Why Japan Is Wary of Foreign Cash

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Concerns over China play into larger fears in Japan about corporate raiders and hedge funds buying up companies to bust them up and sell off the parts to the highest bidders. Earlier this year, Japanese media applauded condiment maker Bulldog Sauce for successfully staving off a takeover bid (BusinessWeek.com, 6/18/07) from U.S. investment fund Steel Partners.

Arab Companies Getting Into the Act

The cash isn't only flowing from China. On Nov. 26, Dubai International Capital, an investment company based in the United Arab Emirates, announced it had bought shares in Sony (SNE). The Middle Eastern investor, which said in July that it might spend up to $1.5 billion in one or two listed Japanese companies, said the stake was "substantial" but didn't disclose specifics. And United Arab Emirates state-run investment company International Petroleum Investment paid $775 million to acquire a 20% stake in Cosmo Oil in September, becoming its largest shareholder. Formerly known as Maurzen Oil (where Japanese Prime Minister Yasuo Fukuda worked until 1976), Cosmo actively courted IPI to help it fund expansion plans.

For now, though, it's unclear how regulators, corporate bosses, and the Japanese public will respond to the wave of cash entering Japan. Much will depend on the motives of overseas investors; parking cash in Japan as a passive investor probably wouldn't rouse Japanese authorities to act as much as launching a takeover bid. As for CIC's plans, Japan Inc. will just have to wait and see. Eiichi Sekine, a financial industry analyst at Nomura Institute of Capital Markets Research in Tokyo, says CIC won't begin buying stocks in Japan until the first half of next year at the earliest.

With Hiroko Tashiro