Record-breaking Japanese investment into Australia continues for fourth consecutive year: HSF Kramer report

Japanese foreign direct investment (FDI) into Australia reached a record high of A$159.5 billion (US$112.9 billion) in 2025, according to a new report from global law firm Herbert Smith Freehills Kramer (HSF Kramer) and The Australian National University (ANU).

The ninth annual Japan-Australia Investment Report, which features an in-depth analysis of Japan-Australia M&A transactions and partnerships through 2025, found a record 77 M&A transactions were announced and 53 partnerships formed, marking the fourth consecutive year of growth in activity.

Ian Williams, Senior Advisor at HSF Kramer and co-author of the report, said, “The trends observed in 2025 confirm that Japanese capital and expertise remain essential contributors to Australia’s economic growth and productivity.

Japan and Australia’s relationship has long evolved beyond its traditional strength in energy and mineral resources and is now built on broader economic security, combining strategic alignment and economic complementarity.”

Real estate and housing sector leads transactions

Of the 77 transactions identified through 2025, there were 69 acquisitions, up from 62 in 2024, and 8 divestments, down from 10 the year before. 

The real estate and housing sector ranked first for amount of activity with 17 transactions, and iron ore, metallurgical coal, and critical minerals in second place with 14. Among these transactions was Mitsui & Co.’s A$8.4 billion (US$5.34 billion) acquisition of a 40% interest in the Rhodes Ridge Iron Ore Joint Venture, the largest ever global investment by Mitsui & Co.    

Consumer, retail, and business services; renewable energy and decarbonisation; and financial services round out the top five areas of activity.

With domestic energy self-sufficiency of just 16.4%, the report predicts Japan will continue to rely heavily on imports from Australia, which accounts for around 39% of Japan’s LNG imports and 66% of its thermal coal imports.  Australia continues to keep Japan’s lights on for eight hours a day. 

Meanwhile, investment in the financial services sector is also growing, with three Japanese mega-banks - SMBC, MUFG and Mizuho - now ranking just behind the Big Four Australian banks in terms of corporate and institutional lending in Australia. 

“Life insurance and financial services continue to attract Japanese investment thanks to Australia’s population growth and affluent, sophisticated consumer base,” Damien Roberts, HSF Kramer’s Australia-Japan practice leader said.

Defence a significant strategic development

The defence partnership between Australia and Japan also deepened in 2025, with the selection of Mitsubishi Heavy Industries’ Mogami-class frigate as Australia’s next-generation general purpose frigate.

With 11 frigates to be built, this selection represents the largest-ever Japanese defence deal and the country’s first export of a major weapon system. 

According to Roberts, the Mogami could be the catalyst for broader defence-industrial collaboration. 

“As Japanese prime defence contractors expand their presence in Australia, the partnership is likely to generate deeper commercial engagement across supply chains, particularly in areas such as maintenance and sustainment, logistics, systems integration and dual-use technologies for broader application” he said.

Increasing pressure on Australia

Despite the record investment in 2025, Prof Shiro Armstrong, co-author and director of the Australia-Japan Research Centre cautioned that there is growing international competition for capital, increasing the pressure on Australia to remain an attractive and predictable destination for Japanese investment.  

“In an increasingly uncertain global environment, marked by disruptive US tariffs, strategic competition between China and the United States, war, and persistent geopolitical instability, Australia stands out as a lower-risk, higher-reward market for Japanese firms, with Australia’s secure investment profile continuing to underpin the relationship and investments,” he said.

“However, regulatory complexity, stagnating productivity and skills shortages across various sectors are making Australia less attractive as an investment destination. Japanese investors have preferred brownfield investments - existing assets or projects - to greenfield investments - new development projects - because of the risks and difficulties associated with approvals and delivery timelines,” he explained.

Japan has also vocalised concerns that a number of differing policy and commercial priorities and expectations between the two countries, for example around the role of LNG and carbon capture and storage in the energy transition, are also putting pressure on Australia’s standing as a destination for investment.

“Reducing uncertainty with reform and deepening bilateral cooperation with Japan, especially in emerging sectors, is needed to attract more new investment,” Armstrong said.

HSF Kramer’s Australia Japan Practice is a unique team of experienced bilingual and bicultural lawyers, specialising in advising Japanese businesses on their investments and operations in Australia, working closely with the firm's longstanding Tokyo office. The HSF Kramer team has more experience advising Japanese businesses on Australian investments than any other law firm.

You can find out more and access a full copy of the report here: English | Japanese