Economic Relations of Japan - Foreign Investment

Foreign Investment

Through most of the postwar period foreign investment was not a significant part of Japan's external economic relations. Both domestic and foreign investments were carefully controlled by government regulations, which kept the investment flows small. These controls applied to direct investment in the creation of subsidiaries under the control of a parent company, portfolio investment, and lending. Controls were motivated by the desire to prevent foreigners (mainly Americans) from gaining ownership of the economy when Japan was in a weak position after World War II, and by concerns over the balance of payments deficits. Beginning in the late 1960s, these controls were gradually loosened, and the process of deregulation accelerated and continued throughout the 1980s. The result was a dramatic increase in capital movements, with the biggest change occurring in outflows—investments by Japanese in other countries. By the end of the 1980s, Japan had become a major international investor. Because the country was a newcomer to the world of overseas investment, this development led to new forms of tension with other countries, including criticism of highly visible Japanese acquisitions in the United States and elsewhere.