Japan to Tighten FEFTA Foreign Investment Screening
- LPA Administrative Scrivener Office
- Jan 19
- 4 min read
Updated: Feb 13
Japan’s inbound foreign investment screening regime under Foreign Exchange and Foreign Trade Act (FEFTA) is poised for its most material change since the 2020 reforms. The Council on Customs, Tariff, Foreign Exchange and Other Transactions (関税・外国為替等審議会) of the Japan’s Ministry of Finance (MOF) published on 7 January 2026, its recommendations on the next FEFTA reform. The draft guidelines signal a shift toward a more risk-based and streamlined foreign investment review regime in Japan, aimed at reducing unnecessary filings while strengthening national security oversight.
Low-risk transactions—particularly in the software and ICT sectors and routine officer reappointments—are expected to face fewer notification requirements. At the same time, the framework will introduce clearer and more enforceable risk mitigation measures, expand scrutiny of indirect acquisitions and post-closing ownership changes, and tighten oversight of investments influenced by foreign governments or high-risk non-residents. Authorities would also gain expanded post-closing powers for higher-risk investments in non-designated industries.
The main topics under discussion for the FEFTA reform are the following:
At the time of this article, the publicly available materials are recommendations presented within the MOF council process and the final bill text and implementing ordinances have not yet been published.
1. Responding to the Increase in Prior Notification Filings
The guidelines acknowledge a steady rise in prior notification filings. To address this, the committee proposes a more risk-based approach to determining when prior notification is required.
Key proposals include:
Exempting officer reappointments from prior notification where the same individual is reappointed and no material circumstances have changed.
Narrowing the scope of communications technology (ICT)–related industries subject to regulation to areas where oversight is genuinely necessary, including for cybersecurity reasons.
Reviewing low-risk investment categories to determine whether prior notification can be reduced or eliminated.
At the same time, ensuring that investments involving critical technologies or sensitive information held by Japanese companies remain appropriately covered, with clear criteria aligned with economic security legislation.
2. Greater Clarity on Risk Mitigation Measures
To improve predictability and enforcement, the guidelines place greater emphasis on clearly defined risk mitigation measures. In practice, the ministries already set implementation of risk mitigation measures as a condition to accept some transactions, but the conditions for this practice will be clarified.
Key proposals include:
Foreign investors will be expected to disclose required risk mitigation measures in prior notification filings.
Additions or changes to mitigation measures may be submitted during the review process although late-stage changes may extend the review period by approximately 14 days.
Authorities may issue orders or recommendations not only to suspend or modify investments, but also to require specific mitigation measures.
Post-closing changes to mitigation measures will require advance notification and new review.
Failure to implement notified mitigation measures may result in orders to transfer the acquired shares.
Guidelines with examples of typical mitigation measures to improve investor predictability will need to be published.
3. Indirect Acquisitions and Changes in Ownership Structure
Under the current framework, the ultimate parent company of the filer is an important factor in the review process, but changes to the ultimate parent after investment are not subject to notification or review. This creates a gap where a foreign investor could indirectly acquire voting rights in a Japanese company—for example, by acquiring control over a foreign entity that directly holds those voting rights—without triggering review. Measures such as requiring prior notification in such cases are therefore needed.
Key proposals include:
The definition of inward direct investment should be expanded to include indirect acquisitions, such as where an indirect acquirer obtains 50% or more of the voting rights of the direct holder, or where persons related to the indirect acquirer constitute a majority of the direct holder’s officers, as well as similar situations..
As a general rule, where the direct holder owns 1% or more of the voting rights or similar interests in a Japanese company that would trigger prior notification under the current system, the indirect acquirer should be required to submit a prior notification. However, for indirect acquirers that are not categorically high risk (i.e., are eligible for the prior notification exemption regime), no procedure should be required where the direct holder’s interest in the Japanese company is less than 50%.
To ensure effectiveness, direct holders should be required to submit a post-event report when changes occur to their parent company or similar entities, so that cases lacking required filings can be identified. In addition, where risks cannot be adequately addressed through orders to the indirect acquirer, the authorities should be able to issue necessary orders directly to the direct holder.
4. Investments Under the Control or Influence of Foreign Governments or Similar
The guidelines seek to prevent circumvention in cases where investments are formally made by non-foreign investors but are effectively controlled or influenced by foreign governments or other high-risk non-residents.
Key proposals include:
Treating certain investors as foreign investors in substance, where they act under the direction or influence of non-residents, including through contractual arrangements or special relationships.
Limiting prior notification to higher-risk cases, particularly where the controlling non-resident is not eligible for the notification exemption regime.
Requiring additional disclosures when foreign financial institutions or general investors rely on notification exemptions, to confirm that foreign governments do not have authority to direct voting rights.
5. Expanded Powers for Non-Designated Industries
For investments in Japanese companies engaged in non-designated industries, post-investment reporting is currently required where 10% or more of shares or voting rights are acquired, but the authorities cannot issue recommendations or orders even if national security risks arise after closing due to changes in international circumstances or other factors. Measures are therefore needed to address such situations.
⚠️ Disclaimer
This newsletter is provided for informational purposes only and does not constitute legal advice. Before making any investment, consult with a qualified professional to confirm whether prior notification is required under FEFTA.
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