Japan: outward and upward

With the 2020 Olympics in the bag and record-breaking outbound investment, the legal market has put in a strong performance for 2014 so far

Last summer, crowds in Tokyo cele-brated the city’s 2020 Olympic bid victory. It was a rare moment of joy for a country that has been hit by natural disasters and, since the early 1990s, a stagnant economy. The win gave the nation confidence and boosted the popularity of prime minister Shinzo Abe’s favourite slogan ‘Japan is back’.

Although Japan’s economy grew by 0.7 per cent in 2013 – it was planning for 1 per cent, fast-growing outward investment is a bright spot. Outbound direct investment in 2013 increased by 10 per cent to $135bn (£80bn), from $122bn in 2012.

For M&A lawyers it was an exciting year of high-profile, multibillion-dollar cross-border transactions. In July last year Softbank acquired a 70 per cent stake in American mobile carrier Sprint Nextel for $21.6bn – one of the largest cross-border deals out of Japan. Morrison & Foerster, together with Japanese counsel Mori Hamada & Matsumoto, advised Softbank in this ground-breaking deal, while Skadden Arps Slate Meagher & Flom secured the lead counsel role for Sprint Nextel.

In January this year Suntory made a bid to acquire US spirits maker Beam, famous for the Jim Beam brand of bourbon, for $16bn. Cleary Gottlieb Steen & Hamilton won the mandate to represent the Japanese drinks maker. The deal came just a few months after Suntory instructed Clifford Chance for its £1.35bn acquisition of drinks brands Ribena and Lucozade from GlaxoSmithKline.

japan city

Most recently, Mori Hamada and Shearman & Sterling jointly advised Japanese food group Mizkan’s $2.15bn acquisition of Uni-lever’s North American pasta sauce businesses, Ragu and Bertolli.

In fact, about a third of Japan’s outbound investment in 2013, amounting to $43.7bn, went to the US. Exploiting this trend, one of the five largest Japanese firms, TMI Associates, is set to open its first US office in Silicon Valley in July – a first for Japanese firms. It is also its latest expansion overseas, following openings in China, Vietnam, Singapore, and Myanmar. 

TMI has also been growing its practice in Japan, partially thanks to joint ventures with four foreign firms, Simmons & Simmons, Morgan Lewis & Bockius, Canada’s Wakely Foreign Law Office and Germany’s ARQIS.


Heading South-East

While the US attracted the largest amount of investment from Japan in 2013, South-East Asia is where the inflow of Japanese capital really soared. The total amount of Japanese investment in the ASEAN region reached $23.6bn, more than double the $10.6bn invested in 2012.

As 2012 and 2013 saw the big five firms open offices in Singapore, the past 12 months have been characterised by their expansion into other parts of the region. 

Most recently, Nagashima Ohno & Tsunematsu hasopened its own Bangkok office. And earlier this year, Mori Hamada set up shop in Myanmar’s largest city, Yangon. The largest Japanese firm by lawyer numbers, Nishimura & Asahi, now boasts seven overseas offices, including those in Bangkok and Yangon, which it opened late 2013.

“Japanese business is looking at overseas markets for growth – mainly Asia and more particularly South-East Asia,” says Mori Hamada managing partner Toru Ishiguro.

Despite having advised on 126 M&A transactions with a total value of $32bn, according to Thomson Reuters, Ishiguro describes 2013 as “neither prosperous nor too bad” for his firm.

“Pure Japanese domestic activity is not as active as before, although more demand is being generated by the widespread move of Japanese companies into South-East Asia,” he explains.

Apart from the firm’s expansion in Asia, it has also recently opened two domestic branch offices, in Fukuoka and Osaka.


“There is a lack of service from large-scale firms in these two regions,” says Ishiguro. “More importantly, as some of the large Japanese corporations have moved to South-East Asia, many of their contracting companies based in the regional cities will want to follow them. We want to connect these local and small- to medium-sized companies’ potential needs with our network in Asia.”

Despite Japanese firms’ expansion both abroad and at home, the growth of lawyer headcounts remains broadly stagnant. Some domestic firms, including Nagashima and Anderson Mori & Tomotsune, have seen a fall in lawyer numbers.

This is partly due to the shrinking domestic market and partly because of a growing in-house legal profession. According to the Japan Federation of Bar Associations the number of in-house attorneys was 965 in June 2013, marking a 25 per cent rise on the previous year – and twice the number in 2011.

The international firms have seen the steepest decline in lawyer number in their Tokyo offices. Allen & Overy had one of the biggest drops, from 25 in March 2012 to just eight in March 2013.

Nevertheless, the Japanese legal industry should be feeling upbeat. Not only is there the prospect of a stronger economy, there are also landmark projects and developments to provide plenty of work leading up to the 2020 Olympics.