Bilateral trade jumped 25% last year to a record $4.6 billion, while the number of Japanese companies opening offices in Istanbul hit 120 this year. No prior-year figures were available.
Japanese lenders are lining up to bid for Turkish banking licenses or entering joint ventures with local finance houses to profit from the booming consumer-lending market. Across the country, construction, logistics and automotive companies have begun building factories, staking a longer-term claim on Turkey's success and helping boost local employment.
"The Japanese are seriously targeting Turkey," Turkish Economy Minister Zafer Caglayan said in Istanbul on Sept. 20. "The Japanese are the slowest-moving people in the world...but once they reach a decision they are always taking the right and rational steps."
On Friday, Bank of Tokyo-Mitsubishi UFJ, Japan's biggest bank, decided to join forces with Turkiye Is Bankasi AS, Turkey's biggest lender by assets, to provide wide-ranging services to Japanese concerns operating in Turkey, ranging from retail banking to credit cards, leasing and advising on mergers and acquisitions, according to Nikkei news agency.
Financial partnerships are coming back to back as the Istanbul branch of the Japan External Trade Organization hosted more than 100 companies in both May and July, when executives visited Turkey to scope out business opportunities, said Naohiko Yamaguchi, managing director of the government-backed organization known as Jetro.
"Now is the time for many Japanese companies to come to Turkey," Mr. Yamaguchi said in an interview. "Three years ago, big Japanese companies were considering Turkey as an investment, but they're very cautious and spend their time on research. Now investments are materializing one after another."
Among new investors in the country are Sumitomo Rubber Industries Ltd., which is spending $500 million on a tire factory, and Yusen Logistics Co., a unit of the world's second-biggest transportation company, Tokyo-based NYK Group.
"We believe that supplying tires from Turkey, which is nearer to [the Mideast and African] markets in addition to Europe, will enable us to reap enormous benefits in terms of lead times and transportation costs," Sumitomo said in a statement.
Underpinning the drive is rising Japanese investment in Turkish debt. Japanese retail investors have poured some $3 billion of funds into Turkey in 2012, and are on pace to account for 40% of total portfolio inflows to the country by year end, according to Barclays Capital. Sales of lira-denominated bonds to Japanese investors—also known as Uridashi bonds—have surged to $2.7 billion since January, already surpassing the record $2 billion raised in 2011.
The combined impact represents a hefty fillip for Turkey, which is seeking to plug a current-account deficit that narrowed to 8% of the $780 billion economy from an unsustainable 10% in early 2012.
The expansion of fixed investments in factories and companies represents the longer-term vote of confidence conspicuously absent from Ankara's compelling economic growth story, which has been propelled by waves of speculative short-term capital.
The cash coming to Turkey from Japan is still less than the Asian giant's investments in some other emerging markets. Japanese retail investors' exposure to Turkey is 1.2% of the country's emerging-market portfolio, compared with 4% for Brazil, 3% for South Korea and 2% for Mexico, according to Barclays.
A key reason for the shift toward Turkey among Japanese investors, analysts say, is a positive reading of the country's fundamentals: a large domestic market, youthful population and relative political stability in comparison to other emerging markets like Indonesia and Russia.
Turkey also has a central bank that took aggressive steps over the past year to stabilize the lira and rein in inflation, contrasting with other emerging markets traditionally favored by Japanese investors, which have been rendered less attractive by cooling growth, currency volatility and investor saturation.
Turkey has attracted not only Japan's heavy hitters such as Toyota and Hitachi but also a lot of newcomers, including real-estate company Starts, news giant Nikkei, logistics companies, makers of car parts and even food distributors.
Others eyeing the Turkish market include Japanese nuclear-power plant manufacturers and suppliers such as Toshiba Corp., which are increasingly turning their focus abroad after the accident at the Fukushima Daiichi plant last year raised uncertainty about the future of nuclear power in Japan amid public concern about safety.
"We have kept to our aim of selling our nuclear-power technology across the world," a Toshiba spokesman in Tokyo said. The company said it is "very interested" in Turkey and has indicated to Ankara its interest in building a plant. The governments are in talks.
Japanese lenders are eager to get active in Turkey, too.
The Bank of Tokyo-Mitsubishi UFJ, Japan's biggest bank, is scheduled to get its banking license as soon as November after having only a representative office for 26 years. The Tokyo-based lender's initial capital investment of $300 million is expected to jump more than 15-fold to $5 billion over a five-year horizon, according to Shoji Nakano, the lender's chief for Europe, Middle East and Africa.
Rival Japanese bank Mizuho Corporate Bank Ltd. signed a partnership agreement in September with Akbank TAS, Turkey's second-biggest lender by market capitalization, to jointly service Japanese companies investing in the Eurasian country.
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