This document discusses Japan's promotion of foreign direct investment (FDI). It notes the risks of an aging population and industrial hollowing out, and how FDI can help address these issues through innovation. Specific measures to promote FDI discussed include tax incentives, improving the business environment, and establishing Asian headquarters in Japan. The importance of FDI to Japan's economy has increased over time from contributing little in the 1980s to now being key for survival given current challenges.

1. Ⅰ FDI in Japan; statistical survey (Chart 1-3)
Ⅱ Risk of hollowing-out of Japanese economy (Table 1-2)
Ⅲ Risk of Aging and Depopularigation (Chart 4-5, Table 3-4)
Ⅳ FDI and Innovation (Chart 6-15)
Ⅴ Measure to promote FDI (JETRO, promoting Asian head quarter
offices in Japan, attracting foreign students to Japan－Chart 16-17)
Naoyuki Haraoka
Executive Managing Director, JEF
Editor-in-chief of Japan SPOTLIGHT
http://www.jef.or.jp/journal/index.html
ID: JSFREE Password: thanks

3. Chart 3
Trend of sales-profits ratio (by nationality)
(%)
10
9.1
9
7.8 7.9
8 7.6 7.5 7.4
7.2
7
6 5.5
5.6
American Firms
5 4.8
4.6
4.8
Asian Firms
4 3.4 3.5 3.4
3.2
European Firms
3.1
3 2.7 2.5 All Firms
2 2.4 2.3
1.0 1.1
1 0.9 0.9
0.5
0.3
0.2
0
2003 2004 2005 2006 2007 2008 2009
(Source) Ministry of Finance, Japan
(Note) Sales-Profits Ratio = Current Profits/Sales×100.0

4. Table 1
The number of the firms (firms, %) with declining shareholding
by foreign companies
(excluding banking, insurance and real estate)
World total American firms Asian firms European firms
Rate of Rate of Rate of Rate of
increase increase increase increase
2008 2009 2008 2009 2008 2009 2008 2009
over the over the over the over the
FY FY previous FY FY previous FY FY previous FY FY previous
year year year year
All the
industries
125 164 31.2 38 62 63.2 14 22 57.1 44 55 25.0
Manufacturing
▲
28 30 7.1 10 10 0.0 4 3 11 13 18.2
25.0
Non-
Manufacturing
97 125 28.9 28 52 85.7 10 19 90.0 33 42 27.3

6. Chart 4
Changes of percentage of the aged population to total
(%)
35
older than 75 years old
30 65-74 years old
25
20
15
10
5
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2002 2003 2005 2010 2015 2020 2025
(prediction)
(Sources) Chief Cabinet Office, Bureau of Statistics

7. Table 3
Comparison by nation of the percentage of the aged population
Day/year percentage to the total population (%)
Nation
of the data Above 65 65-74 Above 75
Japan 2003. 9. 15 19.0 10.8 8.2
Italy 2001. 1. 1 18.2 10.8 8.0
Germany 2001. 12. 31 17.1 ……. …….
France 2003. 1. 1 16.1 8.5 7.6
U.K. 2001. 6. 30 15.9 8.4 7.5
Russia 2002. 1. 1 12.9 8.3 4.6
Canada 2002. 7. 1 12.7 6.9 5.8
U.S.A. 2002. 7. 1 12.3 6.3 6.0
(Sources) Home page of each country’s statistics Bureau

8. Chart 5
Changes of the percentage of the aged population
to the total in the developed countries
(％)
30 (2003) France
UK
25 Germany
Italy
20
Japan
15
14
10
5 7
0
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2025
(Year)
(Sources) Japan National Research Institute of Social Welfare and Population Issues
“World Population Prospects (2002)”

9. Table 4 Summary of forecast ofInstitute of population published in January 2012
by National Research
Japanese
Social Welfare and Population Issues
2010 128,060 (thousand)
↓
2030 116,620 (thousand)
Total Population ↓
2055 91,930 (thousand)
2060 86,740 (thousand)
2010 16,840 (thousand) 13.1%
↓
2030 12,040 (thousand) 10.3%
Population (0-14 year old) ↓
2055 8,610 (thousand) 9.4%
↓
2060 7,910 (thousand) 9.1%
2010 81,730 (thousand) 63.8%
↓
2030 67,730 (thousand) 58.1%
Productive Population (15-64 years) ↓
2055 47,060 (thousand) 51.2%
↓
2060 44,180 (thousand) 50.9%
2010 29,480 (thousand) 23.0%
↓
2030 36,850 (thousand) 31.6%
Aged Population (above 65 years) ↓
2055 36,260 (thousand) 39.4%
↓
2060 24,640 (thousand) 39.9%
(% : percentage of the total)

10. Chart 6
Factors of economic growth among the advanced nations
1980-95 1995-05
10.0 10.0
TFP TFP
8.0 capital input 8.0 capital input
labour input labour input
6.0 6.0
real value-added real value-added
growth rate growth rate
4.0 4.0
2.0 2.0
0.0 0.0
-2.0 -2.0

11. Chart 7
TFP rate in manufacturing as well as non-manufacturing industry
240
220 Manufacturing
Non-manufacturing
200
180
160
140
120
100
1970 1975 1980 1985 1990 1995 2000 2005(year)
(Source) JIP database 2008

17. Specific measures to promote setting up
Asian headquarter in Japan
Ⅰ New law for promotion of FDI in Japan
1) Preferential treatment of corporate tax and income tax
2) Simplification of legal procedure to set up offices in Japan
Ⅱ Subsidy program for FDI with a greater impact upon the local economy.
Ⅲ New Program for improving business environment for FDI in Japan
1) English translation of the administrative guidelines
2) Improving social inflastructure for a daily life of non-Japanese
resident such as foundation of more international schools for non-
Japanese children
Examples to be covered by the measures abovementioned; IT service,
medical products, solar fuel cell, helicopters, liquid crystal display, etc.

19. 1 Until the 1980’s, FDI had contributed very little to Japan’s
economic growth. The strength of Japanese economy came
from its homogeneity in the expanding global market.
2 From 1990’s until March 11,2011, FDI has been considered
invaluable to Japan’s economic growth, since the growth
pattern depending upon the homogeneity came to an end.
It was agreed upon that a diversity would encourage
innovation and compliment a population growth.
3 Now, FDI is considered to be a key for Japan to survive in the
World under an increasing risk of industrial hollow-ing-out due
to an energy crisis brought about by post-Fukushima nuclear
crisis.