Tag: 1985

Japan Inc. Now Sells No Yen to Invest Abroad

Earnings on Japan’s foreign direct investment (FDI) reached 103% of new FDI in 2022–25. With dividends and retained earnings counted together, Japan Inc. now needs to sell little yen to invest abroad.

[by OKUBO Takuji]

Key takeaways

  • Foreign affiliates now earn about as much as Japan invests abroad each year. Reinvested earnings, dividends and interest together reached 103% of new outward FDI in 2022–25, against 48% in 1996–2000.
  • Dividends from foreign affiliates account for a growing share of Japanese corporate profit. We estimate that foreign affiliates contributed 13.4% of Japan Inc.’s earnings in FY2025, up from 1.7% in FY1996.
  • Corporate investment abroad now involves little net yen selling. After dividends and interest paid home, the estimated outflow has been close to zero since 2022, down from about ¥5 trillion a year, or about 1% of GDP, on average in the 2010s.

Japan’s FDI stock now earns 103% of new investment

It is often said that Japan’s ageing population and slow growth give its companies too few investment opportunities at home. A Japanese government report in 2024 included the following passages.

“Japan’s ageing and shrinking population depresses expected demand at home. Expected returns remain higher abroad, so Japanese companies have accelerated outward direct investment” (my translation). — MATSUBAYASHI Yōichi [松林 洋一], MOF PRI, chapter 8, p.136.

“Companies invested abroad because they saw no promising investments in Japan; they are unlikely to bring back every return. On a cash-flow basis, the external balance is in deficit and is one factor behind the weak yen” (my translation). — KARAKAMA Daisuke [唐鎌 大輔], MOF PRI, chapter 10, pp.178 and 175.

However, my review of recent data shows that while their premise of low growth prospects in Japan is probably still right, the direct investment Japan has accumulated abroad has reached a level where it earns enough to cover Japan’s new investment abroad. This changes the exchange-rate implication even if Japan keeps investing abroad.

As chart 1 shows, earnings on the accumulated investment stock rose from 48% of new outward FDI in 1996–2000 to 103% in 2022–25.

Chart 1

Overseas affiliates pay interest and dividends to their parent companies in Japan. Those dividends have become a sizable part of corporate Japan’s income: we estimate that they made up 13.4% of Japanese corporate profit in FY2025, up from 1.7% in FY1996.

When foreign affiliates retain their earnings on their balance sheets, Japan’s balance of payments statistics record them as FDI from Japan, even though no money crosses the border. While the companies receiving FDI dividends and the companies paying for new FDI are not necessarily the same, Japan Inc. as a whole is now financing its FDI almost entirely from the earnings of its overseas affiliates. At the current level of FDI, little new yen needs to be converted into foreign currencies as Japan goes about investing abroad.

In the rest of this report, I explain how foreign direct investment by Japanese companies evolved, and its near-term outlook. This report is the third in a series on the yen repatriation theme that I have published over the past few weeks, following “Yen Repatriation Starts with the Whale”, on capital flows through Japan’s national pension funds, and “Mrs Watanabe No More”, on Japanese households’ assets invested abroad.

A strong yen helped drive Japan’s first outward FDI boom

Japan’s outward investment was heavily restricted after WWII, requiring case-by-case permission from the government. Approvals became more and more automatic over the years until outward investment became “free in principle” in 1980. Trade friction with the US-led Japanese carmakers to restrain their exports from 1981, pushing them to build factories abroad. The rapid appreciation of the yen was also a factor. The yen strengthened from ¥242 per dollar before the Plaza Accord in September 1985 to ¥121 by the end of 1987. Japanese producers had to move lower value-added work abroad. The strong yen also gave Japanese financial institutions sizable purchasing power for a while, until the stock and property bubbles burst in 1990 and 1991.

All of these factors contributed to a rapid increase in outward FDI through the 1980s and 1990s (chart 2).

Chart 2

Even after the bubble burst, the strong yen kept pushing manufacturers to move abroad. In 2005, manufacturers accounted for 60% of the FDI stock. As Japanese manufacturers expanded their supply chains abroad, Asia’s share of outward FDI rose from about 12% in FY1986–90 to 19% in FY1995–99, and Asia held 23% of the FDI stock by 2005 (chart 3).

Chart 3

Japan’s outward FDI stock rose to 56% of GDP

The next phase was sustained by a different pressure. With weak growth and low interest rates at home, Japan Inc. kept investing abroad, across a broader range of industries. Between 1995 and 2025, the stock of FDI rose from 9% of Japan’s GDP to 58% (chart 4). In 2025, it is as large as about 38% of the private sector’s domestic fixed capital, on our estimate.

Chart 4

By industry composition and by destination compositions changed over time. Manufacturing’s share of the FDI stock had fallen to 37% by 2025, giving Japan’s FDI more breadth. By destination, we are seeing a revival of FDI toward the United States. It accounted for 34% of the stock in 2025, Europe 29% and Asia 25% (see earlier chart 3).

Thus, after decades of overseas investment, Japan’s FDI stock is now large enough that its earnings are sufficient to finance new investment abroad, at least for now. In the next section, I consider whether this will continue, and in particular whether Japanese companies may bring an even larger share of their overseas earnings back to Japan, given the weak yen, higher borrowing costs in yen and possibly better investment opportunities at home.

The weak yen has slowed offshoring, not reversed it

The real depreciation of the yen over the past 15 years made production in Japan more competitive. There is some evidence that manufacturers are considering bringing production back to Japan. The 2023 manufacturing white paper found more firms shifting production back from China than moving there, and they named the weak yen as one reason. We see some signs of reshoring. Japanese manufacturers’ overseas production ratio rose from 18.0% in FY2011 to 27.2% in FY2023, but it may have started to decline or at least stabilize. The ratio fell to 26.7% in FY2024. A Cabinet Office survey of listed manufacturers puts the ratio at 24.5% in FY2025, and their plan for FY2030 is broadly unchanged at 24.7%. The weak yen seems to have stabilized the wave of offshoring, but I see no firm evidence of a move back onshore yet.

Domestic investment has grown slowly despite the weak yen

There are tentative signs that domestic capital spending is starting to grow again. For three decades it grew at a very low speed. In real terms, private business investment rose only 26% between FY1997 and FY2025, less than 1% a year. In comparison, capital spending grew by about 4% a year on average in the United States. In my view, a weak currency is only one of the factors manufacturers weigh in designing their global production chains. The weak yen makes production in Japan competitive today, but they have also seen the exchange rate swing violently within short periods. Japan also has a shrinking population problem. It started to address it by opening a door to immigration, but the door is only tentatively open. Overall, my view is that the weak yen alone is unlikely to give Japan Inc. sufficient incentive to bring its capital back to Japan and to the yen.

Economic security is bringing some production home

The government is pushing harder than the currency, mostly in the name of economic security, even before the Takaichi government came along. The government currently has a ¥250 trillion domestic investment target for FY2040 and named AI and semiconductors among its 17 strategic fields. Semiconductors are where the money has gone furthest. In November 2024, under the Ishiba government, Japan committed more than ¥10 trillion of public support to AI and semiconductors by FY2030, aiming to draw more than ¥50 trillion of public and private investment over ten years. Japan managed to lure a TSMC plant to Japan, backed by a sizable subsidy. Rapidus, a government-supported Japanese semiconductor maker, has received a sizable subsidy and is building a factory in Hokkaido. Japan’s production of integrated circuits and discrete semiconductors rose from ¥2.7 trillion in 2019 to ¥4.1 trillion in 2025.

Under the name of economic security, the Japanese government is promoting other industries such as batteries, shipbuilding and pharmaceuticals. Defence spending adds to the push. Japan’s defence budget rose from about ¥5 trillion in FY2022 to ¥9.0 trillion in FY2026. Some defence contractors, such as Mitsubishi Heavy Industries, have doubled their defence revenue.

Japan’s industrial-policy record gives reason for caution

The Japanese government and the Ministry of Economy, Trade and Industry (METI), the key agency behind Japan’s industry policy, may claim some expertise in their industrial policies. Empirical studies in the past paint a poor track record, though. Rapidus, the most ambitious semiconductor project, has had no independent cost-benefit assessment (Negrine et al., 2025). While defence and economic security-driven policies have a different logic, I doubt that these industrial policies will succeed in bringing large-scale manufacturing investment back to Japan so long as macro factors such as Japan’s demography remain unfavourable.

FDI no longer appears to drive yen weakness

The weak yen and non-economic geopolitical factors do point to a halt in Japan’s four-decade offshoring trend, although it is a stabilization, rather than an economy-wide reversal of past offshoring. Japan Inc. will continue to invest more abroad, rather than within its borders. Given the sizable growth in the stock of cumulative FDI, Japan Inc. no longer needs to convert yen into overseas currency to keep investing abroad though. Net of dividends and interest paid home, Japan’s FDI sold about ¥5 trillion of yen a year, or about 1% of GDP, on average in the 2010s; since 2022 the net flow has been close to zero. There is also an interesting development in an effort to allow more share-exchange based M&A for cross-border deals that will further reduce the need for Japanese companies to spend their yen to purchase overseas assets. In my view, Japan Inc.’s FDI is no longer a factor to drive the yen weaker.

References

Japan-Watching: Still Dreaming: Kon Satoshi’s “Paprika” and Other Visions

by Miyamoto Yūko [宮本 裕子]

Anime (アニメ) director KON Satoshi (今 敏) died in 2010 at the age of 46, but his works remain highly influential. His final film Paprika, released 20 years ago, highlights his preoccupations with the divided self and the blurring of the lines between dreams and reality.

Dream Analysis

After starting out as a manga artist in 1985, KON Satoshi [今 敏] honed his skills in the anime production teams of OSHII Mamoru [押井 守] and ŌTOMO Katsuhiro [大友 克洋], and then made his feature-length direction debut with Perfect Blue, which was released in Japan in 1998. His fourth feature, the 2006 Paprika, is an adaptation of the novel of the same name by TSUTSUI Yasutaka [筒井 康隆]. Kon was public in his admiration of the book and he is said to have aimed to produce “something like the novel Paprika” in his previous anime. Indeed, Kon’s Paprika adaptation has many factors in common with his earlier works.

KON Satoshi [今 敏]

KON Satoshi [今 敏] in Venice in September 2006, when Paprika was showing in competition at the Venice International Film Festival. (© Reuters)

Tsutsui studied psychology at university, and motifs and ideas from Freudian and Jungian psychoanalysis feature regularly in his novels. Dream analysis plays a central role in the story in Paprika. In psychoanalysis, psychologically repressed material is thought to be banished to the unconscious before emerging in a different form in dreams. Analysis of dreams has been seen as a valuable way of resolving psychological problems by bringing the repressed matter into the open.

Paprika is set in a near-future Japan, where it is possible to monitor other people’s dreams on a screen. The main character is a therapist called Chiba Atsuko, who provides treatment via her alter ego Paprika, a dream detective. The technology is abused, however, forcing people to experience nightmares, and eventually these flood into the real world.

While Kon follows the broad outline of the original work, his adaptation incorporates numerous changes. The biggest of these is the chaotic parade of electronic goods, beckoning cats (“maneki-neko” [招き猫]), Buddhist statues, torii gates [鳥居], and other marching objects. This symbolizes nightmares spilling out of control, but there is nothing like it in Tsutsui’s book. Kon explained that the parade is made up of old-fashioned appliances and forgotten religious and traditional elements.

In Freud’s The Uncanny, he describes the titular subject as something familiar that has been estranged through repression. In the film, the members of the parade have become estranged from the conscious minds of people today, but are resurrected, and symbolize the uncanny nature of nightmares.

The parade that invades the dreams of patients. (© 2006 Madhouse/Sony Pictures Entertainment Japan, Inc.)

Integrating the Self

Alongside its Freudian elements, Kon’s Paprika shows Jungian influences. Carl Jung did not think that it was best to bring repressed aspects of the psyche under control, instead emphasizing the importance of integrating them into the self. This integration process can be seen in several of the characters.

While Konakawa, a character suffering from anxiety issues, searches through his dreams together with Paprika, he realizes that a mysterious person he repeatedly encounters is an old friend with whom he once shared the ambition of becoming a film director. This friend, who died of illness, appears in Konakawa’s dreams as his other self—the one who wanted to be a director. Konakawa overcomes his anxiety by recognizing and reconciliating with the repressed and forgotten self, represented by his old friend.

The division and antagonism between Chiba Atsuko and her alter ego Paprika are similar to those seen between Konakawa and his old friend. In the original book, Paprika was Chiba in disguise as a dream detective, but in Kon’s anime, they are like entirely different characters. In the finale, when dreams are flooding into the real world, they divide completely, existing at the same time in the same space. After this split, Chiba comes together again temporarily with the uninhibited Paprika when she no longer holds back her suppressed love for her colleague Tokita Kōsaku.

Chiba Atsuko with her divided self Paprika reflected in the glass. (© 2006 Madhouse/Sony Pictures Entertainment Japan, Inc.)

Chiba and Paprika do not divide in Tsutsui’s novel, and Konakawa’s old friend does not represent another self. This aspect of the divided self, added by Kon during the adaptation process, can be taken as a Jungian motif.

Books by the late KAWAI Hayao [河合 隼雄], renowned as a Jungian psychologist, were widely read in Japan from the 1980s until the 1990s, and Kon was among his readers. He is said to have become an avid reader of the psychologist for a time because he wanted to understand the music and lyrics of HIRASAWA Susumu (平沢 進), the former vocalist of the techno-pop band P-Model, who was influenced by Kawai. Hirasawa later created soundtracks for anime by Kon, including Paprika.

Kon also stated that he was influenced by the novels of MURAKAMI Haruki (村上 春樹), who himself developed a friendly relationship with Kawai through interviews and other encounters. Kon is said to have claimed that he was the only person who could adapt A Wild Sheep Chase [羊をめぐる冒険] and The Wind-Up Bird Chronicle [ねじまき鳥クロニクル] to anime.

Kon’s Themes

The anime Paprika could be seen as a later stage in the Kawai-led Jungian psychology boom in Japan, as well as a culmination of Kon’s characteristic themes. For example, the following aspects regularly appear in Kon’s work.

First, there is the depiction of another self. These include Chiba and Paprika in Paprika, Chiyoko and the old woman who appears at key moments and symbolizes Chiyoko’s future self in Millennium Actress (2002), and idol-turned-actress Mima and the apparition of her former pop star self in Perfect Blue.

Second, there are departures from heterosexual norms. In Paprika, the title character announces the wedding of Tokita and Chiba, which maintains the existence of this free-spirited “dream detective,” so that the film deviates subtly from the typical closed ending of heterosexual marriage. The ending of Millennium Actress suggests that Chiyoko’s long search for an artist she meets in her youth is her goal in itself, rather than a romantic relationship with him. In Tokyo Godfathers [東京ゴッドファーザーズ] (2003), alongside a caricatured depiction of a transgender character, we see the struggles of heterosexual couples and their families.

The third aspect is how media and technology blur the lines between reality and the unreal world. In Paprika, the DC Mini device erodes the boundary between reality and the dreams it is used to view, while Mima’s double in Perfect Blue appears in mirrors, PC monitors, and internet browsers. In Millennium Actress, Chiyoko’s acting roles are intertwined with her real life. In Kon’s anime series Paranoia Agent [妄想代理人] (2004), rumors transform into reality through the actions of the mass media and the characters, who in themselves are a kind of media commodity.

During a scene in Paprika when Konakawa goes to the movie theater, posters for Kon’s other films are on display. This shot shows Millennium Actress and Perfect Blue. (© 2006 Madhouse/Sony Pictures Entertainment Japan, Inc.)

Robot Adventure?

While there are clearly repeating themes in Kon’s works, Dreaming Machine [夢みる機械], which remains unfinished due to his sudden death from cancer, shows signs of an apparent major change of course. At one point it was announced that another director would complete the movie, but the producer later backtracked, saying that there was no director capable of realizing Kon’s vision.

Based on the remaining materials, this appeared set to be an action-adventure story about robots hunting down precious electricity in a near-future setting when humans are extinct. Paprika was also set in the near future, but Dreaming Machine features more overtly futuristic urban landscapes. The main characters are smaller, cartoonish robots, compared with the relatively tall humans of Kon’s other films. While it seems to have been aiming for a different kind of movie in terms of both content and visuals, was this really going to be a standard adventure story, without any twists?

Kon said that one of his influences was the manga [漫画] creator MOROHOSHI Daijirō (諸星 大二郎). In a short 1974 work by Morohoshi, also called “Dreaming Machine” (“Yume miru kikai [夢みる機械]”), robots go about their daily lives in the place of humans, who dream in a form of suspended animation. Kon’s unpublished 1984 manga Toriko covered similar ground. Can it be simple coincidence that his unfinished work has the same title as Morohoshi’s manga?

Beyond what looks on the surface like a robot action adventure, in Dreaming Machine,  Kon may have planned to depict a world of cryofrozen, dreaming humans. Or perhaps the robots were intended to be controlled consciously or subconsciously by humans. This is pure speculation, but I cannot help thinking that Kon may have intended to continue his theme of technology blurring the boundaries between dreams, or fantasy, and reality.

Some people may consider it unproductive to imagine what Kon’s works may have been, but this imaginative act helps carry his vision forward. Kon’s direct and indirect influence can be found in films like Darren Aronofsky’s Requiem for a Dream (2000) and Black Swan (2010), Christopher Nolan’s Inception (2010), and Edgar Wright’s Last Night in Soho (2021). While we will never see another KON Satoshi (今 敏) film, his vision lives on.

(Originally published in Japanese on July 10, 2026. Banner image from Paprika; © 2006 Madhouse/Sony Pictures Entertainment Japan, Inc.)