FDI IN JAPAN ITS ROLE IN THE ECONOMY AND ITS FUTUREⅠ　 FDI in Japan; statistical survey (Chart 1-3)

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Naoyuki HaraokaExecutive Managing Director, JEF

Editor-in-chief of Japan SPOTLIGHT

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)

Chart 3 Trend of sales-profits ratio (by nationality)

2003 2004 2005 2006 2007 2008 20090123456789

10

American FirmsAsian FirmsEuropean FirmsAll Firms

7.6 7.8 7.97.5

7.27.4

9.1

4.8 4.6

5.5

4.8

5.6

2.53.2

2.7 3.13.4 3.5 3.4

1.1

2.32.4

0.30.90.5

0.2

0.9 1.0

(Source) Ministry of Finance, Japan(Note) Sales-Profits Ratio = Current Profits/Sales×100.0

(%)

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

2008FY

2009FY

Rate of increase over the previous

year

2008FY

2009FY

Rate of increase over the previous

year

2008FY

2009FY

Rate of increase over the previous

year

2008FY

2009FY

Rate of increase over the previous

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 ▲25.0 11 13 18.2

Non-Manufacturing

97 125 28.9 28 52 85.7 10 19 90.0 33 42 27.3

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2002 2003 2005 2010 2015 2020 20250

5

10

15

20

25

30

35older than 75 years old

(Sources) Chief Cabinet Office, Bureau of Statistics

Chart 4Changes of percentage of the aged population to total

(%)

(prediction)

Table 3Comparison by nation of the percentage of the aged population

Nation Day/year of the data

percentage to the total population (%)

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

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 20250

5

10

15

20

25

30 FranceUKGermanyItalyJapan

14

7

(Year)

(％ ) (2003)

Chart 5 Changes of the percentage of the aged population

to the total in the developed countries　

(Sources) Japan National Research Institute of Social Welfare and Population Issues “World Population Prospects (2002)”

Table 4

Total Population

2010

2030

20552060

128,060 (thousand)↓

116,620 (thousand)↓

91,930 (thousand) 86,740 (thousand)

Population (0-14 year old)

2010

2030

2055

2060

16,840 (thousand) 13.1%↓

12,040 (thousand) 10.3%↓

8,610 (thousand) 9.4%↓

7,910 (thousand) 9.1%

Productive Population (15-64 years)

2010

2030

2055

2060

81,730 (thousand) 63.8%↓

67,730 (thousand) 58.1%↓

47,060 (thousand) 51.2%↓

44,180 (thousand) 50.9%

Aged Population (above 65 years)

2010

2030

2055

2060

29,480 (thousand) 23.0%↓

36,850 (thousand) 31.6%↓

36,260 (thousand) 39.4%↓

24,640 (thousand) 39.9%

Summary of forecast of Japanese population published in January 2012 by National Research Institute of Social Welfare and Population Issues

(% : percentage of the total)

Chart 6 Factors of economic growth among the advanced nations

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

TFP

capital input

labour input

real value-added growth rate

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

TFP

capital input

labour input

real value-added growth rate

1980-95 1995-05

Chart 7 TFP rate in manufacturing as well as non-manufacturing industry

1970 1975 1980 1985 1990 1995 2000 2005100

120

140

160

180

200

220

240

ManufacturingNon-manufacturing

(Source) JIP database 2008

(year)

Specific measures to promote setting upAsian 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.

CONCLUSION

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.