Uniqlo, Muji: Japan Inc is betting big on India as China risks deepen

At the same time, Japan’s traditional markets for expansion have become increasingly less attractive, he says.

“Investment into China has fallen sharply amid geopolitical tensions and changing economic dynamics, the US market is more challenging because of tariffs and domestic competition, and the market size of other Southeast Asian economies is limited.”

Against this backdrop, India has become a natural target market for Japanese companies to drive long-term business growth.

Economic ties between the countries gathered pace at a government-to-government level when they signed an agreement to liberalise trade nearly a decade-and-a-half ago.

After Prime Minister Narendra Modi came to power in 2014, he elevated the relationship to a “special strategic and global partnership”, setting a target of doubling the number of Japanese companies in India and launching marquee projects like India’s first bullet train between Mumbai and Ahmedabad, built using Japanese Shinkansen technology.

But now, it is Japanese private firms that are driving business expansion in this latest investment up-cycle.

At a landmark summit in July held during Japanese Prime Minister Sanae Takaichi’s first official visit to Delhi, Japanese companies announced $12.5bn in investments through some 120 agreements in sectors ranging from semiconductors to green energy. And Goyal has said , externalJapan could prematurely meet its target of investing 10 trillion yen in the country.

Beyond the large corporations, several Japanese small and medium-sized companies (SMEs) are also actively looking at tapping the Indian market, says Jindal.

Hamamatsu City – where companies like Suzuki, Honda and Yamaha were founded and which has one of the highest concentrations of manufacturing SMEs in Japan – recently set up the Hamamatsu India Committee to explore how the city’s small companies could expand into India.

The rising interest in India has accompanied a fall in net Japanese investment in China which, as Toshiro Nishizaewa of the University of Tokyo wrote recently, external, is a reflection of “Japanese firms’ autonomous market diversification strategies – a commercially driven reallocation of capital rather than a policymaker-led geopolitical shift from China to India”.

But Japanese firms aren’t abandoning China en masse. What they are doing is “reducing concentration risk after several years of supply chain disruptions and geopolitical tensions”, Shruti Pandalai, India Chair at the Sydney-based Lowy Institute think tank, told the BBC.

India acts as a hedge against China-related risks, but there is also a growing overlap between Tokyo’s economic security priorities and Delhi’s manufacturing ambitions, which has strengthened the relationship despite significant political turnover in Tokyo, she says.

“With each successive government the targets have risen rather than fallen. That suggests the relationship has moved beyond leader-level diplomacy and become embedded in bureaucratic, corporate and strategic planning on both sides.”