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Japan-Israel ties blossom as 2020 investments reach record $1.1 billion

Data compiled by consulting firm Harel-Hertz shows that Japan accounts for 11.1% of all foreign investment in Israeli high-tech, vs just 1.8% in 2016

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Illustrative image of the Japanese and Israeli flags (MikhailMishchenko; iStock by Getty Images)
Illustrative image of the Japanese and Israeli flags (MikhailMishchenko; iStock by Getty Images)

2020 was a record year for economic relations between Japan and Israel, with Japanese firms investing some $1.1 billion in 51 deals in Israel, a 20% jump in money terms compared to 2019, according to a study by consulting firm Harel-Hertz Investment House.

In 2019, Japanese firms invested $914 million in 67 investment deals; in 2015 this figure totaled just $87 million.

Japan now accounts for 11.1% of all foreign investment in Israeli high-tech, compared to just 1.8% in 2016, Elhanan Harel and Ziv Tetruk, the authors of the report, said.

In absolute numbers, however, Japanese investment is still small, compared to that of US and Israeli investors.

Elchanan Harel, the founder and president of Harel-Hertz Investment House Ltd. (Courtesy)

Total Japanese investment in Israel since 2000 amounted to $8.25 billion in 308 investment deals, the Harel-Hertz report showed.

Israel and Japan have seen a blossoming relationship in recent years, after years of stuttering mutual trade relations that were mostly kept under wraps.

The very conservative Japanese had been reluctant to embrace Israel because of traditional fears of upsetting Arab oil suppliers, or because of cultural differences. But since 2015, following the visit of Prime Minister Netanyahu to Japan in May 2014 and of Japanese Prime Minister Abe to Israel in January 2015, the number of investment deals and their values have surged.

The two nations have signed investment agreements and cooperation in security, cyber and agriculture.

The Harel-Hertz report points to the fact that the circle of Japanese investors has gotten larger over the years. While until 2015 most of the investments were made by a very limited number of trading companies and large industrial companies, in the last three years investors have included car manufacturers, financial institutions, insurance companies and small and medium-sized venture capital funds.

The most active three investors in 2020 were multinational Mitsubishi Corporation, trading and investment giant Sumitomo, and financial services group SBI Holdings, which respectively invested $318 million, $118.5 million, and $29 million, the data showed.

In 2020 Japanese institutional investors also appeared on the Israeli scene, with leading insurance companies like Sompo, Tokio Marine, Mitsui Sumitomo Insurance Company, and banks like MUFG and Mizuho initiating partnerships with their counterparts in Israel and investments in Israeli venture capital funds.

There are currently 15 Japanese venture capital funds operating in Israel and investing in Israeli startups, from just two in 2016, Harel said.

The number of Japanese representative offices in Israel has also risen to close to 90 today, from just 15 four years ago.

Alongside the dramatic increase in investments, the number of acquisitions of Israeli firms by Japanese giants is still small. In 2020, there was just one acquisition of a company in Israel, the bio-pharma, gene-editing company EmendoBio, which was acquired by the Japanese biopharmaceutical company AnGes at a valuation of $250 million in December.

Harel said he expects the volume of Japanese involvement in Israel will continue to grow going forward.

“The trade war between US and China has created friction and startups are looking elsewhere and not to China for investments, especially in the fields of cybersecurity, AI and IT,” he said in a phone interview. “This has led to greater Japanese prominence.”

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