Thought Leadership

Why Japan remains attractive to foreign investors

Japan’s long-standing economic stability continues to underpin investor confidence. Prolonged low interest rates have created favourable financing conditions, particularly for real estate and infrastructure projects. At the same time, the weakened yen has increased purchasing power for foreign investors, making Japanese assets comparatively attractive when priced in US dollars or other major currencies.

Tourism has rebounded strongly, reaching record levels and supporting growth across hospitality, retail and transport-related sectors. Major national initiatives, including the Osaka Expo, are expected to further stimulate regional development and investment activity. Combined with Japan’s transparent legal framework, sophisticated infrastructure and predictable regulatory environment, these factors reinforce Japan’s position as a long-term investment destination.

Global investor confidence is also reflected in continued interest from major institutional and strategic investors. Long-term capital inflows are increasingly driven not only by valuation considerations but by trust in Japanese corporate resilience, improving governance standards and sustainable value creation.

Alternative investments and emerging asset classes

Real estate represented nearly half of alternative investment transactions handled by ASA Group in 2024. Renewable energy continues to attract capital, particularly large-scale solar and wind projects. In parallel, data centres are emerging as a key growth area, supported by rising demand for cloud computing, AI infrastructure and data sovereignty. Major global technology companies are expanding their Japanese footprint, creating opportunities across real assets, financing structures and operational advisory services.

Private equity activity is also accelerating. International funds are targeting corporate carve-outs, succession-driven SME acquisitions and platform investments. However, rising construction costs, regulatory requirements and climate-related risks (including natural disasters) require careful planning and risk assessment.

The importance of local collaboration

A recurring theme throughout the session was the importance of close collaboration between PrimeGlobal member firms. Japan’s regulatory and business environment is sophisticated, and while increasingly accessible, still presents challenges related to language, documentation standards and market practice.

Local firms regularly work alongside their overseas counterparts when foreign clients invest into Japan. In these cases, the overseas firm typically remains the primary client advisor, while the Japanese firm conducts financial and tax due diligence on Japanese entities and provides structuring advice from a local tax and accounting perspective.

Collaboration also flows in the opposite direction. When Japanese companies expand overseas, Japanese advisors rely on PrimeGlobal member firms in the target country to perform local due diligence, advise on tax treatment and support transaction execution.

Japanese firms are responding by investing in technology-enabled service models, including ERP platforms that allow overseas investors to access consolidated financial, tax and compliance information. Equally important is talent. Bilingual and multicultural teams play a critical role in bridging expectations between Japanese stakeholders and foreign investors.

M&A trends and deal structures in Japan

Mergers and acquisitions remain a primary route for market entry and growth. After a temporary decline during the pandemic, inbound M&A activity has recovered quickly. Europe and North America continue to account for the majority of inbound investment, reflecting deep and established economic ties.

Yamada & Partners identified four common M&A patterns in Japan.

1. Divestment of non-core subsidiaries by large corporates

1. Strategic sales of parent companies to unlock synergies or facilitate privatisation

1. Succession-driven sales of owner-managed SMEs

1. Minority stake sales by startups seeking capital for growth or IPO preparation

Each structure brings distinct accounting, tax and governance considerations. Post-merger integration, institutionalisation of management and alignment of reporting standards are often as critical as transaction execution itself.

Accounting, tax and due diligence considerations

Technical differences between Japanese GAAP, US GAAP and IFRS remain a key focus area in cross-border transactions. For example, goodwill amortisation under Japanese GAAP differs materially from IFRS treatment, and upcoming accounting changes will require careful monitoring by both acquirers and advisors.

Many unlisted Japanese companies are not subject to statutory audit and often prepare accounts primarily for tax purposes. As a result, due diligence commonly identifies issues such as cash-basis accounting, unrecorded provisions, informal related-party transactions or unpaid employee liabilities. While these are not unusual in the Japanese SME context, they can materially impact valuation, deal structuring and post-acquisition integration.

Tax structuring is equally critical. Dividend and capital gains taxation, withholding obligations and treaty eligibility must be carefully assessed, often requiring close coordination between Japanese advisors and overseas member firms providing jurisdiction-specific insight.

Capital markets and IPO opportunities

Beyond private transactions, Japan’s capital markets are gaining renewed attention. The Tokyo Stock Exchange has received increased interest as a listing venue not only for Japanese companies but also for foreign and Asia-based businesses. As governance reforms progress and market liquidity improves, Tokyo is positioning itself as a credible option for clients seeking capital raising and long-term market presence.

Key takeaways for PrimeGlobal member firms

For PrimeGlobal member firms, Japan offers substantial opportunity across investment advisory, M&A, tax structuring, audit support and capital markets. However, success depends on collaboration, cultural understanding and technical depth. By leveraging the associations’s collective expertise, member firms are well positioned to support clients navigating Japan’s evolving business landscape, both inbound and outbound, and to build durable, trusted cross-border relationships.