Overview and Implications of the Amendment Bill to Japan’s Foreign Direct Investment Regulations

On March 17, 2026, a bill to amend the Foreign Exchange and Foreign Trade Act (the “FEFTA”) was submitted to the Diet in order to revise Japan’s foreign investment screening regime (the “Bill”). The Bill reflects the report published on January 7, 2026, by the Council on Customs, Tariff, Foreign Exchange and Other Transactions (the “Council”), an advisory body to the Ministry of Finance, setting out the direction of the FEFTA amendments (the “Report”).¹

The Bill introduces five major changes: (i) prior screening for certain indirect acquisitions, (ii) call-in powers for certain investments in non-designated businesses, (iii) statutory framework for risk mitigation measures, (iv) the establishment of a Japanese CFIUS regime, and (v) additional anti-circumvention measures covering investments by non-foreign investors. Most provisions of the Bill will take effect on a date to be specified by Cabinet Order within one year from the date of promulgation. By contrast, the provisions establishing the Japanese CFIUS regime will enter into force on the date of promulgation.²

This newsletter summarizes the Bill and discusses its practical implications. It also discusses the likely direction of the Cabinet Order, ministerial ordinances, and other subordinate legislation with respect to matters referenced in the Report but not expressly set out in the Bill.

Under the current regime, a prior notification obligation arises where: (i) a “Foreign Investor”,³ (ii) makes an investment in a target company engaged in designated businesses (including cases where Japanese subsidiaries of the target company engage in designated businesses⁴); and (iii) such investment falls under the definition of “Inward Direct Investment”⁵ or a “Specific Acquisition”.⁶ Where the conditions in (i) through (iii) are met, the foreign investor must file a prior notification subject to review unless any exemption or exception is available.⁷

Under the current FEFTA, “Inward Direct Investment” and “Specific Acquisition” are limited to direct acquisitions of shares/voting rights and other actions in or to Japanese companies. Accordingly, the acquisition of shares or voting rights in a foreign entity that holds shares or voting rights in a Japanese company is not currently subject to FEFTA regulation.

The Bill adds the following two categories to the definition of “Inward Direct Investment.” (new Article 26(2)(ix) and (x))⁸ (collectively, the “Indirect Acquisition Regulations”):

• New item (ix): the acquisition of voting rights in a foreign corporation or similar entity that holds certain investments in a Japanese company, where, as a result, the acquirer will newly hold, directly or indirectly, 50% or more of the total voting rights in a Direct Holder
• New item (x): the exercise of voting rights for the appointment of directors of a Direct Holder or its parent company, etc., where, as a result, the person exercising the voting rights itself or its related persons will newly constitute a majority of the directors/representative directors of the Direct Holder or its parent company, etc.

In addition, because FEFTA delegates to Cabinet Order the specification of acts analogous to those listed in the main text of the statute as categories of Inward Direct Investment, it is possible that acts analogous to the above two categories will be added by Cabinet Order (amended Article 26(2)(xi)).

（1）Details of New Item (ix)
New item (ix) regulates: (i) an acquisition of voting rights in corporations and other organizations established under foreign laws (“Foreign Entity”) that results in the acquirer holding directly or indirectly 50% or more of the voting rights of the Direct Holder after the acquisition, where (ii) the Direct Holder (a) owns shares or equity interests in an unlisted Japanese company, (b) holds shares in a listed Japanese company above a specified threshold,⁹ or (c) holds voting rights in a listed Japanese company above a specified threshold.¹⁰

（a）Limb (i)
Direct Holders are defined, in broad terms, as Foreign Entities that own or hold shares, voting rights, etc. in Japanese companies (new Article 26(5)). Accordingly, although a Foreign Entity that directly holds shares in a Japanese company constitutes a Direct Holder, its parent company does not itself constitute a Direct Holder.

However, because Limb (i) requires the acquisition, directly or indirectly, of 50% or more of the voting rights in a Direct Holder, an acquisition of voting rights in the parent company of a Direct Holder may also satisfy Limb (i). Specifically, in calculating the 50% threshold, the voting rights held by corporations of which the acquirer directly holds 50% or more of the voting rights, as well as by other persons specified by Cabinet Order as having a continuing economic relationship with the acquirer based on share ownership or a similar relationship, are aggregated.

With respect to parent companies of the Direct Holder, it is clear from the statutory text that a corporation that directly holds 50% or more of the voting rights in the Direct Holder (i.e., the Direct Holder’s direct parent company) is covered. However, whether the Direct Holder’s grandparent company or great-grandparent company will also be covered will need to await the publication of the Cabinet Order.

（b）Limb (ii)
In the text of Limb (ii), the relevant threshold for shares and voting rights of a listed Japanese company is described as “a ratio to be specified by Cabinet Order, which shall not be less than 1%.” In this regard, it is expected that the Cabinet Order will prescribe different thresholds depending on whether the acquirer is a foreign investor that is not eligible to use the prior notification exemption regime (a “High-Risk Foreign Investor”)¹¹ or any other foreign investor.

Specifically, the Report indicates that, on the basis that High-Risk Foreign Investors are categorically more likely to require scrutiny, indirect acquisitions by High-Risk Foreign Investors should be broadly subject to investment screening where the Direct Holder holds 1% or more of the voting rights or similar interests in a Japanese company engaged in designated businesses, whereas foreign investors other than High-Risk Foreign Investors should be subject to investment screening only where the Direct Holder holds 50% or more of the voting rights or similar interests in such a Japanese company. Accordingly, it is expected that the Cabinet Order will set the threshold at 1% for High-Risk Foreign Investors and 50% for other investors. For details on High-Risk Foreign Investors, please see our Corporate / International Trade Law Newsletter, January 2026 issue, Section III.1(3)(a).

By contrast, no threshold is provided for shares or equity interests in unlisted Japanese companies. Accordingly, based on the statutory text, regardless of whether the acquirer is a High-Risk Foreign Investor, the acquisition of 50% or more of the voting rights in a Direct Holder will fall within new item (ix) if the Direct Holder holds even a single share in an unlisted Japanese company. However, although no threshold is prescribed for shares or equity interests in unlisted companies in the Bill, it is still possible that the Cabinet Order and ministerial ordinances will prescribe thresholds for unlisted companies as well, for example, 50% for investors other than High-Risk Foreign Investors as in the case of listed companies, which is possible by designating acquisitions of shares or equity interests in unlisted companies below such thresholds as excepted transactions.¹²
 

（c）Case Study 
Under the Bill, for example, the following transactions would fall within the scope of new item (ix). These examples assume that the Cabinet Order will set different thresholds with respect to indirect acquisitions of shares of listed companies depending on whether the acquirer is a High-Risk Foreign Investor (1%) or not (50%):

• Example 1: Korean Company A transfers 50% or more of the voting rights in Singapore Company B (Direct Holder) to U.S. Company C (which is not a High-Risk Foreign Investor), where Singapore Company B holds 50% or more of the shares in Japanese Company D, a listed Japanese company engaged in designated businesses
• Example 2: Chinese Company E transfers 50% or more of the voting rights in Korean Company C to U.S. Company D (which is not a High-Risk Foreign Investor), where Korean Company C is the parent company (50% or more of the voting rights) of Singapore Company B (Direct Holder), and Singapore Company B holds 50% or more of the shares in Japanese Company A, a listed Japanese company engaged in designated businesses
• Example 3: U.S. Company E transfers 50% or more of the voting rights in Canadian Company F (Direct Holder) to Chinese Company G (which is a High-Risk Foreign Investor), where Canadian Company F holds 1% of the shares in Japanese Company H, a listed Japanese company engaged in designated businesses 
• Example 4: French Company J transfers 50% or more of the voting rights in U.S. Company H to Chinese Company I (which is a High-Risk Foreign Investor), where U.S. Company H is the parent company (50% or more of the voting rights) of Canadian Company G (Direct Holder), and Canadian Company G holds 1% of the shares in Japanese Company F, a listed Japanese company engaged in designated businesses
• Example 5: French Company I transfers 50% or more of the voting rights in French Company J (Direct Holder) to UAE Company K (which is a High-Risk Foreign Investor), where French Company J holds one share in Japanese Company L, an unlisted Japanese company engaged in designated businesses

（2）Details of New Item (x)
New item (x) regulates the exercise of voting rights for the appointment of directors of: (i) either (a) a Direct Holder that owns shares or equity interests in an unlisted Japanese company, or holds shares or voting rights in a listed Japanese company above the relevant threshold, or (b) a Foreign Entity specified by Cabinet Order as having a continuing economic relationship with the Direct Holder based on share ownership or a similar relationship, including a corporation that directly holds 50% or more of the voting rights in the Direct Holder; where (ii) as a result of the appointment, the person exercising the voting rights, together with such directors and other related persons of that person as may be specified by Cabinet Order, will constitute a majority of the directors or directors with representative authority of the relevant entity.

（a）Limb (i)
The existing categories of “Inward Direct Investment.” have long regulated not only pure investment acts such as acquisitions of shares or voting rights, but also certain exercises of voting rights. The Bill extends this concept to certain exercises of voting rights for the appointment of directors of certain Direct Holders and their parent companies, etc.

With respect to Limb (i)(a), please see Section (1)(b) above. As to Limb (i)(b), it is clear from the statutory text that a corporation that directly holds 50% or more of the voting rights in the Direct Holder (i.e., the Direct Holder’s direct parent company) is covered. However, whether the Direct Holder’s grandparent company or great-grandparent company will also be covered will need to await the publication of the Cabinet Order.

（b）Limb (ii)
Not every exercise of voting rights that results in the appointment of a majority of the directors or directors with representative authority is captured. The provision targets only cases where the voting-right holder and such directors or other related persons as may be specified by Cabinet Order become the appointed directors. Accordingly, where professional managers with no relationship to the voting-right holder are appointed, new item (x) may not apply, although the precise scope of “related persons” awaits the Cabinet Order.

（c）Case Study
Under the Bill, for example, the following transactions would fall within the scope of new item (x). These examples assume that the Cabinet Order will set different thresholds with respect to a Direct Holder or its parent holding shares of listed companies depending on whether the person exercising the voting rights is a High-Risk Foreign Investor (1%) or not (50%):

• Example 6: Korean Company A (which is not a High-Risk Foreign Investor), as a shareholder of Singapore Company B (Direct Holder), exercises voting rights to appoint its own related persons so that they will constitute a majority of the directors of Singapore Company B, where Singapore Company B holds 50% or more of the shares in Japanese Company C, a listed Japanese company engaged in designated businesses
• Example 7: U.S. Company D (which is not a High-Risk Foreign Investor), as a shareholder of Korean Company A, exercises voting rights to appoint its own related persons as the sole director with representative authority of Korean Company A, where Korean Company A is the parent company (50% or more of the voting rights) of Singapore Company B (Direct Holder), and Singapore Company B holds 50% or more of the shares in Japanese Company C, a listed Japanese company engaged in designated businesses 
• Example 8: UAE Company G (which is a High-Risk Foreign Investor), as a shareholder of Spanish Company F (Direct Holder), exercises voting rights to appoint its own related persons so that they will constitute a majority of the directors of Spanish Company F, where Spanish Company F holds 1% of the shares in Japanese Company E, a listed Japanese company engaged in designated businesses
• Example 9: Chinese Company H (which is a High-Risk Foreign Investor), as a shareholder of UAE Company G, exercises voting rights to appoint its own related persons so that they will constitute a majority of the directors of UAE Company G, where UAE Company G is the parent company (50% or more of the voting rights) of Spanish Company F (Direct Holder), and Spanish Company F holds 1% of the shares in Japanese Company E, a listed Japanese company engaged in designated businesses
• Example 10: Chinese Company K (which is a High-Risk Foreign Investor), as a shareholder of French Company J (Direct Holder), exercises voting rights to appoint its own related persons so that they will constitute a majority of the directors of French Company J, where French Company J holds one share in Japanese Company I, an unlisted Japanese company engaged in designated businesses

（3）Enforcement Mechanism for the Indirect Acquisition Regulations
Under the Indirect Acquisition Regulations, where national security or other risks would be markedly difficult to address through an order directed only at the acquirer or the person exercising the voting rights, an order requiring necessary measures may be issued to the Direct Holder (new Article 29(9)).

Accordingly, where U.S. Company A acquires shares in Singapore Company B (Direct Holder), which holds shares in Japanese Company C, an order requiring necessary measures may be issued not only to U.S. Company A but also to Singapore Company B. Similarly, where Canadian Company D, as a shareholder of U.S. Company E (the parent company of Korean Company F (Direct Holder), which holds shares in Japanese Company G), exercises voting rights to appoint its own related persons as directors of U.S. Company E, an order requiring necessary measures may be issued not only to Canadian Company D but also to Korean Company F (but not to U.S. Company E, because U.S. Company E does not itself constitute a Direct Holder).

Foreign government-linked investors, such as sovereign wealth funds, as well as Chinese individuals and entities (and their subsidiaries) that qualify as High-Risk Foreign Investors, will be broadly subject to the Indirect Acquisition Regulations (see Examples 3, 4, 8 and 9 above).

By contrast, for foreign investors that do not qualify as High-Risk Foreign Investors, the scope of the Indirect Acquisition Regulations will be more limited where the relevant Japanese company is a listed company (see Examples 1, 2, 6 and 7 above). 

The Indirect Acquisition Regulations may apply to M&A transactions involving foreign companies that have Japanese subsidiaries, even where the transaction is between entities incorporated in the same jurisdiction. Accordingly, in due diligence for overseas M&A, parties may need to confirm whether the target holds shares in, or has as a subsidiary, a Japanese company, and whether that Japanese company operates designated businesses. Transaction documents may also need to include, as a condition precedent, the expiration of the FEFTA waiting period following any required prior notification.

Under the current regime, investments by foreign investors in Japanese companies that do not operate designated businesses are not subject to prior notification, and are only subject to an ex post report when the investor acquires 10% or more of the shares, equity interests, or voting rights. Such investments are therefore not currently subject to recommendations or orders.

The Bill introduces call-in powers for certain “Inward Direct Investment” or “Specific Acquisition” that are not subject to prior notification—i.e., certain investments in Japanese companies engaged solely in non-designated businesses.

Under this call-in regime, the authorities may first request a report (new Article 29-2(1)). Based on the contents of that report, and after hearing the opinion of the Council, the authorities may recommend and order the disposition of shares or other necessary measures (new Article 29-2(2) and (6)).¹³ In addition, where the national security risk is extraordinarily high and urgent measures are considered necessary, the authorities may, after requesting a report and hearing the opinion of the Council, order that no new Inward Direct Investment or Specific Acquisition be carried out, and may order any other necessary measures to prevent the occurrence of a situation detrimental to national security (new Article 29-2(9)).

The scope of the call-in powers is subject to several limitations.

First, investments that were the subject of a prior notification, or should have been the subject of a prior notification, are excluded from the call-in regime. In other words, once clearance has been obtained under the prior notification regime, there will be no subsequent call-in under this new framework. Likewise, a failure to file a required prior notification will be addressed separately as a filing violation, rather than through the call-in regime.

Second, the categories of “Inward Direct Investment” subject to the call-in regime are limited to acquisitions of shares in unlisted companies, acquisitions of shares or voting rights in listed companies, succession by way of a transfer of business, etc. from a resident, and similar transactions.¹⁴ Accordingly, neither the exercise of voting rights on director-election proposals nor the categories of “Inward Direct Investment” newly added as part of the Indirect Acquisition Regulations discussed in Section II above would be subject to the call-in regime.

Third, the Bill limits the call-in regime to “Inward Direct Investment” or “Specific Acquisition” specified by Cabinet Order as being of a type that poses a substantial national security risk.¹⁵ In other words, the detailed scope of the regime is delegated to the Cabinet Order. In this respect, the Report recommended limiting the call-in regime to acquisitions by High-Risk Foreign Investors of 10% or more of the shares or voting rights in Japanese companies that do not operate designated businesses. Accordingly, it is conceivable that the Cabinet Order will: (i) limit the call-in regime to investments by High-Risk Foreign Investors; and (ii) set a threshold of 10% or more of the shares or voting rights in the relevant Japanese company.

Finally, the Bill introduces a limitation period for retroactive call-in. Specifically, the call-in regime may only be made until the date on which five years have elapsed from the date of the relevant Inward Direct Investment or Specific Acquisition (new Article 29-2(11)).

Assuming that the Cabinet Order follows the approach set out in the Report, the scope of the call-in regime will be limited to investments by High-Risk Foreign Investors. Accordingly, the impact on foreign investors other than High-Risk Foreign Investors is expected to be limited.

For High-Risk Foreign Investors, however, even investments that do not require prior notification will carry ex post call-in risk. The Bill does not incorporate any framework that enables a foreign investor to make a voluntary filing to seek safe harbor in advance.

In the FDI screening practice under FEFTA, with respect to any investment where national security concerns may be addressed by agreeing on certain risk mitigation measures, it has become common for the review to be concluded without moving to the formal process for a recommendation or order to modify or discontinue the investment by describing such risk mitigation measures in the prior notification.

Specifically, during the review, the competent ministry often provides draft language for risk mitigation measures, and the notifier negotiates that language with the authorities. Once agreement is reached, where a prior notification has already been filed, the notifier typically withdraws the notification and refiles it with the agreed risk mitigation measures described in the section dealing with the method of management involvement accompanying the acquisition or discretionary investment management. After refiling, clearance is often obtained within five business days from the filing date. The authorities have taken the position that, if a notifier violates the risk mitigation measures described in the notification, the notifier may be subject to an order requiring necessary measures on the basis that it filed a “false” notification.¹⁶

The current practice presents practical issues for both notifiers and the authorities.¹⁷ These issues largely stem from the fact that FEFTA does not expressly provide for a statutory mechanism for risk mitigation measures and that such measures have been treated as voluntary statements made by the notifier in the prior notification.

The Bill clarifies the framework for risk mitigation measures in FEFTA. Specifically, where a foreign investor filing a prior notification under FEFTA will undertake risk mitigation measures, it must describe those measures in the prior notification (amended Articles 27(1) and 28(1)). If the investor wishes to revise the contents of the risk mitigation measures during the waiting period after filing, it may also notify such revision (new Articles 27-3(1) and 28-3(1)). If the last day of the waiting period would otherwise fall before the date 14 days after receipt of the revision filing, the waiting period is extended until the date 14 days after receipt of the revision filing (new Articles 27-3(2) and 28-3(2)). If risk mitigation measures have been notified but are not implemented, the investor may be subject to an order requiring the disposition of all or part of the acquired shares or equity interests and other necessary measures (new Article 29(1)).

If the investor wishes to revise or otherwise change the risk mitigation measures after the expiration of the waiting period, which means post-clearance and includes post-investment period, a separate prior amendment filing must be made for that change (new Articles 27-4(1) and 28-4(1)). The procedure for such amendment filing is subject mutatis mutandis to the ordinary prior notification procedure (new Articles 27-4(1) and 28-4(2)), and the revised risk mitigation measures may be subject to a recommendation or order to modify or discontinue the revision. If the investor fails to comply with such recommendation or order, it may be subject to an order requiring the disposition of all or part of the acquired shares or equity interests and other necessary measures (new Article 29(5) and (6)).

The amendment should shorten the time to clearance in cases where risk mitigation measures are required. Under current practice, once risk mitigation measures are agreed after a prior notification has already been filed, the notifier must withdraw the original filing and refile it with the agreed measures, and clearance is then typically obtained within approximately five business days after the refiling. After the amendment, by filing a revision of the risk mitigation measures, the investor should be able to obtain clearance without extension of the waiting period unless the last day of the waiting period would otherwise fall earlier than 14 days after receipt of the revision filing.

While the statutory text in the Bill may read as if a foreign investor will voluntarily describe risk mitigation measures in the prior notification, it would be difficult for a notifier, on its own, to determine risk mitigation measures that are both necessary and sufficient from a national security perspective. Accordingly, it is expected that the prior practice of the authorities proposing draft measures and negotiating them with the notifier will continue.

In addition, the introduction of a mechanism for filing amendments or changes to the contents of risk mitigation measures after the expiration of the waiting period will enable a foreign investor, having obtained clearance and executed an investment, to subsequently seek to delete or modify part of the risk mitigation measures due to a change in circumstances or other reasons.

Japan’s investment screening regime under FEFTA is administered by the Minister of Finance and the competent minister(s) responsible for the relevant business sector. Accordingly, under the current regime, prior notification review and related matters are conducted by the Minister of Finance and the competent minister(s) (in practice, particularly the Ministry of Economy, Trade and Industry, which has broad jurisdiction over designated business sectors).

Under the Bill, where the Minister of Finance and the competent minister(s) find it necessary in reviewing an Inward Direct Investment or a Specific Acquisition to determine whether the investment falls within the category of investments that may be subject to a recommendation or order, or whether it falls within the category of investments subject to a report request under the call-in regime, they must seek the opinions of the Prime Minister, the Minister of Foreign Affairs, and the heads of other relevant administrative authorities (new Article 69-4). In other words, the Bill creates a framework under which, in addition to the Minister of Finance and the competent minister(s), the Prime Minister, the Minister of Foreign Affairs, and other relevant authorities may participate in the investment screening process, thus contemplating broad inter-agency deliberation akin to that of the Committee on Foreign Investment in the United States (CFIUS). In particular, the Bill provides a statutory basis for the participation in investment screening of the National Security Secretariat (NSS), the Ministry of Foreign Affairs, and the Ministry of Defense, which had not previously formed part of the statutory screening framework.

That said, even under current practice, the Minister of Finance and the competent minister(s) are not thought to conduct reviews separately and in isolation. Rather, the process is understood to proceed with the Ministry of Finance serving as a facilitator, while the competent ministries informally take into account the views of other relevant authorities. Accordingly, from the perspective of foreign investors, the Bill may not immediately produce a major practical impact. At the same time, it could serve as a testing ground for more rigid investment screening by the Japanese government, and its impact on review practice warrants close monitoring.

Under the current regime, where a person other than a foreign investor makes an Inward Direct Investment or a Specific Acquisition for the benefit of a foreign investor without using the foreign investor’s name, that person is deemed to be a foreign investor and FEFTA applies accordingly.

The Bill expands this anti-circumvention concept. Specifically, among Inward Direct Investment or Specific Acquisition carried out by persons other than foreign investors, the Bill would bring within the anti-circumvention rules: (i) investments made on the account of a foreign investor (this category is already covered under the current regime); (ii) investments made pursuant to a contract, foreign law, or any other similar arrangement (limited to cases specified by Cabinet Order); and (iii) investments made by a person having with a foreign investor a continuing economic relationship based on share ownership or a similar relationship, a familial relationship, an employment relationship, or another special relationship specified by Cabinet Order (limited to cases specified by Cabinet Order) (amended Articles 27(14), 27-2(7), 28(9), 28-2(7), 29-2(13), and 55-5(3)).

The Report states that the additional anti-circumvention provisions should be limited to cases involving persons under the control or influence of High-Risk Foreign Investors. Given that items (ii) and (iii) above are subject to narrowing by Cabinet Order, it is expected that the Cabinet Order and other subordinate legislation will include appropriate limitations so as to confine these provisions to cases involving persons under the control or influence of High-Risk Foreign Investors.

Accordingly, the impact on foreign investors other than High-Risk Foreign Investors is expected to be limited, whereas some impact may arise for High-Risk Foreign Investors.

While the Bill is currently under deliberation in the Diet, in general, material changes are not expected during that process. At the same time, a number of important requirements are delegated to Cabinet Order and other subordinate legislation. While the contents of the Report allow for a degree of prediction, the details will need to await publication of the relevant Cabinet Order and ministerial ordinances.

In addition, the Report recommended a number of items not expressly included in the Bill, including rationalization of the scope of designated businesses and strengthening of post-transaction monitoring (including an increase in personnel).¹⁸  It will be important to monitor not only the Cabinet Order and ministerial ordinances under the Bill, but also any related amendments to public notices and administrative practice.