Jakarta. Japanese companies today favor investing in Southeast Asia as Tokyo’s economy slows, according to Shujiro Urata, a senior research advisor to the president of the think-tank Economic Research Institute for ASEAN and East Asia (ERIA).

Shujiro said that Japan had witnessed economic stagnation for decades, and the economy had recently begun to recover although not at a significant rate. Japan today is facing a series of challenges, among others, a declining population. This affects the Japanese economy’s prospects, thus taking a toll on companies’ appetite to invest domestically.

“There are several impacts from the [the slowing-down of the Japanese economy in Southeast Asia]. For instance, the Japanese official development assistance [ODA] is declining. … [This results in] less ODA to Southeast Asia,” Shujiro said on the sidelines of the International Economic Association World Congress in Colombia.

“But as I said earlier, Japanese companies are very active in investing in Southeast Asia,” Shujiro said.

According to Shujiro, Japanese companies used to invest in China heavily. However, they are now turning towards Southeast Asian countries -- such as Indonesia, Vietnam, and Thailand -- as the risk of investing in China grows. 

“Japanese companies are finding opportunities in Southeast Asia thanks to the ‘not-so-optimistic’ Japanese market,” Shujiro said.

He added: “Hopefully, the money or the profit from which they generated in Southeast Asia will return to Japan for domestic investment. … That is the cycle that we would like to see.” 

Japan is one of Indonesia’s top foreign investors. Government data shows Japan invested about $3.3 billion in Indonesia in January-September 2023. This makes Japan Indonesia’s fourth largest source of foreign direct investment (FDI) over the said period.

ASEAN Secretary-General Kao Kim Hourn earlier this year revealed that Japan was the bloc's second-largest foreign investor in 2022. Japanese investment in ASEAN amounted to $26.7 billion.

Reuters reported last week that the Japanese economy had contracted at an annualized clip of 2.9 percent in July-September from the previous quarter. This is worse than the initial estimate of a 2.1 percent drop.

Japan currently allows far less money for ODA. The ODA budget peaked at 1,168.7 billion yen ($8.2 billion) in fiscal year 1997, but then shrank to 570.9 billion yen in 2023, according to an Asahi Shimbun article published in June.

Media reports revealed that Japan’s population was indeed aging and declining. Over one in 10 people in Japan are now 80 years old or older, BBC reported. The Associated Press wrote that the population of Japanese nationals fell by about 800,000 people or about 0.65 percent to 122.4 million in 2022, versus the previous year’s figures.