Japan is the world’s third-largest economy, although it did witness a 7.8% decrease in GDP in the second quarter of 2020, according to a preliminary estimate released by the country’s Cabinet Office. This is the largest quarterly decrease since 1955 and has been mainly attributed to the effects of the Covid-19 pandemic, along with a domestic tax increase, decreasing demand from China and the impact of numerous natural disasters.
In 2019, Japan’s foreign direct investment (FDI) flows remained relatively low and more volatile when compared with other developed economies. The figures did, however, increase by 38.6% from $9.8bn in 2018 to $14.5bn in 2019, according to the UN Conference on Trade and Development’s 2020 World Investment Report.
Japan’s role as a key source country for FDI
Alongside its inward FDI flows, Japan remains the largest investor in the world, according to the report. Japanese multinational enterprises saw their investments grow by 58% in 2019, to a record-breaking $227bn. This success was attributed to an increase in cross-border mergers and acquisitions and the doubling of investments in both Europe and North America.
Japan’s largest FDI source markets are the UK, France and South Korea. Together these three countries accounted for nearly 85% of FDI inflows into the country. Key sectors for the country include electric machinery; finance and insurance; chemicals and pharmaceuticals; transportation equipment production; and real estate. Japan is considered an industry leader in advanced technology and research and development, and the country holds a record-breaking number of patents.