Japan: Major Amendments to FEFTA’s FDI Provisions Promulgated

In brief

On 5 June 2026, the Japanese Government promulgated amendments to the Foreign Exchange and Foreign Trade Act (FEFTA) relating to its foreign direct investment (FDI) regime. The amendments expand the definition of "inward direct investment" subject to FDI screening to capture certain indirect acquisitions, including acquisitions of 50% or more of the voting rights in a foreign company holding interests in a Japanese company. They also clarify procedures for "risk mitigation measures," which may currently be required in practice. For transactions not requiring prior notification, the authorities may request detailed reports and recommend or order divestment where national security concerns materialize. Most of the amended provisions will take effect within one year of promulgation, while Japan's new inter-agency consultation framework took effect immediately upon promulgation.

Key takeaways

Foreign investors contemplating or pursuing Japan-related transactions should monitor the detailed rules to be set out in subordinate legislation and the timeline for full implementation of the amended regime. The new rules may affect transaction structuring, filing strategies and closing conditions. Foreign investors may also face increased scrutiny from the authorities where potential national security concerns arise. The major amendments include the following:

Indirect acquisitions: Acquisitions of 50% or more of the voting rights in an overseas entity that holds qualifying investments in Japanese companies — as well as certain voting actions related to the appointment of directors or officers of such entities — will newly fall within the scope of FEFTA "inward direct investment" subject to FDI screening.
Risk mitigation measures: Where a foreign investor proposes measures designed to address national security concerns in connection with a transaction requiring prior notification, these "risk mitigation measures" must be included in the prior notification. Any subsequent change to the disclosed risk mitigation measures, even after the waiting period has expired, will require amendment of the already-submitted prior notification or submission of an additional prior notification.
Deemed foreign investor: An entity or individual that does not fall within the definition of a "foreign investor" under FEFTA may nevertheless be deemed a foreign investor in certain circumstances where it invests on behalf of a foreign investor.
Ex-post scrutiny: For transactions that do not trigger prior notification requirements because the target business does not fall within a designated business sector, the authorities may request reports and other information for up to five years after the transaction date if changed geopolitical or other circumstances give rise to potential national security concerns. In serious cases, the authorities may also recommend or order divestment or other remedial measures.
Inter-agency consultation: The primary authorities responsible for FDI review are the Ministry of Finance and the competent ministry responsible for the targeted business. If deemed necessary, the relevant authorities will need to consult with the Prime Minister, the Minister for Foreign Affairs and other relevant governmental agencies.

Details

1. Revision of the definition of inward direct investment subject to FDI screening

Under the current regime, an indirect acquisition of shares or equity in a Japanese entity (i.e., an acquisition of shares or equity in a foreign entity that owns a Japanese company) does not trigger an FDI filing requirement. The amendments will expand the scope of "inward direct investment" subject to FDI screening by adding two new triggering events:

The acquisition of voting rights in a foreign entity that has made a certain investment in a Japanese company ("Directly Holding Foreign Entity"), where such acquisition results in the foreign investor directly or indirectly holding 50% or more of the total voting rights in the Directly Holding Foreign Entity
The exercise of voting rights in relation to the appointment of directors or officers of a Directly Holding Foreign Entity or its parent companies, where the appointment results in the foreign investor, either directly or through its related parties, newly holding a majority of the directors or officers of the Directly Holding Foreign Entity or its parent companies

More detailed rules — including the scope of "a certain investment in a Japanese company" by a Directly Holding Foreign Entity and the meaning of "indirectly" holding 50% or more of the total voting rights in the Directly Holding Foreign Entity — will be prescribed in subordinate legislation before the amendments fully take effect.

2. New provisions regarding risk mitigation measures

The current regulations do not set out specific rules or procedures for risk mitigation measures in connection with foreign direct investments that may involve national security concerns, while foreign investors may, in practice, be required to make certain commitments in order to obtain clearance. The amendments include provisions addressing this, including the following:

A foreign investor may be required to include risk mitigation measures in a prior notification if deemed necessary.
A foreign investor that has filed a prior notification with risk mitigation measures may, during or after the waiting period in which the foreign investor is prohibited from carrying out the transaction, be required to amend the already-submitted prior notification or file another prior notification amending the risk mitigation measures.
If the authorities consider the proposed risk mitigation measures insufficient, they may issue recommendations or orders to appropriately revise the measures.
If the authorities determine that the transaction poses national security concerns, they can issue recommendations or orders to discontinue or change the notified risk mitigation measures.
If a foreign investor fails to comply with required risk mitigation measures, the authorities can order necessary actions, including divestment of the acquired shares or equity.

3. Revision of the definition of a deemed foreign investor

Under the following circumstances, a non-foreign (domestic) investor investing on behalf of a foreign investor may be deemed a foreign investor under the new regime:

Where the investment is made for the account of a foreign investor
Where the investment is made pursuant to a contract or the laws and regulations of a foreign jurisdiction
If the non-foreign investor has an ongoing economic relationship with a foreign investor based on shareholding structures or other special relationships (e.g., family or employment relationships)

4. Ex-post scrutiny regarding foreign direct investments not subject to prior notification

Under the new regime, the authorities may request that foreign investors provide relevant information regarding foreign direct investments that did not trigger a prior notification requirement after the investments have been implemented. The authorities may make such a request where they consider it necessary from a national security perspective due to a change in circumstances or other factors. They may subsequently issue recommendations or orders requiring investors to take actions deemed necessary from a national security perspective, including divestment of the acquired shares or equity. The authorities may also issue such recommendations or orders where a foreign investor fails to comply with an information request without justifiable grounds or submits a false report.

Detailed reports and information may be requested by the authorities up to five years from the date on which a transaction was completed. In urgent cases where the risk of harm to national security is considered exceptionally high, the authorities may also issue interim orders to prevent such harm from occurring, including restricting new indirect investments in Japan by a particular foreign investor. These interim orders may be revoked if and when the risk subsides.

5. Consultation with the Prime Minister, the Minister for Foreign Affairs and other relevant authorities

Japan's FDI screening regime under FEFTA is currently administered by the Minister of Finance and the relevant competent ministers for the industry sectors concerned. The amendments formalize a broader inter-agency review framework by requiring, where necessary, consultation with the Prime Minister, the Minister for Foreign Affairs and other relevant government agencies that were not previously involved in FDI screening. Under the amended FDI regime, a wider range of ministries and other government agencies may participate in FDI reviews, which may be seen as a step toward the establishment of a foreign investment review body in Japan — in other words, a Japanese framework similar to that of the Committee on Foreign Investment in the United States.

In brief

Key takeaways

Details

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