Japanese Prime Minister Shinzo Abe has made boosting stagnant foreign direct investment a pillar of the 'third arrow' of his growth strategy. Reuters' Yonggi Kang examines his prospects.
UK-born Huw Williams runs an IT firm in Tokyo, where he's lived for 14 years. He's been based in all the world's financial capitals: London, New York, and Hong Kong. But Tokyo is where he likes best. (SOUNDBITE) (English) PRESIDENT, DENPHONE, HUW WILLIAMS, SAYING: "Well, I think Japan has just great infrastructure. It has some of the best infrastructure you'll find anywhere in the world. The public transport network, the telecommunications network, the road network, the distribution systems. They're absolutely amazing compared to almost anywhere else you might go at least of Japan's size. And those make it much easier to run a business here than a lot of other places." If Prime Minister Shinzo Abe gets his way, Tokyo will see a lot more Huws. Attracting more foreign businesses is one of Abe's key growth policies -- part of the so-called 'third arrow' of Abenomics. But that's easier said than done. Foreign direct investment into Japan rose steadily until 2008 but has plateaued ever since, in sharp contrast to Singapore, where it's risen steadily over the past decade. The government wants to double FDI to 35 trillion yen -- or 340 billion U.S. dollars -- by 2020, the year Tokyo holds the Summer Olympics. So can Tokyo reclaim a place among Asia's top financial hubs? Well, there's a lot of work to do. The Bank of Japan says foreign direct investment has been hindered by high costs of doing business and a lack of sufficient global talent. Japan's corporate tax rates are also among the highest in the industrialized world at nearly 36 percent for large companies operating in Tokyo. In a Price Waterhouse Coopers ranking of major cities based on categories like innovation, transportation, and ease of doing business, Tokyo came in 13th place behind Singapore and Hong Kong -- and just one notch above Seoul. But there's a sense Abe's reforms could turn things around -- especially if they free up trade, boost corporate governance and make the labor market more flexible, says Jay Ponazecki, head of the American Chamber of Commerce in Japan. (SOUNDBITE) (English) PRESIDENT, THE AMERICAN CHAMBER OF COMMERCE IN JAPAN, JAY PONAZECKI, SAYING: "The extent of the reforms, and whether they're robust and sweeping and can actually trigger change and stimulate economic growth will play a big role in how much of an increase we witness in foreign direct investment in the short term, and the near term. We're very optimistic though, and for many years we have been advocating for structural reforms that could make Japan competitive, including Tokyo competitive, with other financial centers in the region." (SOUNDBITE) (English) REUTERS REPORTER, YONGGI KANG, SAYING: "Ponazecki says Abe's third arrow should be seen more like a thousand darts that together will produce noticeable results. For foreign investment to revive, most of them will have to hit the mark." ENDS