NO. 17 -- May 2, 1997


Feature Article


Many economic forces create barriers to foreign direct investment in Japan -- excess domestic savings, low rates of return on capital, an appreciating currency, high costs, geographic distance from potential investors and cultural distance in business practices. Added to these impediments are others erected by government and business that reduce the effectiveness of measures used elsewhere to break into local markets, such as mergers and acquisitions. However, there also are strong incentives for investing in Japan -- an economy that is the world's second largest and average incomes ranked among the leaders, the opportunity for foreign firms to take advantage of their specialized skills and efficiencies in high-cost, unproductive Japanese industries, and the need to be on the spot to service local customers.

The balance of these forces has kept foreign investment in Japan very low by world standards, but this situation is changing gradually. Japan rose from ninth as a target for U.S. foreign direct investment in 1980 to fourth in 1995. These investments of some $40 billion generated almost $100 billion in sales in 1994 and another $10 billion in exports from the United States. The rate of return on capital invested in Japan has averaged about the same as foreign investment elsewhere by American firms, which is slightly higher than the returns to domestic investment in the United States and considerably above the rates earned by foreign companies in their own countries or in the United States.

U.S. direct investment in certain industries in Japan has been growing quite rapidly. America's innovative strength in software is reflected in that area tallying the largest number of U.S. investment activities in the last year or so. Liberalization of regulations restricting retail trade has had a positive effect in attracting American retailers and merchandisers; they have been as innovative as software developers in pioneering new approaches to marketing. If deregulation continues as proposed by official rhetoric and in political platforms, the prospects for profitable American direct investment in Japan could be quite significant in areas as diverse as finance, transportation, retailing and telecommunications.

Previous Issue aaaa Next Issue aaaa back to Index aaaa Publications aaaa Home


Weekly Review

Economic Issues Top Clinton-Hashimoto Summit by Barbara Wanner

In contrast to the upbeat tone of the April 1996 summit in Tokyo between President Clinton and Prime Minister Ryutaro Hashimoto their April 25 summit in Washington seemed like a reality check. Trade and other economic issues still matter, Mr. Clinton's central message appeared to be in his hour-long one-on-one meeting with Mr. Hashimoto.


G-7 Communique Fails To Impress Markets by Douglas Ostrom

Jawbone or backbone? That was the question facing analysts as they contemplated the import of the meeting in Washington April 27 of the finance ministers and central bank chiefs from the Group of Seven industrial nations. Finance Minister Hiroshi Mitsuzuka, also faced questions of the same sort for his handling, half a world away only two days earlier, of Japan's first life insurance company failure in the postwar period.


Brokerage Scandal Adds To Stock Market's Woes by Jon Choy

Japan's slowly strengthening economic recovery coupled with the depreciating yen's positive consequences for exporters should be sweet music to the ears of owners and buyers of Japanese equities. The market, however, remains highly sensitive to positive and negative developments or rumors; investors' attitudes cannot be considered bullish.


Lessons Learned In Peru: Tokyo Takes Stock As Ex-Hostages Return Home by Christopher B. Johnstone

As the dust settles around the Japanese ambassador's residence in Lima, Tokyo has begun the process of drawing lessons from the four-month hostage crisis that came to an abrupt and violent end April 22. Japan's national euphoria has been eroded by the gnawing recognition that Mr. Fujimori's decision to keep Tokyo out of the loop was not motivated solely by the desire to achieve surprise.



back to top aaaa Previous Issue aaaa Next Issue aaaa back to Index aaaa Publications aaaa Home