New FDI Regulations in Japan and Interagency Oversight Akin to US CFIUS

Recent amendments to the Foreign Exchange and Foreign Trade Act (FEFTA), the statute in Japan regulating foreign direct investment (FDI) into the country, were passed by the Japanese legislature (the Diet) in May 2026 and officially promulgated on June 5. These amendments can be viewed as epoch-making as they, for the first time in Japanese history, establish a cross-ministerial, interagency government body for the purposes of FDI review in Japan much like the national security review conducted by the Committee of Foreign Investment in the United States (CFIUS). 

The Amendments will take effect and become enforceable within one year of the promulgation date (i.e., before June 5, 2027). Although the precise implementation of the Amendments remains subject to further rulemaking, what is clear at this point is that there will be interagency collaboration and information sharing as part of FDI review in Japan.

While these legal developments are still in flux, this LawFlash provides a summary overview of the key developments in Japanese FDI regulations pursuant to the Amendments.

FDI REVIEW IN JAPAN

The FEFTA (Act No. 228 of 1949, as amended) provides a regulatory framework under which certain acquisitions of a Japanese company’s equity interests, including minority investments (i.e., acquisition of 1% or more shares of outstanding capital stock of a Japanese company, measured by either percentage of share volume or voting rights, whichever higher), by foreign investors are conditioned upon prior review and approval by select agencies within the Japanese government if the target company in Japan operates in specially designated business sectors (Designated Business) and any such acquisition raises concerns from a Japanese national security or public welfare perspective.

Prior to the Amendments, the Ministry of Finance in Japan (MOF) played a leading role in the FDI review required by the FEFTA, and it was MOF that coordinated with other ministries in the Japanese government to determine whether the acquisition of equity interests passes FDI muster under the FEFTA.

In particular, the Designated Business of the target company dictated which ministries were tapped for FDI review and had a say in determining whether a transaction cleared the review. As a practical matter, the Ministry of Economy, Trade and Industry (METI), a highly influential and regnant ministry in the Japanese government, wields jurisdiction over most Designated Business sectors and would become inextricably involved in shepherding the FDI review process with the MOF.

The Amendments will now require these ministries to seek input from the Office of the Japanese Prime Minister, the Ministry of Foreign Affairs, and other relevant ministries as necessary (Article 69-4, FEFTA). In effect, the Japanese government will begin operating substantially the same as CFIUS, evaluating any foreign acquisition of equity ownership in Japanese companies operating in a Designated Business through an interagency committee of various government ministries in Japan.

Similar to how the US Department of Treasury chairs CFIUS, the MOF is expected to take the lead in the new interagency government body, with the National Security Secretariat serving as the co-chair. The National Security Secretariat is part of the Japanese Prime Minister’s cabinet in charge of economic and defense policy and presides over such policies from a Japanese national security perspective.

Other agencies that are likely to become members in the interagency body include METI and the Ministry of Defense.

INDIRECT ACQUISITION VIA INTERMEDIARY

Until now, FDI screening in Japan focused solely on transactions where the foreign investor directly acquired equity interests in Japanese companies, that is, indirect ownership change where there is an intermediary entity that owns equity interests in Japanese companies was not covered by the FDI regulations in Japan.

For example, a Chinese investor acquiring shares of a Singapore company that in turn owns equity interests in a Japanese semiconductor manufacturing company did not require FDI screening in Japan despite the semiconductor manufacturing company being unquestionably a FEFTA Designated Business.

The Amendments expand the scope of FDI review such that certain indirect acquisition of equity interests in a Japanese company will also become subject to FDI review under the FEFTA (Article 26(2)(ix), FEFTA).

In the example above, the foreign acquisition of shares in the Singapore intermediary company owning equity interests in a Japanese company operating a semiconductor manufacturing business will now become subject to FDI review and prior approval by the Japanese government through the new interagency government body if

• the Singapore intermediary company owns a certain share of equity interests in the Japanese semiconductor manufacturing company (i.e., any share of a privately held Japanese company or a certain percentage of shares in a publicly listed Japanese company exceeding a defined threshold in voting rights) at the time the Chinese investor acquires shares in the Singapore intermediary; and
• the share acquisition would result in the Chinese investor owning more than 50% of voting rights of the Singapore intermediary company.

This new approach under the Amendments shows a striking similarity to the way in which CFIUS assesses jurisdiction and national security risk based on ultimate beneficial ownership.

The exact thresholds for acquiring voting securities in a publicly listed company in Japan as illustrated in the example above where a foreign investor indirectly acquires equity ownership in a public company in Japan through an intermediary will be further reviewed and promulgated through subsequent regulations and rulemaking, and it is possible that the actual thresholds may vary depending on risk profile of the applicable foreign investor.

RISK MITIGATION

Currently, if any Japanese national security concerns arise during the FDI review process, the Japanese government often requests foreign investors to submit a certification agreeing to various risk mitigation measures imposed by the government.

While this certification process may not be as extensive or complex as the national security agreement and mitigation under the CFIUS regime, the objective is to compel the foreign investor and target company to comply with a series of restrictions and other requirements to ensure that Japanese national security and public welfare concerns are resolved.

Despite there being no statutory basis for these certifications by foreign investors, the fact of the matter is that no Japanese government approval will be forthcoming without such certification.

The Amendments have proffered much-needed clarification that foreign investors will be required to comply with any and all risk mitigation measures, including submitting and complying with these certifications, as a part of the FDI filing process (Articles 27(1)(iv) and 28(1)(iv), FEFTA).

POST-CLOSING REVIEW

As noted above, foreign acquisitions of equity interests in Japanese companies are subject to prior FDI review and approval by the Japanese government if the target company operates a Designated Business.

By contrast, any acquisition of equity interests in Japanese companies not operating a Designated Business only requires post-closing notice filings under the FEFTA, rather than prior review and approval, if such acquisition would result in 10% or more equity ownership by a foreign investor (again, on the higher of a share volume or voting rights basis).

Prior to the Amendments, the Japanese government did not have any authority to review such acquisitions of Japanese companies that are not operating a Designated Business even if the acquisition raised national security or public welfare concerns, with such acquisitions of companies outside of a Designated Business merely requiring a post-closing notice filing.

The Amendments will now allow the Japanese government to launch a retroactive review of such acquisitions of Japanese companies that are not operating a Designated Business—even after the deal has closed—and will require that the foreign investor produce information regarding the already closed deal if the government finds national security concerns (Article 29-2(1), FEFTA).

If such national security concerns are not rectified as part of the post-closing review, including through certifications and other risk mitigation measures, the Japanese government may issue enforcement orders and impose other requirements, including a divestment order, obligating the foreign investor to divest their acquired shares in the Japanese company or otherwise wind down the deal (Article 29-2(2) and (6), FEFTA).

Notably, the Amendments will not permit the Japanese government to challenge any closed deals after the fact on the basis of public welfare, and such post-closing review must be for national security reasons only.

EXPANSION OF THE ANTI-EVASION RULES

Under the FEFTA, any acquisition of equity interests in a Japanese company by Japanese investors may be subject to prior FDI review and approval by the Japanese government if such acquisition is made on behalf of or on account of foreign investors. This requirement is for the purpose of preventing any evasion of FDI review by foreign investors by causing a Japanese representative to consummate the acquisition rather than the foreign investor itself.

The Amendments substantially broaden these anti-evasion rules such that any acquisition of equity interests by Japanese investors may also be subject to preclosing FDI review and approval if such Japanese investors have certain contractual arrangements or capital relationships with foreign investors (Articles 27(14) and 28(9), FEFTA). More details of these anti-evasion rules will become available through subsequent rulemaking.

TIMING AND NEXT STEPS

The Japanese government will begin enforcing these Amendments within one year from the promulgation date of June 5. After June 5, 2026, there will be subsequent rulemaking and public comments, culminating in finalized regulations. The exact timing of enforcement remains up in the air and will be driven by international geopolitical and economic developments around national security.

The Japanese government’s strengthening of its FDI program may indicate its hope that this will increase the likelihood of CFIUS designating Japan as an “excepted nation,” which would result in more favorable CFIUS treatment for certain Japanese investments and acquisitions in the United States.

We will continue to closely monitor these developments and are available to guide our clients through all of these changes in FDI review and approval requirements under the FEFTA.