Economic relations between Japan and Israel reached new heights in 2021, with Japanese firms investing some $2.9 billion across 85 deals in Israeli companies last year, almost triple the amount in 2020, according to a new study released Sunday by consulting firm Harel-Hertz Investment House.
In 2020, Japanese firms invested $1.1 billion in 63 investment deals, up from $914 million in 2019; in 2015 this figure totaled just $87 million.
Japan now accounts for 15.8% of all foreign investments in the Israeli high-tech industry, compared to just 1.8% in 2016, and 12% of the total investment (foreign and Israeli), indicated Elhanan Harel, the founder and president of Harel-Hertz and the author of the report.
In absolute numbers, however, Japanese investments in Israel are still small, compared to those of US (and Israeli) investors. Japanese VCs and corporate VCs still do not take lead investors positions, preferring to join Israeli or global VCs in funding rounds, the report said.
Total Japanese investments in Israel since 2000 amounted to $13 billion in some 400 deals, the Harel-Hertz report showed.
Since 2015, the areas of interest for Japanese investors have diversified. The vast majority of investments that year (61%) focused on communication and IT companies, falling to 13% by 2021 as more investments flowed into life science, food tech, cybersecurity, automotive, fintech, and cleantech companies.
2021 saw nine new Japanese investors make their first forays into the Israeli tech industry, with two new funds and seven corporations joining the local Japanese investment community. Overall, Japanese companies and brands run 97 offices in Israel in 2021, up from 15 in 2015, according to the report.
The most notable relative newcomers were Japanese telecommunications giant NTT (Nippon Telegraph and Telephone), which opened an innovation lab in Ra’anana last summer, and multinational conglomerate Softbank, which in 2021 invested the largest amount (just over $2 billion of the total) in Israeli companies across 24 deals. Japanese trading company Mitsui participated in the highest number of transactions — 41 deals and $299 million in investments, according to the report. Mitsui’s activities in Israel include those with Magenta Venture Partners, an equal partnership between Mitsui and two Israeli venture capital professionals, and MGI (Mitsui Global Investments), a subsidiary of the corporation.
Last year, Softbank bought a $25 million stake in Israeli crowdfunding firm OurCrowd, and co-led a $400 million investment in Israeli cybersecurity firm Claroty, a maker of software to defend factories and industrial plants from cybersecurity attacks.
SoftBank’s Israel operations are headed by former Mossad head Yossi Cohen, who stepped down from the security agency position in June after more than five years on the job.
The Japanese multinational, with over $340 billion in assets under management (AUM), has invested in some of the biggest companies in the world including Uber, DoorDash, Cruise, Slack, ByteDance (the precursor to TikTok) and — famously — Israeli co-founded company WeWork. It has also made a number of investments in other Israeli firms including cybersecurity firm Cybereason, and social trading platform company eToro.
The Harel-Hertz report noted that both Softbank and NTT were “the front-runners in Japan’s international activity” and their activity in Israel will possible lead to “a positive change” among the Japanese business community.
In 2020, the most active three investors were multinational Mitsubishi Corporation, trading and investment giant Sumitomo, and financial services group SBI Holdings, according to that year’s data.
Harel said in a statement Sunday that the investment growth in 2021 was “impressive, considering that all of them are ‘digital investments’ carried out through Zoom sessions, control processes, and internet examination, without visits and meeting capability,” which point to “maturity and credibility in the relations between Japanese businessmen and their Israeli counterparts.”
Alongside the dramatic increase in investments, the number of acquisitions of Israeli firms by Japanese giants is still small. In 2021, three Japanese firms — Olympus, chemicals company Asahi Kasei, and semiconductor manufacturer Renesas — bought Israeli medical device companies Meditate and Itamar Medical, and chip maker Celeno, respectively for $300 million, $538 million, and $315 million.
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 former prime minister Benjamin 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.
Harel said the escalation of the trade war between the US and China in recent years has been “present and meaningful,” leading Israeli tech companies “to prefer Japan as the[ir] business center in Asia” as they increasingly recognize its economic importance and as an “advanced center for operations in other Asian countries.”
Shoshanna Solomon contributed to this report.