By Subrata Majumder
In the post Japanese Yen appreciation era, Japanese overseas investment shifted to China and ASEAN for low-cost manufacturing, leaving India behind. The trajectory is now witnessing movement in the reverse gear, owing to US President Trump’s high reciprocal tariff. Japanese investment has surged in India, leaving China and ASEAN behind. While Japanese investment in India increased by 37.1 percent in 2025, it dropped in China and ASEAN by 29.1 percent and 48.9 percent respectively.
Unperturbed Japanese investors are focused on domestic demand as the core issue for their investment, instead of low-cost manufacturing and exports. India’s growth depicted a “New India” for its strong resilience to global economic tension, driven by Trump’s high tariff and a new game player for “Spendonomics”. According to Nelson IQ World Data Lab report, India could be home to the world’s second largest domestic market in the next decade, after USA. It will edge past China based on its current growth trajectory.
India has registered one of the highest GDP growth rate in the world, viz, at 7.9 percent in 2025-26. It is anticipated to register similar template of growth in the coming years. Its high GDP growth was engineered by domestic demand, owing to its demographic advantage rather than export. China’s domestic consumption trail behind India, since India accounts for larger stakes for middle-aged and affluent sections of the population.
This translates into a new dynamism for foreign investment in India, which edges the ASEAN-10 and China. While the aim of Japanese investment in India concentrates on domestic demand and low-cost alternative supply chain, Chinese investment in ASEAN-10 surged for transshipment of merchandises exports to USA.
US tariff on ASEAN is lower than that on China. While direct export of Chinese goods to USA attracts US tariff of 47.5 percent, tariff on exports by ASEAN member nations varies between 10 percent to 49 percent. Even though tariff varies widely between the ASEAN-10 member nations, merchandises produced in Chinese FDI-dominated member nations attract lower tariff than Chinese direct export to USA.
Chinese investment in ASEAN is concentrated in 4 member countries. They are Malaysia, Indonesia, Thailand and Vietnam. Excepting Vietnam, US reciprocal tariff in other three members countries varies between 24 percent to 36 percent. They are much lower than tariff on Chinese exports. These lend a special advantage to Chinese investors in ASEAN to manufacture and re-route exports to USA
Eventually, ASEAN export to USA spurred in 2024 and 2025, despite higher USA reciprocal tariffs.
Japanese recent trajectory of investment in India appears to substantially change the direction of the fields for investment. Large investment was poured in the financial services than in manufacturing, such as automobile, electronics, drugs and pharmaceuticals and others.
Big investment by Sumitomo Mitsui Banking, Mizuho Securities and MUFG Bank are the cases in point. Their large investment in Yes bank, Avendus Capital and Shri Ram Finance project a new direction of Japanese investment in India, leaving behind manufacturing such as automobile, electronics, drugs and pharmaceuticals and others.
According to an official document, Japanese investment in service sector outsmarted manufacturing. During 2000 to 2025, service sector constituted 18.1 percent of total Japanese investment in India, followed by automobile and others.
Factors attributed to the shifting of Japanese investment in India towards financial services were growing domestic consumer market and eventually reflecting large credit market. Japanese financial institutions are rapidly engaging with the Indian local non-banking financial companies (NBFCs) and private commercial banks.
For example, Mitsubishi UFJ Finance Corporation (MUFG) committed US$ 4.4 Billion for a stake of 20 percent stake in Sri Ram finance to expand retail and vehicle credit. Sumitomo Mitsui Finance Group secured a substantial stake of 24.2 percent to become biggest shareholder in Yes Bank.
According to a JETRO survey, India took lead with 80.3 percent of Japanese investors in India considering expansion. In contrast, business expansion intension declined in Thailand and hit a record low in China.
The survey revealed India as the third highest making profit for Japanese investors, followed by South Korea and Taiwan.
Why has India outnumbered ASEAN-10 in attracting Japanese investment, despite Japan is a member of RCEP (Regional Cooperation of Economic Partnership) – world’s biggest free trade block? India is not member of RCEP.
Factors lie with the legacy of former Japanese Prime Minister Shinzo Abe’s far-sightedness to combat China’s growing influence in South East Asia. Japan has historical political feud with China. It led to the birth of FOIP (Free and Open Indo-Pacific), with the membership of Japan, USA, India and Australia. The aim is to counterbalance China’s rising power.
Therefore, the legacy of the late Japanese Prime Minister Shinzo Abe’s vision continues to be the core framework for India-Japan relation. Outnumbering China and strengthening FOIP could be milestone for India’s Viksit Bharat with stronger economic foundation. (IPA Service)
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