Partnership with Japan may lift Philippines’ investment appeal but structural gaps persist

By Chloe Mari A. Hufana, Reporter

PRESIDENT Ferdinand R. Marcos, Jr.’s move to deepen ties with Japan could help position the Philippines to capture a bigger share of investment flows reshaping Asia’s supply chains, analysts said.

However, they noted that long-standing structural weaknesses may ultimately determine whether the country can fully capitalize on the opportunity.

Political science professor Ederson DT. Tapia at the University of Makati said the Philippines’ move to upgrade relations with Japan to a comprehensive strategic partnership, a first in its diplomatic framework, signals a shift beyond traditional development assistance toward deeper economic integration.

“For the Philippine economy, it potentially unlocks greater Japanese investments in manufacturing, infrastructure, energy, digital technology and supply chains,” he said via Facebook Messenger.

“More importantly, it provides investors with confidence that the relationship is stable, long term and supported at the highest political levels.”

Mr. Marcos was in Tokyo from May 26 to 29, the first state visit for a Filipino head of state in 11 years.

Japanese companies pledged to invest around P260 billion in the Philippines, reinforcing Japan’s role as a key source of capital.

During the trip, he met with Japanese Prime Minister Sanae Takaichi, and they formally elevated Manila and Tokyo’s ties to a comprehensive strategic partnership, which is the highest tier in Manila’s diplomatic framework.

The timing may prove advantageous as US-China rivalry increasingly influences investment decisions across Asia and as Beijing grows more assertive in the disputed South China Sea.

Analysts said Japan is likely to expand its economic footprint in Southeast Asia, with Japanese companies seeking resilient and politically reliable production hubs.

That could benefit the Philippines, especially in sectors where Japanese firms already have established strengths, according to University of Asia and the Pacific Associate Professor George N. Manzano.

Electronics and semiconductors are among the most immediate beneficiaries, with strong global demand driven by artificial intelligence applications, cloud computing, data centers, and broader digital infrastructure expansion, he added.

However, analysts cautioned that diplomatic gains alone will not automatically translate into factories, jobs and exports.

“Attracting investment is not just about diplomatic relations,” Mr. Manzano said via Viber, adding the country must also address infrastructure, logistics, energy costs and ease of doing business bottlenecks.

“But if these constraints continue to improve, deeper ties with Japan could translate into tangible gains in investment, exports and jobs over the medium term,” he said.

Mr. Tapia echoed the sentiment, saying diplomatic upgrades alone do not guarantee investment flows.

“Japanese manufacturers continue to be concerned about structural issues that have persisted for decades: high power costs, logistics inefficiencies, regulatory complexity, infrastructure gaps, and policy uncertainty,” he said.

Mr. Tapia cited Southeast Asian neighbors like Vietnam, Indonesia and Thailand, which have developed stronger industrial ecosystems and more integrated manufacturing supply chains.

“Capital follows not only friendship, but competitiveness as well,” he said.

Gary G. Ador Dionisio, dean of De La Salle-College of St. Benilde’s School of Diplomacy and Governance, said the Philippines is unlikely to challenge regional manufacturing powerhouses such as Hanoi, Jakarta and Bangkok.

However, Manila can carve out a competitive niche in semiconductors, electronics, advanced services, logistics and other industries tied to trusted regional supply chains.

“For the Philippines, this creates a meaningful opening to position itself not merely as an alternative location, but as a reliable and strategic partner in Japan’s long-term economic and geopolitical architecture,” he said via Facebook Messenger.

The government’s efforts to develop the Luzon Economic Corridor could further strengthen the country’s role in regional production networks, particularly as economic security becomes a more prominent consideration for multinational corporations, Mr. Ador Dionisio noted.

According to Ateneo de Manila University economics professor Leonardo A. Lanzona, Jr., the long-term value of foreign direct investment (FDI) depends on whether they generate technology transfers, productivity gains and stronger domestic supply chains.

While foreign firms can boost exports and bring in new technologies, their impact may remain limited if they continue relying heavily on imported inputs and operate largely separate from local industries.

“If FDIs are going to have a positive and sustainable effect on industry, these should lead to a job upgrading regime in which industries experience export growth, technological upgrading, and participation in global value chains, while being strongly integrated with domestic suppliers, labor markets, and demand structures,” he said via Facebook Messenger.

Analysts said the Philippines’ ability to absorb investments effectively will become increasingly important as global firms diversify operations across Southeast Asia.

Developing local supplier networks, upgrading workforce skills and strengthening linkages between export-oriented firms and domestic industries could determine whether new investments generate broad-based economic benefits.

Mr. Ador Dionisio noted that attracting a larger share of Japanese supply chain relocation will require more than favorable diplomatic relations.

The government must accelerate infrastructure projects, improve regulatory predictability, lower energy costs and expand technical and vocational training aligned with Japanese industrial standards.

“Investment confidence today depends not only on strong bilateral relations, but on the state’s ability to provide certainty, efficiency, and long-term institutional credibility,” he said.

Mr. Tapia said the challenge for Manila is more about sustaining competitiveness as Japanese firms already recognize its potential.

“The question is whether we can address long-standing structural bottlenecks quickly enough to convert that potential into larger and more sustained manufacturing investments.”