Japanese investors remain positive about investment in Thailand but are more cautious about expansion here, as they need to see clearer policies from the government, says the Japan External Trade Organization (Jetro).
Japanese investors also have the choice of other Asean nations for new investment bases, especially after integration of the Asean Economic Community at year-end.
Japanese investment in Thailand in the first nine months of this year totalled ¥323 billion (94 billion baht), down by 13.4% year-on-year.
However, Jetro president Masayasu Hosumi played down the drop, saying it was a cycle of investment, which normally slows down after a peak.
Hosumi: Japanese eyeing all of Asean
"For Thailand, we can see slightly negative figures this year, but I don't see any use in talking about a 13.4% fall at this moment," he said, adding that Thailand remained the biggest production base for Japanese investors.
In contrast, Japanese investment in other Asean members is rising substantially.
Japan's investment in Malaysia in the first nine months surged 675%, while its investment in the Philippines jumped 453% and in Vietnam 23%.
"We don't look only at Thailand but also all of Asean," Mr Hosumi said.
He said most Japanese investors had changed their production lines to be in line with the economies where they invested, reflecting the changes and needs of the market. This has resulted in some Japanese firms switching their production lines to other Asean members.
"We could see some changes. The other Asean nations are also trying to attract Japanese investment," he said.
Mr Hosumi said Japanese businesses remained optimistic about investing in Thailand, where they expected substantial growth amid the rise of the middle-income class, which implied the market was still growing.
He said the decrease in Japanese investment in Thailand this year was due partly to the flood aftermath. Most of the flood-hit Japanese investors had to spend their investment budgets on rebuilding facilities and utilities, slowing down new investment.
Mr Hosumi said the Japanese Chamber of Commerce had been conducting Japanese business sentiment surveys in Thailand. The latest one showed Japanese investment in Thailand continued to grow but was shifting to the service sector as manufacturing slowed.
According to the survey, new Japanese investment in Thailand is increasingly coming from small and medium-sized enterprises rather than large companies such as giant car makers like before.
The survey found investment in the service sector was growing rapidly, with 530 such Japanese companies in Thailand, up from 374 in recent years. Most service companies were involved in legal consultancy, business consultancy, car leasing, banking and wholesale/retail business.
Mr Hosumi said Jetro was also conducting a survey on business sentiment due to be released next January.
"The sentiment of Japanese investors is positive. Anyway, it is a survey and does not reflect the whole scale of investment," he said.
In terms of investment trends in Thailand, Mr Hosumi said most Japanese investors were still awaiting clearer signs and policies from the government, especially the Board of Investment (BoI).
He said Japanese firms were interested in the government's cluster policy, which would lend support to targeted clusters with greater privileges.
However, these policies and packages of further privileges from the BoI have not yet been approved by the government.
"We want to get the whole picture, not only about clusters, as we've heard that some companies can enjoy more privileges," Mr Hosumi added.