By Shanker Singham, President, Competere Foundation
February 10, 2026
Japanese PM Sanae Takaichi led her ruling Liberal Democratic Party and its coalition partners to an unprecedented landslide victory in Japan’s House of Representatives, securing 352 of the House’s 465 seats on Sunday. Takaichi’s winning agenda of tax adjustments and supply side reform aimed at boosting consumption and business activity, spurring economic growth, and expanding investment in technology and strategic sectors had immediate impacts on Japanese markets, with the Nikkei 225 jumping nearly 4% to record highs and the FTSE All-World Index Japan rising over 8.7% compared to early January levels. However, this victory has even larger implications for the growth trajectory of the Japanese economy. Takaichi’s focus on technology and defense investment, together with her initiative to modify Japan’s constitution to strengthen its military capabilities amid rising regional tensions, sends a clear signal to American investors that Japan is positioning itself as the anchor for US capital in the Pacific. Japan’s growing policy alignment with the US on China only serves to reinforce that signal and attract further investment. Unfortunately, Japan’s closest mainland neighbor appears to be heading in the opposite direction.
At the worst possible moment, Korea is repeatedly sending adverse signals to American investors and damaging its own investment climate. In January 2026, two prominent US investment firms, Greenoaks Capital and Altimeter Capital, filed formal notices of intent to pursue arbitration claims against the South Korean government under the US–Korea Free Trade Agreement, alleging discriminatory treatment of the company Coupang Inc., and petitioned the US Trade Representative to investigate Seoul’s conduct under Section 301 of the Trade Act of 1974. The investors contend that Seoul’s response to a data breach and subsequent regulatory actions went beyond normal enforcement and had the effect of penalizing a US company in ways that disadvantage foreign competitors while benefiting domestic firms.
This lawsuit is a symptom of a broader and increasingly explicit investor reassessment of Korea as an investment destination. US and global investors are increasingly viewing Korea as a jurisdiction where long-term capital faces asymmetric regulatory exposure. Venture capital data already reflects this shift. While headline investment totals have been supported by a small number of large transactions, the number of VC deals in 2025 declined by more than 30 percent compared with the previous year, signaling a pullback in broad-based risk-taking. Additionally, South Korea tech startups raised just $181 million in Q1 2025, down 43 percent quarter on quarter and 67 percent year on year, underscoring a sharp contraction in new venture funding. Investors cited in recent market commentary warn that US investor sentiment toward Korea is weakening materially and they are less willing to fund new Korean ventures over ventures in countries with more favorable climates. Several US funds have gone further, describing Korea as increasingly uninvestable if current regulatory and enforcement trends persist.
Even more consequential for long-term capital allocation is Korea’s growing divergence from the US in its posture toward China, again a marked contrast from the direction of travel of Japan. Recent Korean policy choices and enforcement patterns increasingly mirror approaches that privilege domestic and China-linked competitors while imposing elevated compliance and political risk on US firms. For global investors, this is a direct input into capital allocation decisions. Capital that originates in the US is sensitive to jurisdictions perceived as drifting toward China-aligned regulatory norms, particularly in technology, data governance, and platform regulation. As Japan moves to reduce China exposure and deepen alignment with US economic and security priorities, Korea’s relative positioning is deteriorating. In a region where capital is explicitly reallocating away from China risk, Korea’s perceived trajectory places it on the wrong side of that shift.
The economic consequences of this deterioration in the investment environment are not speculative. Using its ACMD framework, the Competere Foundation is assessing whether the decline in investor protection, regulatory predictability, and the perception of investment difficulties will translate into lower GDP per capita for Korea. Preliminary results suggest as much as a $3,100 loss of GDP per capita or about $160bn total over a five-year time horizon, especially of the investment security pathway continues to decline. This is without considering the impact of potential capital movement away from Korea to Japan as investors abandon the deteriorating Korean investment climate for the strengthening Japanese one. The Competere Foundation is continuing to investigate the full extent of the economic consequences to the Korean economy and will publish its results shortly.
Korea only stands to lose, and quickly, if these trends continue. Capital is mobile and comparative, and investment decisions are quick to respond when a jurisdiction’s investment climate continuously demonstrates adverse signals. More concerning is the fact that lost investment flows are difficult to recover once alternative hubs establish momentum. Japan’s clear signaling as an attractive option for foreign capital already has global investors excited. If Korea continues its trend towards being a hostile investment climate, investors will not think twice about abandoning it for more promising prospects.