Australia’s attractiveness as an investment destination for Japanese companies and government institutions continues to strengthen and grow.
A new high of 72 M&A transactions and 55 partnerships were executed in 2024, representing the third consecutive year of record activity involving Japanese companies.
Amid an increasingly uncertain economic environment with disruptive US tariffs, strategic competition between China and America and geopolitical headwinds, Australia offers a lower-risk and higher-reward market for Japanese companies, which are cash-rich but face a shrinking domestic customer base.
In its Japan-Australia Investment Report 2024, law firm Herbert Smith Freehills notes while the trend was temporarily stalled by the pandemic disruption, Japanese investors continue to show enormous confidence in the economic future of Australia and Japan’s role in its development.
Japanese foreign direct investment (FDI) into Australia reached yet another record high of $141.1 billion representing 11.95% of all FDI into Australia. Japan ranked third in terms of cumulative FDI into Australia, and the country remains the only foreign investor to have increased its FDI into Australia in every single year over the past 11 years.
Comparatively, Australia accounted for 8.3% of all Japanese FDI.
Two-way trade between Australia and Japan was in 2024 valued at $113.4 billion, making Japan Australia’s second largest trading partner and second-largest export destination at $80.5 billion.
For many years, there have been increasingly diverse sectors in which Japanese companies invest in Australia. From traditional sectors such as mining, energy, and agriculture, investment has now become well established in sectors including real estate, life insurance, and financial services.
Herbert Smith Freehill reports further diversification in 2024 is building on a trend from recent years shows the growing strength of new market sectors like sustainable aviation fuel, transport and logistics, data centres, pension, and share administration services platforms, food technology, AI, and enterprise IT services.
Japanese strategies: Bolt-on to take off
Takeovers of listed Australian companies by way of a scheme of arrangement are becoming increasingly common for larger transactions, with three occurring in 2024. These include Renesas’ (TYO:6723) $9.1 billion acquisition of Altium; Mitsubishi UFJ Trust & Bank’s $1.2 billion acquisition of Link Group; and J-POWER’s $380 million acquisition of Genex Power.
“Under a scheme of arrangement, a fixed price is negotiated by the bidder with the board of the target company and is almost always approved by shareholders, which gives certainty of timing and budget to the Japanese acquirer,” Herbert Smith Freehill says.
Japanese businesses already well-established in Australia such as in beverages (ASAHI Group (TYO:2502) and Kirin (TYO:2503)), paper (Kokusai Pulp & Paper/Spicers Paper11 and Japan Pulp & Paper/Ball & Doggett), technology (Fujitsu, Fujifilm, Fujifilm Business Innovation (formerly Fuji Xerox), Hitachi, NEC and NRI), automotive (Optimus (TYO:9268) and IDOM (TYO:7599)), industrial gases (Nippon Sanso (TYO:4091)) and residential housing (Sumitomo Forestry and Asahi Kasei Homes) are growing market share and margins by acquiring “bolt-on” businesses to provide scale and achieve economies of scale.
There have been close to 200 partnerships between Japanese and Australian companies and institutions since 2019, and 55 in 2024.
The number of partnerships demonstrate the deep connection and mutual trust that exists between partners and they can form the economic foundation of future collaboration and cooperation, and ultimately new investment opportunities.
“Their increasing popularity with Japanese companies over the traditional minority interest in unincorporated joint ventures demonstrates an increasing sophistication amongst Japanese operators, and their understanding of and confidence in the Australian market,” Herbert Smith Freehill reports.
“Clean energy-related partnerships in sustainable aviation fuel, carbon capture and storage and renewable energy have been the most prominent and are likely to continue to grow.
“Science, technology and innovation is another area with trend growth in partnerships and large potential for future investments. There were only some partnerships in sports, defence, agriculture and space with each of these areas likely to see more partnerships in the future.”
Green energy direction unchanged
Divestments of thermal coal, which have risen to prominence in recent years, have slowed as Japan needs to secure energy for its industrial base, as well as coal production being very profitable.
Exports of coal were close to the record volumes of 2022 that were generated by restrictions on the importation of Russian coal and exceeded 2023’s export figures.
Major metallurgical coal acquisitions are back and more are likely in the near future as Japan needs to secure key minerals for its industrial base.
Iron ore continues to be a massive contributor to the economic wealth of Australia and an essential to Japan’s economic future.
Australia supplies 51.6% of Japan’s metallurgical coal and 55.1% of iron ore imports. Mitsui’s (TYO:8031) $8.4 billion acquisition of a 40% interest in the Rhodes Ridge iron ore project announced in early 2025 highlights this.
“Japanese companies have been very cautious about investing in greenfield projects or in companies without cash flow”
According to Herbert Smith Freehills, the direction of the green energy transition is unchanged but timing is being delayed. The commercial and technical challenges Australia needs to overcome in order to become a green hydrogen and green ammonia export superpower have become apparent.
“There are producers and buyers but not yet a ‘market’ that can support the increasing construction and renewables cost and allow for project financing. Unfortunately for Australia, unlike LNG and coal which are in limited supply globally, many countries have sun and wind and less red and green tape,” the firm says.
“Japanese companies have been very cautious about investing in greenfield projects or in companies without cash flow.
“There is a disconnect between the Japanese and Australian Governments’ geopolitical concerns about critical and strategic mineral supply chains and the risk and return for investors.
“Mining project development takes an average of 15 years to move from mineral discovery to commercial production and mineral market prices are volatile. The forces of demand do not align with the supply-side timing.”
Herbert Smith Freehills is a global law firm bringing together the best people across our 24 offices in Japan, Australia, and worldwide, to meet clients’ legal services needs globally. It is the largest law firm in Australia and is consistently ranked number one in M&A, both in number of deals advised and value of deals.
Trade missions
The Queensland Government is launching a new Queensland-Japan Trade and Investment Strategy 2025-2028 to deepen ties with one of the state’s significant economic partners, as reported by this news service.
This is backed by a $18 million investment over four years, which is poised to turbocharge Trade and Investment Queensland’s market strategies and deliver real outcomes for exporters, innovators, and investors.
For the year ending May 2025, Japan was Queensland’s second-largest goods export market, with total exports valued at $14.4 billion.
The government’s new strategy addresses expanding international education, research, and innovation partnerships; growing Queensland’s food, agriculture, and agritech exports; boosting the State’s innovation, creative, and tech sectors; and, attracting investment into major infrastructure projects.
Meanwhile, Western Australian Premier Roger Cook last week visited Japan for high-level talks for continuing collaboration on the clean energy transition. The meetings with government and industry stakeholders aims to also reinforce Western Australia’s longstanding relationship with Japan.
The trade mission comes ahead of his visit in September to World Expo 2025 Osaka, where the Western Australian Government joined the Commonwealth Government as a Gold Partner at the Australian Pavillion.
In early October 2025, Western Australia will host the 62nd Australia Japan Business Co-operation Committee (AJBCC) Annual Joint Business Conference with the theme: Navigating New Realities – Turbulence, Transition and Technology, as reported by Mining.com.au.
Write to Adam Orlando at Mining.com.au
Images: HSF, iStock & Unsplash
