Japan's state-owned export and trade insurance agency Nexi will expand its insurance coverage on upfront payments by Japanese firms trading overseas, aiming to support private-sector firms building product supply chains, including natural resources.
Nexi from 15 March will start providing new insurance products, covering upfront purchase payments made by Japanese firms against their foreign entities. Nexi will insure the advance payments in case the Japanese firms are unable to receive products because of a breach of contract, war, terror acts or any measures taken by foreign authorities.
The scope of the insurance is not limited to direct trading to Japan but is open for trades between foreign countries if Japanese entities are involved, according to Nexi. "In case, for example, an Indonesian nickel mining firm does not export the products purchased upfront by the Japanese trading house who is to deliver the products to another Japanese firm in Thailand, the payments by the Japanese trading house will be covered", according to Nexi.
Purchasing natural resources could be ample reason for advance payments by Japanese firms, said Nexi's chairman and chief executive Atsuo Kuroda, hinting that energy policy is behind the introduction of the new insurance. Nexi is the only export credit agency (ECA) among the G7 nations that offers this type of insurance, Kuroda added.
Demand for advance payments cover has been growing among Japanese firms, according to a Tokyo-based private insurer who spoke to Argus. "But a risk is quite often too high for the private insurance firms to take", he added. "A ECA certainly has a role to play. Insurance losses could also be huge once incidents happen," he added. "That partly explains why many private firms withdrew from advanced payment coverage".
This is the latest financial measure taken by the Japanese government to secure natural resources. Nexi from July 2023 started covering financial risks that the country's financial institutions take on their lending to Japanese companies for their overseas projects. The agency's conventional cover for domestic financial institutions has only been applicable for financing to foreign entities.
"We expect to cover finance risks of domestic financial institutions on their lending to Japanese firms operating foreign projects, especially on critical minerals, LNG, along with hydrogen", said then minister of trade and industry Yasutoshi Nishimura. He stressed that the measure is in line with a G7 communique that recognised the importance of securing these resources. The targeted projects include procurement and investment, along with mergers and acquisitions relating to each commodity, Meti said. The ministry later said sustainable aviation fuel and ammonia projects will also be included.
