Investment protection for Japanese Investors: Safeguarding value in turbulent times

Japanese investors play a significant role in global markets. Japanese outbound foreign direct investment (FDI) stood at USD 204 billion in 2024, making Japan the world's second largest source of FDI.

While Japanese investors will likely continue to be actively involved in foreign investment, they face an increasingly uncertain international landscape. In January 2026, UN Trade & Development (UNCTAD) issued an investment update warning that "downside risks are mounting", with "geopolitical tensions, regional conflicts, and economic fragmentation trends… likely to depress project activity".

This article explains how Japanese investors can seek to protect their foreign investments in these turbulent times. By appropriately structuring their foreign investments, Japanese investors may be able to obtain protection under international agreements known as investment treaties. These can offer a range of safeguards against State interference with investments, together with a right to pursue international arbitration to resolve disputes. 

Anecdotal evidence suggests that many Japanese investors are not obtaining the benefit of these safeguards that are routinely sought out by other international investors. For example, Japan remains severely under-represented as a claimant party nationality in investment treaty proceedings relative to its significant FDI outflows – with only a handful of Japanese investors having brought proceedings under investment treaties. While a cultural approach to dispute resolution that focuses on amicable resolution may go some way to explaining this, the authors' experience is that available protections are often overlooked, and investment structuring to gain such protections takes a back seat, when decisions around investments are made.

Against this backdrop, we consider three practical steps which Japanese investors can take to help maximise their ability to rely on potentially available investment treaty protections, namely:

• Exploring the network of potentially relevant investment treaties when deciding where and how to make foreign investments.
• Maintaining an awareness of the protections typically offered by investment treaties. 
• Implementing a proactive approach to risk-management.

Investment treaties and investment structuring options for Japanese investors

Under a typical investment treaty, a State agrees to treat investments from qualifying investors of another State in line with various standards and guarantees, in exchange for its qualifying investors also receiving equivalent treatment. These standards and guarantees are usually defined broadly under international law. 

Many investment treaties allow qualifying investors from one State (the Home State) to pursue international arbitration against the State hosting their investment (the Host State) if a dispute arises over the Host State's treatment of the investment. This can offer investors various advantages, including the right to have the dispute resolved before a neutral arbitration tribunal, and protection even without a specific contract with the Host State.

  A typical bilateral investment treaty relationship

According to a database maintained by UNCTAD, Japan currently has 36 bilateral investment treaties in force with a range of other States. Japan is also party to a number of multilateral treaties containing investment provisions – including the ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Energy Charter Treaty (ECT). This network of investment treaties can help guide investment planning and structuring decisions by Japanese investors, together with commercial, operational and other considerations.

But even where a Japanese business is considering making an investment in a Host State which does not have an investment treaty with Japan, it may still be possible to obtain treaty protection for the investment by structuring it through a subsidiary incorporated in a third State with an applicable treaty.

Common protections typically available under investment treaties

It is important for Japanese investors to be aware of the common protections which may be available to them under applicable investment treaties. These can include:

• Protection from unlawful expropriation: This will usually cover an unjustified direct seizure or nationalisation of the investment by the State without appropriate compensation, as well as other, indirect forms of expropriation.
• Guarantee of Fair and Equitable Treatment (FET): The FET standard typically protects investors against arbitrary administrative decision-making and from denials of justice. FET can be relevant in situations involving, for instance, procedural unfairness or a failure to protect the investor's legitimate expectations.
• Guarantee of Full Protection and Security (FPS): In general, the FPS standard requires the Host State to take steps to physically protect an investor and their investment from harm. FPS issues can arise in circumstances such as civil unrest in the Host State.
• Most-favoured nation treatment: This standard usually requires the Host State to refrain from treating the investor any less favourably than foreign investors from any other State.

It is true that many Japanese investors will want to seek an amicable resolution of their investment disputes and not invoke these protections in formal arbitration proceedings. However, the fact that an investment has been structured in a way that these protections are available and can be invoked if needed, may provide important leverage when negotiating with a Host State. 

The importance of proactive risk management

Proactive risk management is particularly important for Japanese investors due to the nature of the industries in which their investments are often made:

• In the 2025 financial year, the top two sources of new investment disputes registered by the International Centre for Settlement of Investment Disputes (ICSID) were the oil, gas and mining industry, and the construction industry. Japan External Trade Organisation (JETRO) FDI data for the first six months of 2025 shows that outward Japanese FDI amounted to nearly USD 6.3 billion (petroleum and mining) and USD 930 million (construction) in each of these industries. 
• ICSID's 2025 statistics also showed a notable increase in new investment disputes in the information and communication sector. Communications represented Japan's largest non-manufacturing industry by outward FDI in JETRO's January-June 2025 data, with a value of more than USD 10.3 billion.

Given the risk of investment disputes in these and other industries, it will be important for Japanese investors to carry out advance planning for potential investment protection issues, including through careful investment structuring (above). Such advance planning may also involve other complementary actions, such as measures to promote supply chain resilience and integrity through risk-based due diligence, and obtaining appropriate insurance against political risks from bodies such as Nippon Export and Investment Insurance (NEXI).

Conclusion

The evolving risks faced by Japanese investors continue to highlight the necessity of effective investment protection strategies tailored to both commercial priorities and operational realities. If you would like further information on the issues discussed in this article, please do not hesitate to reach out. We should also be pleased to provide a copy of our Client Guide on Investment Protection and Investment Treaty Arbitration upon request.

The authors would like to thank Delara Zand for her assistance with this article.