Japan Expands Foreign Investment Screening under the 2026 FEFTA Amendment

On 5 June 2026, Japan promulgated amendments to the Foreign Exchange and Foreign Trade Act (“FEFTA”) designed to strengthen the review of foreign investments that may affect national security, while continuing to promote sound inward investment. Most of the amendments will enter into force on a date to be specified by Cabinet Order within one year of promulgation.

Draft implementing regulations were published for public consultation on 3 July 2026. As the consultation remains open until 2 August 2026, certain thresholds, exemptions and procedural requirements remain subject to change.

1. Key amendments

Formal recognition of risk-mitigation measures

Where an investor proposes measures intended to address national-security concerns, those measures will expressly form part of the prior notification. Any subsequent change to the notified measures may also require advance notification.

Such measures may affect governance, access to sensitive information or technology, business continuity and other post-closing arrangements. Investors should therefore treat them as continuing regulatory commitments rather than informal assurances.

Screening of certain indirect acquisitions

The amendments extend FEFTA to certain acquisitions of foreign entities that hold shares or voting rights in Japanese companies.

In particular, an acquisition of control over a foreign entity holding an interest in a Japanese company may be treated as an indirect acquisition of that Japanese interest. The statutory framework refers, among other cases, to the acquisition of at least 50% of the voting rights in the relevant foreign entity.

This change is particularly relevant to foreign-to-foreign M&A, fund transactions and international group reorganisations. A transaction without a direct Japanese buyer or seller may therefore require FEFTA analysis where the acquired group has a Japanese subsidiary.

Investments made under high-risk foreign influence

The amendments also address investments formally made by a Japanese or other domestic investor but conducted for, or under the control or influence of, certain high-risk foreign persons.

Accordingly, using a Japanese vehicle or intermediary will not necessarily avoid FEFTA review. The authorities may consider the investor’s ultimate ownership, contractual arrangements, governance rights and the identity of the persons exercising effective influence over the investment.

Ex post intervention in certain non-notifiable investments

The authorities will receive new powers in relation to certain investments that were not subject to prior notification, including investments in companies operating outside designated sectors.

Where subsequent developments create a serious national-security concern, the authorities may request information and, if the statutory requirements are met, recommend or order remedial measures, potentially including disposal of shares. The Ministry of Finance describes this mechanism as targeting particularly high-risk foreign investors rather than creating a general retrospective review of all investments.

Stronger interagency coordination

When necessary for the review of an investment, the Minister of Finance and the competent business minister must seek the views of other relevant administrative authorities. This provision entered into force upon promulgation on 5 June 2026.

2. Practical implications

Foreign investors should conduct FEFTA analysis at an early stage and at the level of the entire transaction group, rather than considering only the immediate Japanese target.

In particular, transaction teams should review:

• direct and indirect interests in Japanese companies;

• the business activities of Japanese subsidiaries and portfolio companies;

• ultimate beneficial ownership and foreign-government influence;

• the availability of prior-notification exemptions; and

• any mitigation measures that could affect post-closing governance, information access or technology transfers.

  
  

Japanese companies should also maintain accurate information regarding their business classifications, sensitive technologies, shareholding structures and activities potentially falling within designated sectors.

The 2026 reform represents a significant development in Japan’s foreign investment screening regime. Its principal effects will be to bring certain indirect acquisitions within scope, formalise mitigation commitments, address investments conducted through domestic intermediaries and permit intervention in limited categories of investments that were not subject to prior notification.