Many see Japan as being behind the curve of major Asian countries such as China, Korea and India in enhancing economic ties with Israel. Historically, Japan clearly acquiesced to the Arab boycott due to its overwhelming dependence on Arab oil, and even after the influence of the boycott waned, the risk-averse management style of Japan’s leading corporations combined with the lingering worry of Arab perceptions, the perception of Israel as a volatile conflict zone, a tendency towards insularity, and the lack of cultural and personal ties have hindered economic cooperation between Japan and Israel. Japan-Israel bilateral trade, which totaled $3.3B in 2011, remains low relative to Japan’s large GDP, and Japan represents only about 1% of foreign direct investment to Israel. However, the silver lining in these tepid numbers is that there is much room for growth, and the past year has been a very exciting one for Japan-Israel business relations.

On October 29, 2013, Mitsubishi UFJ Research and Consulting, the think tank arm of the Mitsubishi UFJ Financial Group, devoted one of their regular research reports to Israel. The 21-page report entitled “The Unknown Hi-Tech Venture Powerhouse of the Mideast: The Current Situation and Future Outlook for Israel’s Economy” highlighted Israel being a bright spot in an otherwise troubled region, whose economy continued to grow even in the wake of the U.S. banking crisis of 2008, thanks to well-managed fiscal and monetary policies. The report also identified technology-related exports, especially in electronics, IT and the life sciences, which are stimulated by the vigorous local start-up ecosystem, as a driving force for Israel’s economic expansion.

For those already following Israel, the contents of the report is old news. In fact, the most remarkable aspect about the report may be that Israel’s technological prowess and economic success, according to Japan’s largest financial group and one of the world’s biggest bank holding companies, is an exciting but little-known phenomenon. Nevertheless, the report is an encouraging sign that Japan is opening its eyes to the “Start-Up Nation”, and is getting ready to catch up with the rest of the world in seeking out opportunities in Israel.

Indeed, there have been a number of recent exits and partnerships involving Israeli and Japanese companies in a wide range of technological areas:

-          Among the most notable recent exits among Israeli start-ups was the February 2014 acquisition of messaging app Viber for $900M, not by a U.S.-based concern but by the Japanese online retail conglomerate Rakuten.

-          Another notable deal was the September 2013 agreement between Japanese robotics company Yaskawa Electric and Argo Medical Technologies, makers of the ReWalk exoskeleton for spinal injury victims. In the deal, Yaskawa provided a $17M investment for further R&D by Argo in return for exclusive distribution rights for the ReWalk system in Japan, China, Korea, Singapore, Taiwan and Thailand.

-          Toshiba acquired OCZ Technology Group, a manufacturer of solid state drives that previously declared bankruptcy, for $35M in December 2013. As a part of the deal, Toshiba acquired OCZ’s R&D center in Ramat Hachayal, Tel Aviv, representing Toshiba’s entry into the large group of prominent multinationals that have R&D facilities in Israel.

-          On January 1, 2014, the new biotech incubator FutuRx began operations in Ness Ziona near the Weizmann Institute. In August 2013, a consortium consisting of Orbimed, Johnson & Johnson, and Takeda Pharmaceuticals (Japan’s No. 1 pharmaceutical company), won the tender to establish FutuRx from the Office of the Chief Scientist. In addition, representatives from Takeda Ventures, Takeda’s corporate venture arm based in Palo Alto, has made multiple visits to Israel, and Takeda’s Israel subsidiary office focusing primarily in sales was established in December 2013.

There have also been some notable high-level visits:

-          In March 2014, the Israeli Embassy in Tokyo held an Israel investment seminar attended by 200 participants featuring many of the Israel-based VC/PE firms, including the BRM Group, Vertex VC, Chima Ventures, Terra Venture Partners, Giza VC, StageOne Ventures, Gillot Capital Partners, SCP Vitalife partners, Magma VC, Orbimed and Nielsen Innovative. The following presentations were given at the seminar: Arik Klienstein of Glilot Capital spoke about the leading roles that graduates of IDF Unit 8200, an elite signal intelligence unit, have played in Israel’s technology sector; Tal Slobodkin, a graduate of the IDF’s Talpiot 18 program, spoke about the elite IDF training program, which combines university study and service and is reserved for recruits who have demonstrated outstanding academic ability in the sciences, physics and mathematics; Elchanan Harel, president and founder of Harel Hertz Investment House, a business consultancy and investment banking boutique specializing in promoting Japan-Israel business, gave an overview of the recent history of Japanese investments in Israel; and David Heller, managing partner and Asia lead of Vertex Capital, spoke about the history of the Israeli VC industry and the existing relationships between Israeli investment funds and Japanese investors.

-          From February 25 to March 1, 2014, a delegation from Keidanren (Japan Business Federation) visited Israel. Keidanren is one of the most influential business lobbies in Japan, and also one of the most conservative (notably, Rakuten left the Federation in 2011, citing its reluctance to encourage economic reforms). The delegation met with leading Israeli figures in the government and the private sector, including Benjamin Netanyahu, Naftali Bennet, Chief Scientist Avi Hasson, and Zvi Oren, president of the Manufacturer’s Association of Israel, to discuss avenues for increasing economic ties, particularly in the areas of ICT, Aerospace and the Life Sciences.

-          After making a number of exploratory visits over the last two years, Samurai Incubate, a leading Tokyo-based start-up incubator and VC, announced that it will set up a Tel Aviv office later this year, with plans to bring ten Japanese start-ups to Israel. They have already hosted a number of events about Israel and/or featuring Israeli speakers in Tokyo.

-          Last but not least, Netanyahu recently announced his upcoming visit to Japan, which is to take place in May 11-15, 2014 with plans to meet with, among others, Prime Minister Abe and the Imperial family.

As Israel-Japan relations continue to grow, one can only hope that the coming year will be even more exciting.

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