Rightsizing Japan’s Economic Influence in Southeast Asia

The economic ascent of China and Beijing’s assertive exercise of its economic statecraft often overshadows Japan’s longstanding role as a major economic player in Southeast Asia. This is compounded by Japan’s structural economic challenges, notably its ageing population, raising questions regarding the sustainability of its economic influence in the region. Yet, many figures point to the fact that Japan remains a key development partner and leader in critical and emerging economic sectors in Southeast Asia. This is supported by a qualitative analysis of 645 articles published between 2022 and 2023 by eight English-language newspapers* in Southeast Asia. Together, they highlight tangible economic benefits derived from Japan’s development assistance and investments in the region, underscoring Southeast Asians’ positive appreciation of Japan’s economic influence despite the rise of China.

Japan’s Economic Heft in Southeast Asia

To begin with, Japan remained the single largest provider of Official Development Assistance (ODA) to the region between 2015 to 2021. Cumulatively, Tokyo accounted for 31.4 per cent of ODA disbursed in the region in that period, holding a commanding lead over the next largest provider, the World Bank (8.7 per cent). Notably, Japan’s development assistance is widely recognised for its tangible and positive impact on the ground. Approximately 24.3 per cent of the analysed articles underscored the beneficial effects of Japan’s economic projects or investments on the broader population. For instance, the Japan International Cooperation Agency (JICA) was described as “helping vegetable farmers earn higher income, [providing] more job opportunities and [easing] social disparities” by providing technical assistance to the Philippines’ agricultural sector through the “Project for Market-Driven Enhancement of Vegetable Value Chain (MV2C)”. Likewise, Japan’s financial support for the installation of a water supply system in Siem Reap through its KUSANONE Grassroot Human Security Projects was recognised for “improv(ing) people’s livelihood(s)”. This is true for infrastructure projects as well, such as the Siem Reap Provincial Referral Hospital funded by JICA, which was commended for “meeting the needs of local people”.

Japan Leads the Pack

Japan also continues to be involved in future-oriented projects where it provides technical and financial support to help Southeast Asians acquire and develop the technological capabilities for their industrial development or green transition. This includes projects such as the Just Energy Transition Partnership which supports energy transition in Vietnam and Indonesia, as well as the Japan-US-Mekong Power Partnership (JUMPP) for Thailand. Japan also spearheads regional decarbonisation efforts through the Asia Zero Emissions Community (AZEC) initiative. These projects frequently feature in Southeast Asian newspaper coverage (37.4 per cent). In these articles, Japan is framed as a standard-bearer for the regional climate agenda, with its leadership “welcomed” by regional leaders as “a model for many countries in the push towards green initiatives”.

In addition, Japan has remained among the top three external sources of FDI for ASEAN countries since 2019. According to the 2023 ASEAN investment report, Japan provided the second largest amount of FDI into the region, worth approximately US$26 billion. Much of Japan’s FDI has been channelled into manufacturing and storage industries, with the automotive sector being a key sector. This is also reflected in regional newspaper discourse, with a common theme focusing on Japanese investments as a key contributor to critical industries of Southeast Asian states (26.5 per cent). Indeed, the articles depict the pivotal role of large Japanese companies such as Toyota Motors and the Sumitomo Group in fostering key industrial sectors such as automotive manufacturing in Thailand and the development of industrial parks in Vietnam.

Japan’s FDI in the Top Ranks

Aside from manufacturing, Japan remains a key partner in addressing ASEAN’s connectivity needs, providing funding required for many infrastructure projects such as the North-South Commuter Railway in the Philippines, the Bangkok-Chiang Mai high-speed rail (HSR), the Jakarta-Surabaya railway, and multiple highways, bridges, airports and ports in Vietnam. Japan’s funding of infrastructure development projects has received the greatest media coverage, with 43.9 per cent of the articles referring to Japan’s investments or loans into critical infrastructure developments in Southeast Asian countries. 

Nonetheless, Japan cannot afford to be complacent. Indeed, data from the State of Southeast Asia survey between 2019 and 2024 shows that Southeast Asians consistently view Japan as only the fourth most influential economic power in the region, while China is perceived as the preeminent economic power in Southeast Asia year on year.  While cumulative Japanese investments over many decades have been crucial in bolstering economic development across many Southeast Asian nations, it appears to be losing ground in sectors where it previously dominated, such as the automotive sector. Japanese automakers have become increasingly viewed as laggards in the manufacturing of electric vehicles (EVs), with manufacturers such as “Toyota … fail[ing] to keep pace” with other companies such as the US’ Tesla and China’s BYD. Similarly, Japan is ceding ground to China’s Belt and Road Initiative (BRI) in several large infrastructure projects. This is evident in its failure to secure the Indonesian HSR project, Whoosh. According to regional media, the Japanese proposal for the project was “too expensive” even though the technology was “not really cutting-edge”, despite its “44-year head start on China”.

Despite these challenges, it would be a mistake to overlook Japan’s economic influence in the region. Its longstanding economic engagement with the region and the tangible economic impacts it has delivered may not always hog international headlines, but they resonate widely with many Southeast Asians. To ensure that it retains its position as a leader in critical and emerging economic fields, Japan will need to push its own boundaries in its domestic structural reforms. Japanese companies should also venture out of their comfort zones to drive forward the ongoing supply chain restructuring and the rapidly advancing green transition.

* These newspapers are The Bangkok Post (Thailand), The Jakarta Post (Indonesia), The Phnom Penh Post (Cambodia), The Straits Times (Singapore), The New Straits Times (Malaysia), The Vietnam News Agency (Vietnam), The Philippines Daily Inquirer (Philippines) and the Irrawaddy (Myanmar).

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