(AsianFin)—With Japanese real estate firms aggressively pursuing acquisitions and food manufacturers announcing plans for new factories in the United States, the value of Japanese investments in the United States now exceeds that in China by fivefold.
Japanese corporations are shifting their investment focus towards the U.S., seizing opportunities in the nation's robust consumer market, according to Nikkei.
Based on data from the Japan External Trade Organization (JETRO), Japanese investments continued to flow into the United States throughout 2023, with a preliminary estimate of $63.5 billion, about the same as the previous year's total. High-profile acquisitions, such as Nippon Steel's acquisition of U.S. Steel for over $14 billion announced in December 2023, and SEKISUI HOUSE's $4.9 billion purchase of a major U.S. homebuilding company in January 2024, indicate the potential for growing Japanese investment in the U.S. market.
As of the end of 2022, Japan's direct investment balance in the U.S. reached $696.5 billion, high above its investment in China of $142.5 billion. A decade ago, Japan's direct investment in the U.S. was three times that of China. However, with Japanese investment in China declining, the disparity in investment balance between China and the United States is anticipated to widen further.
U.S. President Biden met with Japanese Prime Minister Fumio Kishida on Wednesday in Washington over shared concerns about China and they are expected to reach agreements on common subsidy regulations, which is likely to boost Japanese investment in the U.S.
Sekisui House in January announced a deal to buy homebuilder MDC Holdings for about $4.9 billion. The same month, rival Daiwa House Industry said its U.S. unit CastleRock Communities would buy the homebuilding operations of The Jones Company of Tennessee. This followed a similar acquisition by Daiwa House in the southern U.S. in October.
Daiwa House aims to raise overseas net sales to 1 trillion yen ($6.6 billion) in 2026, with the U.S. generating 730 billion yen of the total. For a company that logged less than 100 billion yen in U.S. net sales in fiscal 2018, that is a clear statement of where its priorities are for international growth.
In the food industry, there's a notable uptick in the establishment of new manufacturing facilities across the United States. Nissin Foods Holdings announced in November 2023 its intention to build a new instant noodle factory in South Carolina, situated in the southern part of the country.
Likewise, Yakult Honsha is preparing to open a new manufacturing plant in the southern U.S., specifically in Georgia. This move is the company's first venture in establishing a new factory in roughly a decade.
As the Biden administration's "America First" policy continues to incentivize production in the United States through subsidies, Japanese investment in the country is further encouraged. With the U.S.’s industrial policy of prioritizing domestic production remains unchanged, coupled with China's slowing economic growth and increasing geopolitical risks, Japanese companies will increasingly tilt towards the U.S.
However, Japanese companies are grappling with the issue of low profitability in their investments in the world’s largest economy. With a return on investment (ROI) of 8% in 2023, this figure falls significantly lower than the 18% ROI in China and even trails behind the 10% ROI seen in Europe and ASEAN countries.
"The problem is you have high business costs along with a fiercely competitive market," said Hiroshi Yoneyama, deputy director of JETRO's New York office.
Moreover, numerous Japanese companies encounter difficulties with post-merger integration following the acquisition of U.S. enterprises. Given the intensely competitive nature of the U.S. market, which attracts businesses globally, Japanese firms find it tough to attain satisfactory investment outcomes.
Explore more exclusive insights at nextfin.ai.
