A few Japanese expatriates started to reside in Palau after it gained independence in 1994, and established long-term businesses in the country.

People of Japanese-Palauan descent constitute a large minority of Palau's population as a result of substantial intermarriage between the Japanese settlers and Palauans.

[9] Under the South Seas Mandate, a civilian government was established on April 1, 1922,[10] with its headquarters at Koror, replacing the military administration.

Much of this land was used to build new industrial estates and expand towns to accommodate immigrants from Japan and Okinawa.

[11] In Japan, the government actively encouraged the Japanese and Okinawans to resettle in Micronesia, including Palau, and began establishing farming settlements.

[12] As the Great Depression resulted in massive unemployment in the late 1920s and 1930s, more Japanese and Okinawans migrated to Palau.

The Japanese immigrants held administrative posts, while the Okinawans and a few Koreans[fn 4] worked as labourers in the agricultural, fishery and mining industries.

The number of indentured labourers rose to more than 10,000 throughout Micronesia, and placed a heavy strain on the islands' scarce resources.

[16] Japanese men were conscripted into regular services, and Palauans who held administrative posts in the police force were reallocated jobs in the agricultural sector.

As food resources were cut off from Japan, many Japanese encountered greater difficulties in dealing with starvation than their Palauan counterparts, who were more knowledgeable with tropical survival skills.

[20] In the 1950s, Japanese-Palauans[fn 6] formed an organisation, Sakura-kai to assist Japanese-Palauans and Japanese youths who were abandoned by their parents to search for their parents and kinsmen who were forcibly separated as a result of forced repatriation of Japanese settlers back to Japan.

Of these, about half of them expressed a desire for permanent residency in Palau and a few married Palauan or Filipino women.

At least one ethnologist, Mark Peattie, suggested that the strong representation of Japanese-Palauans in leading positions in society could be attributed to the mainstream Japanese education which they had received in their youth.

[26] In the early years of civilian administration, the Japanese population consisted of about a few hundred individuals, and reached a little over 2,000 by 1930.

[41] People of mixed Japanese-Palauan heritage were more competent in Japanese than to Palauan, especially those who attended mainstream primary schools.

[50] After the war, many of these shrines were abandoned or demolished, and Japanese-Palauans chose to adopt Christianity in favour of Buddhism or Shinto.

Palauans faced difficulties in getting employed in administrative positions in the workforce, which was dominated by Japanese settlers.

However, only unions with civilian men were recognised and military personnel were prohibited from marrying Palauan women, although they were allowed to keep mistresses.

During this time, new infrastructure was built between towns—including road and harbour facilities, and electricity and sewerage lines were laid out.

[62] In the late 1930s, Japanese pearl divers made regular visits to the Arafura Sea, and stopped by Palau from October to April.

The influx of pearl divers from Japan led to the development of the island's tourist industry, and some Japanese settlers from Saipan opened new cafés, geisha houses and liquor houses in Koror to cater to the pearl divers during their stopovers in between October and April.

In the first two decades after the war, the American occupation government imposed strict trade restrictions with Japan.