Japan's 2026 FEFTA Reform: New Foreign Investment Screening Rules for 2027
Updated: 4 hours ago
On 29 May 2026, Japan adopted amendments to the Foreign Exchange and Foreign Trade Act (“FEFTA”), promulgated on 5 June 2026 as Act No. 30 of 2026. The reform strengthens Japan's foreign investment screening framework to address national security risks while facilitating inward investment.
Following a public consultation conducted from 3 July to 2 August 2026, the implementing Cabinet Order, ministerial rules and notices were promulgated on 16 September 2026.
The principal amendments are scheduled to enter into force on 4 January 2027, with certain new provisions becoming applicable to transactions carried out on or after 3 February 2027.
The reform introduces significant changes for foreign investors, particularly concerning indirect acquisitions, investments involving foreign-government influence, risk-mitigation measures and prior-notification requirements.
1. Expanded Screening of Indirect Acquisitions
One of the most significant changes is the extension of FEFTA screening to certain indirect acquisitions of Japanese companies.
Under the amended framework, a foreign investor acquiring control over a foreign entity that holds shares or voting rights in a Japanese company may be required to submit a prior notification, even where the acquisition takes place entirely outside Japan.
The acquisition of control includes obtaining 50% or more of the voting rights in the relevant foreign entity. Other arrangements, including control over the majority of its directors or certain special voting rights, may also fall within the new provisions.
Different Notification Thresholds Depending on the Investor
The implementing regulations establish different thresholds depending on the investor's risk profile and whether the Japanese company is listed.
Investor category | Japanese listed company | Japanese unlisted company |
General investors | 50% or more of shares or voting rights | 50% or more of shares or voting rights |
Higher-risk investors ineligible for the prior-notification exemption | 1% or more of shares or voting rights | No minimum threshold |
These thresholds apply to the resulting holdings in the Japanese company, subject to the other statutory requirements, including the involvement of designated business sectors.
Importantly, the 50% threshold concerning the acquisition of control over the foreign holding entity is separate from the thresholds applicable to the underlying Japanese investment.
Implications for Cross-Border Transactions
The reform is particularly relevant for foreign-to-foreign M&A, private equity transactions and acquisitions of international groups with Japanese subsidiaries.
However, not every international group reorganisation will require prior notification. The implementing regulations provide relief for certain intra-group transactions involving investors that do not fall within the specified higher-risk categories.
Transaction teams should therefore examine the acquisition structure, the investor's classification, the Japanese company's business activities and the availability of exemptions before determining whether a notification is necessary.
2. Formal Recognition of Risk-Mitigation Measures
The amendments formally incorporate risk-mitigation measures into the FEFTA prior-notification process.
Where an investor proposes measures to address national security concerns, those measures must be included in the prior notification.
Such measures may involve restrictions on access to sensitive technologies or confidential information, limitations on the exercise of shareholder rights, or commitments concerning the continuation of certain business activities.
During the screening process, investors may submit modifications to their proposed measures. Importantly, the statutory waiting period continues to run from the acceptance of the original notification, rather than restarting because the proposed measures have been amended.
The authorities may also recommend or order risk-mitigation measures where necessary.
Following the review process, an investor wishing to modify or discontinue notified measures must submit a notification of change, which will itself be subject to review.
Investors should therefore treat risk-mitigation measures as continuing regulatory commitments that may affect post-closing governance and business operations.
3. Investments Made Under High-Risk Foreign Influence
The amendments strengthen the rules governing investments conducted through domestic entities or intermediaries.
A domestic investor may be deemed a foreign investor where it conducts investment activities under the control or strong influence of a non-resident and for that non-resident's benefit.
The additional prior-notification requirements apply where the relevant non-resident belongs to specified higher-risk categories, including certain foreign governments or state-owned enterprises that cannot benefit from the existing exemption regime.
Accordingly, conducting an investment through a Japanese company or domestic intermediary does not necessarily remove the transaction from FEFTA screening.
Investors should consider not only the immediate investing entity but also the relevant contractual arrangements, ownership structure and persons exercising effective control over the investment.
4. New Powers to Address Risks in Non-Designated Sectors
The reform introduces a mechanism allowing the authorities to address national security risks arising from certain investments in Japanese companies operating outside designated business sectors.
The mechanism targets investments by specified higher-risk foreign investors involving acquisitions of 10% or more of shares or voting rights.
Where changes in international circumstances or other developments create significant national security concerns, the authorities may request reports to assess the investment.
The Ministry of Finance identifies a five-year period following the investment during which such reports may be requested.
Where the statutory conditions are satisfied, the authorities may recommend or order remedial measures, potentially including the disposal of shares.
This mechanism does not establish a general retrospective screening system for all foreign investments. Its application is restricted to specified investors and circumstances presenting significant national security risks.
5. Revised Designated Business Sectors
The September 2026 implementing regulations also revise the scope of certain designated and core business sectors.
Software and Information Technology
The scope of software-related activities subject to prior notification has been refined.
For non-core software services, the revised designation focuses on activities involving critical infrastructure, essential goods, large volumes of personal information or certain confidential technological information.
Other software-related activities are removed from the designated sectors, while the existing treatment of core cybersecurity-related activities is largely maintained.
Additional Sensitive Technologies and Industries
Other changes include:
Classification of companies possessing certain technologies subject to FEFTA technology controls as core businesses.
Addition of manufacturing activities relating to magnetic sensors and ship hulls to core sectors.
Classification of large-scale electricity and gas retailers as core businesses.
Addition of manufacturing activities involving specified medicines considered particularly important for stable supply under the amended Medical Care Act to designated sectors.
The Ministry of Finance expects the overall impact of these changes on the number of prior notifications to be limited, as many affected companies already operate in designated sectors.
Nevertheless, foreign investors should review the applicable business classifications under the revised regulations rather than relying exclusively on previous FEFTA assessments.
6. Simplification of Certain Prior-Notification Requirements
Alongside stronger investment screening, the implementing regulations introduce several measures intended to reduce unnecessary regulatory filings.
Reappointment of Directors
A prior notification will generally no longer be required for the reappointment of directors whose initial appointment was previously notified.
Exceptions apply, particularly where the investor is ineligible for the exemption regime or where relevant circumstances have changed, including the director's nationality, country of residence, concurrent positions or the company's designated business activities.
Certain Intra-Group Reorganisations
The regulations also introduce relief for certain investments carried out through overseas subsidiaries wholly owned by Japanese companies.
Where the transaction effectively constitutes an internal reorganisation within the Japanese corporate group, and the applicable conditions are met, prior notification may no longer be required.
Certain Share Buybacks
Additional relief applies to certain acquisitions of treasury shares by Japanese companies classified as resident foreign investors.
Where a share buyback results in only limited indirect changes to existing shareholders' voting rights, including the specified cases involving non-foreign investors or the company's parent, prior notification may be unnecessary.
These adjustments demonstrate that the reform is intended not only to strengthen national security screening but also to make notification requirements more proportionate to the risks presented by particular transactions.
7. Additional Supporting Documents and Filing Requirements
The implementing regulations revise FEFTA notification and reporting forms and introduce additional documentary requirements.
Certain information previously requested by the authorities during the examination process will become part of the supporting documentation submitted with prior notifications.
Depending on the investor and transaction, this may include:
Information regarding the investor's business activities, management and foreign-government relationships.
Details concerning the Japanese target's business activities and designated sectors.
Information on the investor's principal shareholders, including shareholding and voting-right percentages.
Information on persons or entities influencing the investor's business policies, together with relevant group ownership structures.
These requirements may be particularly relevant for investment funds and multinational groups with complex ownership arrangements.
Foreign investors should anticipate the additional information requirements when preparing their filing documentation.
8. Stronger Interagency Coordination
The reform strengthens cooperation between Japanese authorities responsible for foreign investment screening and national security.
The relevant statutory provisions entered into force on 5 June 2026.
On 29 June 2026, Japan established the Japan Foreign Investment Committee (“JFIC”), co-chaired by the Ministry of Finance and the National Security Secretariat, with participation from other relevant ministries.
The framework facilitates information sharing and coordinated assessment of transactions involving sensitive sectors, technologies or investors.
9. Implementation Timetable and Transitional Provisions
The implementation of the reform takes place in stages.
Date | Regulatory development |
5 June 2026 | Promulgation of the amended FEFTA and entry into force of the interagency consultation provisions |
16 September 2026 | Promulgation of implementing regulations and publication of consultation results |
4 January 2027 | Scheduled entry into force of the principal amendments and implementing regulations |
3 February 2027 | Application of specified new regulatory provisions to transactions carried out from this date |
The transitional provisions are particularly important for transactions scheduled for January or early February 2027.
Under the implementing Cabinet Order, several amended provisions, including those concerning indirect acquisitions, apply to transactions carried out on or after 3 February 2027. Transactions carried out before that date remain subject to the previous rules in respect of those provisions.
However, this does not mean that transactions completed before 3 February 2027 are automatically exempt from FEFTA requirements. Existing notification and reporting obligations may still apply.
Transaction teams should assess the applicable regime by reference to the nature and timing of each relevant acquisition or investment activity, particularly where transactions span the implementation period.
10. Preparing for the New FEFTA Framework
Foreign investors considering acquisitions, corporate reorganisations or investments in Japan should review the implications of the reform at an early stage.
Particular attention should be given to:
Direct and indirect holdings in Japanese companies.
The designated business activities of Japanese subsidiaries and portfolio companies.
The investor's eligibility for prior-notification exemptions.
Ultimate ownership and arrangements involving foreign-government influence.
Additional filing documentation and ownership information.
Risk-mitigation measures affecting post-closing governance or operations.
Transaction timing around January and February 2027.
These considerations are particularly relevant where transactions involve complex international group structures or Japanese companies operating in strategically sensitive sectors.
Conclusion: What the 2026 FEFTA Reform Means for Foreign Investors
Japan's 2026 FEFTA reform introduces a more differentiated foreign investment screening framework.
The amendments expand scrutiny of certain indirect acquisitions and investments involving higher-risk foreign influence, while also simplifying selected notification requirements and refining the scope of designated sectors.
With the principal amendments scheduled to enter into force on 4 January 2027, and certain rules becoming applicable from 3 February 2027, foreign investors should incorporate FEFTA considerations into their transaction planning before the new framework becomes fully applicable.
LPA Administrative Scrivener Corporation assists foreign investors with FEFTA classification analysis, prior notifications, post-investment reporting and the assessment of applicable exemptions.
Learn more about our FEFTA Foreign Investment Filing Services in Japan.
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