4 Japan

Japan’s position in the global economy

Merchandise trade Inward direct investment

(% of GDP) (US$ bn)
Exports Imports 30.0
18.0
25.0
17.0 20.0

16.0 15.0

10.0
15.0
5.0
14.0
0.0
13.0
-5.0

12.0 -10.0
2005 06 07 08 09 10 11 2005 06 07 08 09 10 11
Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Officially, the Japanese government welcomes inward foreign direct investment

(FDI), albeit largely to counter protests by trading partners about the closed
nature of its domestic markets. Important steps towards easing entry to the
Japanese market include the implementation in 2000 of the Large-scale Retail
Store Location Law (which removed restrictions on large retail developments)
and the lifting of the ban on triangular mergers in 2007. In practice, however,
Japan’s FDI regime remains difficult, owing to a complex regulatory
environment that appears designed to protect existing domestic players. Japan
is also one of the world’s most expensive business locations, and it will remain
a difficult country in which to invest. Although the Economist Intelligence Unit
forecasts that continuing supply-side reforms will enhance Japan’s
attractiveness, changes are likely to be gradual at best. Nevertheless, the country
is in the process of seeking free-trade agreements with a number of countries.
The deals may include provisions that improve the ability of foreign companies
to invest in Japan by lowering the regulatory hurdles that they must overcome.

Inward direct investment and Share of global FDI

GDP growth (%)
Inward direct investment (US$ bn); left scale 1.5
Real GDP (% change, year on year); right scale
35.0 3.0
30.0 2.0 1.0
25.0 1.0
20.0 0.0
0.5
15.0 -1.0
10.0 -2.0
5.0 -3.0
0.0
0.0 -4.0
-5.0 -5.0
-10.0 -6.0 -0.5
2005 06 07 08 09 10 11 2005 06 07 08 09 10 11
Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

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