A stronger Japanese yen is rekindling investor interest in Cambodia and pushing Japanese firms to establish or expand their presence in the Kingdom, economists said yesterday.

Some 262 new Japanese firms launched operations in Cambodia during the first three months of the year, a 40 per cent increase over the same period in 2015, according to In Channy, board chairman of the Cambodia-Japan Association for Business and Investment (CJBI).

The investments included factories, construction, restaurants and consultancy services, he said.

“Based on the growth trend, I expect we will see a 24 per cent overall increase by the end of the year,” Channy said.

Japanese investment in Cambodia and other foreign countries fell off sharply last year as Japan’s economy, the third largest in the world, contracted and its currency depreciated against the US dollar.

The yen’s lower value undermined investors’ positions and made them hesitant to sink capital in foreign ventures, explained Hiroshi Suzuki, CEO and chief economist of the Business Research Institute for Cambodia (BRIC).

However, the exchange rate has improved significantly in recent months, rising to 105 yen/US dollar, compared with 123 yen/dollar at the start of the year.

“The yen has started to appreciate against the US dollar,” he said. “This situation could be a strong push for Japanese investors to resume their positive decision to invest in Cambodia.”

Economist Chan Sophal said Japanese investors have recognised Cambodia’s market opportunities and see benefits in access to cheap labour.

“Investors prefer to come here rather than to China or Thailand as the labour cost is lower than neighbouring countries,” he said. “They are confident about the stability in Cambodia.”

Sophal said Japanese investors are keen not just to expand their businesses to foreign countries, but to spread their investments across several countries – a strategy aimed at mitigating risk.

Japan was the second-largest foreign investor in Cambodia after China during the first quarter of 2016, according to Council for Development of Cambodia. Much of this investment is being directed to the country’s industrial parks, where Japanese factories produce garments, automotive parts, food products and electronics.

In Phnom Penh SEZ, where Japanese companies make up more than half of the industrial park’s 77 tenants, investment slowed to a crawl last year. At least one Japanese firm shuttered operations and pulled out of the zone.

Fong Nee Wai, chief financial officer of Phnom Penh SEZ, said the yen’s depreciation prompted Japanese companies to postpone their planned investments.

“In early 2015 the Japanese yen currency devalued by about 30 per cent,” he said. “This made it 30 per cent more expensive for Japanese firms to invest, which is why they held back on their decisions.”

Nee Wai said several of these Japanese firms recently resumed negotiations with Phnom Penh SEZ’s management, and have expressed readiness to invest in its industrial park in Phnom Penh and Poipet.