Japan’s Ministry of Finance announced plans to close a loophole in foreign investment reporting requirements under the Foreign Exchange and Foreign Trade Act to prevent sensitive intelligence from being exploited by foreign governments.
This regulatory shift reflects Japan’s broader efforts to secure its economic supply chains amid global challenges such as U.S.-China trade tensions. The proposed changes, introduced at a ministry panel meeting on Thursday, will require foreign investors potentially cooperating with foreign governments to submit prior notifications when acquiring 1% or more of shares in companies critical to Japan’s national security.
Targeting Intelligence Risks
Although no specific countries were named, the measures are widely expected to impact Chinese firms. Under China’s 2017 National Intelligence Law, companies must cooperate with government intelligence activities, raising concerns in Japan about potential security risks.
Currently, foreign investors are exempt from prior notification if their stake remains below 10% and they do not seek management involvement. This exemption allowed cases like Tencent Holdings’ 2021 acquisition of a 3.65% stake in Rakuten Group to bypass government scrutiny.
Strengthening Oversight
Japan’s ruling Liberal Democratic Party (LDP) previously called for tighter foreign investment criteria to enhance oversight in sensitive industries. The new rules aim to address gaps in existing regulations by extending notification requirements to all foreign investors deemed at risk of intelligence cooperation with foreign governments.
Implementation Timeline
The proposed changes, pending public consultation, could take effect in the first half of this year. They align with Japan’s ongoing efforts to strengthen economic security and safeguard critical industries from foreign influence.
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