Three factors were the Japanese firms' rethinking of their supply chain strategies amid the US-China trade war and the COVID-19 pandemic; Japan's economic-security policy attracting investments from foreign large corporations and spurring demand for components and materials; and the ongoing depreciation of the Japanese yen that helps in reducing the costs for the Japanese firms during their initial investments.
Nevertheless, labor shortage due to the low birth rate and the possible rebounding yen may still put pressure on Japanese companies in the long term.
The US-China trade war on top of COVID-19 prompts Japanese firms to re-examine their strategies, looking to build a supply chain with higher resilience. By diversifying their production bases, they can also become more flexible in coping with tariff regulations amid the tension between the superpowers and component supply challenges arising from pandemic-induced lockdowns and port congestions. Those keenest on making such changes are mostly electronics component and automotive component suppliers.
Chart 1: Japan population and share of people aged 15-64 and above 65, 1975-2022 (m units)
Chart 2: Japan direct investment amount in China and ASEAN 4, and key economic and political events, 1995-2021 (US$b)
Chart 3: Japan annual private non-residential investment, 1994-2022 (JPYt)
Chart 4: Japan large-scale manufacturing industry equipment investment Y/Y changes, 1990-2023
Chart 5: Annual exchange rate of Japanese yen to US dollar and major economic events, 1980-2022 (JPY/US$)