Assessing Japan’s Business Perceptions in Indonesia
- Noto Suoneto
- 6 hours ago
- 4 min read
President Prabowo Subianto recently conducted a state visit to Japan, marked by high-level engagements with Emperor Naruhito and Prime Minister Sanae Takaichi, resulting in several strategic commitments. Amid ongoing global uncertainties, Japan continues to stand as one of Indonesia’s most important strategic partners in addressing shared economic and geopolitical challenges.
Japan is currently prioritizing economic security, with energy security emerging as a central pillar of its cooperation with Southeast Asia. At the same time, Indonesia must remain proactive in ensuring the availability and affordability of energy for its citizens, particularly in light of potential disruptions to global supply chains, such as those related to the Strait of Hormuz. There is strong alignment between Indonesia and Japan in advancing investments that support both energy security and the energy transition in Southeast Asia.
Furthermore, it is essential to understand how Japanese businesses perceive Indonesia’s investment climate, as their confidence will significantly influence the future trajectory of Japanese capital and long-term economic partnerships in the country. Strengthening the ease of doing business will be key to sustaining and expanding this strategic economic relationship. What do the recent statistics and surveys of Japanese businesses look into this matter?
We need to acknowledge that Japan has long been at the forefront of foreign investment in Indonesia, particularly in the manufacturing sector. For decades, Japanese companies have played a pivotal role in Indonesia’s industrialization, contributing significantly to the development of key industries such as transportation, electrical machinery, and electronic devices. This enduring partnership has been instrumental in supporting Indonesia’s economic growth and technological advancement.
According to the latest Japan External Trade Organization (JETRO) Survey on Business Conditions of Japanese Companies in Asia and Oceania, which for Indonesia covered more than 1,600 companies, Japanese businesses in Indonesia expressed a mixture of optimism and concern regarding the business environment and their future investment plans.
On the positive side, Indonesia’s large market size and strong growth potential remain the primary attractions for Japanese investors. These advantages are complemented by relatively competitive labor costs and the ease of working with local talent, reinforcing Indonesia’s position as a key destination for Japanese capital. The country’s substantial population continues to be regarded as a major competitive edge in attracting long-term investment.
However, it is important to note that these advantages are not unique to Indonesia. In the sameJETRO surveys indicate that market scale and growth potential are also highly valued in countries such as Vietnam, while low labor costs are key attractions in several ASEAN economies, including Cambodia, Laos, and Myanmar. This comparison underscores the need for Indonesia to enhance other aspects of its investment climate, such as regulatory certainty, infrastructure quality, productivity, and ease of doing business, in order to maintain and strengthen its competitive position within the region.
Furthermore, the recent assessments of Japanese investment sentiment in the country-specificsurvey result highlight several key risks affecting the business environment in Indonesia. According to the survey for Indonesia chapter, political and social instability ranks as the most significant concern, cited by 70.9% of respondents. This is followed by the unpredictability of policy implementation at 68.2%, and the continued increase in labor costs at 64.1%. Importantly, these concerns are not exclusive to Japanese businesses; particularly the issues of political stability and policy certainty, which have nationwide implications and affect both foreign and domestic investors alike.
On another note, a key concern highlighted for Japanese businesses is the challenge of advancing market entry and expanding investment in Indonesia due to a shortage of digital talent. This skills gap is particularly evident in critical technological areas such as cloud computing, artificial intelligence (AI), and cybersecurity. Addressing this issue is essential for sustaining Indonesia’s attractiveness as an investment destination. Therefore, continued and enhanced investment in human capital development will be crucial to meeting the evolving needs of Japanese investors and supporting Indonesia’s transition toward a digital and innovation-driven economy.
Despite these challenges, the outlook for Japanese businesses in Indonesia remains positive. The survey indicates that nearly 46% of Japanese-affiliated companies plan to expand their operations in the country. Furthermore, around 70% of these companies report that their businesses are profitable, underscoring Indonesia’s continued attractiveness as an investment destination. Sectorally, the food manufacturing industry and sales companies within the non-manufacturing sector are among those most actively seeking expansion.
However, when viewed within the broader Asia and Oceania context, India emerges as the most preferred destination for future expansion. The survey shows that 84.8% of Japanese manufacturing firms and 78% of non-manufacturing firms aim to expand their presence there. This reflects India’s increasingly favorable investment climate, supported by its vast domestic market and ongoing economic reforms. There are valuable lessons from India that Indonesia can learn from on this specific matter.
In recent ASEAN–Japan business dialogues, of which Indonesian Business Council participated actively, questions have arisen regarding whether Japanese investors are becoming less interested in Southeast Asia, especially when compared to the scale of Chinese investment in the region. Japanese business leaders have countered this perception, emphasizing that while the volume of investment may be smaller than China’s, Japan’s commitment remains steadfast and long-term. For decades, Japan has consistently supported economic development in Southeast Asia, and there is no indication of declining interest in deepening economic cooperation with the region.
The same survey also highlights the competitive pressures faced by Japanese businesses, particularly from Chinese companies in the ASEAN region. China is identified as the most significant competitor, with Thailand recording especially intense competition, with 40% of respondents in the country reported strong competitive pressure from Chinese firms.
To navigate this landscape, Japanese businesses are increasingly prioritizing product and service diversification tailored to evolving market needs as their primary competitive strategy. Rather than relying heavily on price reductions or cost-cutting measures, they are focusing on quality, innovation, and value-added offerings to maintain their market position in the region.
The Indonesian Business Council (IBC), in its annual outlook earlier this year, emphasized that enhancing Indonesia’s competitiveness and achieving quality growth requires focused attention on three interconnected pillars: certainty, capability, and capital. These elements are mutually reinforcing, because greater policy certainty fosters investor confidence, stronger capabilities enhance productivity and innovation, and together they attract increased capital inflows.
The recent assessment of Japanese business perceptions in Indonesia aligns closely with this framework. Policy uncertainty is identified as one of the most pressing risks, underscoring the importance of regulatory clarity and consistency. At the same time, the development of human capital, particularly in advanced and digital skills, is essential to strengthening Indonesia’s capabilities. Ultimately, improvements in both certainty and capability will create a more conducive investment climate, thereby unlocking greater capital and supporting higher economic growth.
This article written by Noto Suoneto, VP for International Affairs at the Indonesian Business Council.
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