Japan companies increase domestic investments due to geopolitical tensions and decreasing costs, says DIGITIMES Research

Molf Lai, DIGITIMES Research, Taipei 0


Japan-based firms' investments in their home market in 2022 were more robust than in years past and three main factors were the driver for their relocation back to Japan, according to DIGITIMES Research's latest study covering Japan-based enterprises.

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 large foreign 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 congestion. Those keenest on making such changes are mostly electronics component and automotive component suppliers, the study shows.

Contrary to past practices, Japan now offers many subsidies and incentives to attract foreign investments out of economic-security considerations, which also drives burgeoning developments in related industries, particularly the semiconductor sector.

The Japanese yen's depreciation throughout 2022 attracted Japanese firms to make domestic investments as the initial costs were reduced. For enterprises making consumer goods abroad and then selling them back to the domestic market, shifting production back to Japan is more beneficial to the company's operation as surging costs from transportation are far more expensive than those from investment in Japan.

Japan-based consumer electronics and home appliance makers that focus on exports also enjoy enhanced competitiveness in costs thanks to the yen's depreciation. However, labor shortage and the possible rebounding yen will remain challenges for the long term.