of Japan’s total foreign investment, which grew by 17% last year to $208.3 billion.
Declining investment in China and rising interest in ASEAN
While investment in the U.S. soared, Japan’s investment in China remained flat at $3.2 billion, a significant decline of nearly 60% from a decade ago. Conversely, investment in Southeast Asia (ASEAN) increased by 36% to $29.2 billion, indicating a strategic shift by Japanese companies toward emerging markets in the region. Notably, in 2023, ASEAN attracted $229.8 billion in foreign direct investment (FDI), with Japan contributing 6.3% of this total.
Factors influencing Japan’s investment choices
Several factors are influencing this investment trend:
• Economic concerns in China: China’s economic slowdown, partly due to a property market crisis, has made Japanese companies more cautious about expanding there.
• Trade barrier avoidance: By producing goods locally in the U.S., Japanese companies can circumvent potential tariffs and import taxes, especially those hinted at on steel and aluminum imports.
• Stable and profitable U.S. market: The U.S. remains one of the world’s most stable and lucrative markets, offering a favorable environment for long-term investments.
Impact on Japan’s economy
Japan’s increasing foreign investments have contributed to a 30% rise in its current-account surplus, reaching $191.5 billion. However, inbound foreign investment into Japan decreased by 13% to $16.8 billion, suggesting a decline in international business expansion within the country. Despite this, Japan’s tourism sector experienced growth, with foreign tourist spending hitting a record $38.6 billion. Conversely, the digital services sector faced a deficit of $43.2 billion, highlighting challenges in the tech industry.
Strategic shift amid global changes
This investment trend underscores Japan’s strategic adaptation to a changing global landscape. By strengthening ties with the U.S. and exploring opportunities in Southeast Asia, Japanese companies are reducing dependence on China. This shift is reshaping Japan’s economic engagement and positioning it for sustainable growth in the evolving global economy.
