FEFTA amendment bill submitted to Japan’s Diet to reform Japan’s foreign direct investment regime
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On March 17, 2026, Japan's Cabinet Office approved a bill (the "Amendment Bill") to amend the Foreign Exchange and Foreign Trade Act ("FEFTA") and submitted it to the Diet. The Amendment Bill follows an advisory opinion drafted by the Council on Customs, Tariff, Foreign Exchange and Other Transactions (the "Council") on the new structure for Japan's foreign direct investment review regime issued on January 7, 2026 (the "Advisory Opinion").
Executive Summary
The Amendment Bill's key elements include:
1. FEFTA to newly cover indirect acquisitions: FEFTA currently does not apply beyond direct acquisitions of shares of Japanese legal entities. The Amendment Bill would expand this coverage to include certain indirect acquisitions of Japanese companies which would bring the Japanese FDI regime in line with other active FDI regimes in the world.
2. Covenants provided for approvals under current FEFTA to be codified as "Risk Mitigation Measures:" Currently, investors are asked to make promises (covenants) as part of the FEFTA approval process to invest in certain sensitive companies. The Amendment Bill would give these covenants an express legal basis to formally implement these covenants as "Risk Mitigation Measures."
3. Expanded anti-circumvention measures for domestic Japanese investors acting on behalf of foreign investors: The Amendment Bill would deem certain domestic investors to be foreign investors for the purposes of FEFTA to close potential loopholes that might otherwise be used to circumvent FEFTA, expanding on the current FEFTA's anti-circumvention measures.
4. Post-Investment intervention measures for investments in non-sensitive industries that are later determined to be potentially sensitive. The Amendment Bill would give the government a call-in power to intervene post-closing in investments that did not require prior FEFTA approval, based on heightened national security sensitivity.
5. Japanese-Style CFIUS: The Amendment Bill would establish a framework where the Minister of Finance and other minister(s) with jurisdiction over relevant business sectors must seek the opinions of the Prime Minister, the Minister for Foreign Affairs, and the heads of other relevant administrative authorities in connection with FEFTA reviews. This framework is modeled loosely on CFIUS.
If enacted, the Amendment Bill will come into force on a date to be specified by a Cabinet Order, within one year from the date of promulgation at the latest. However, the provisions relating to Japanese-style CFIUS would come into force immediately on the date of promulgation.1
While not included in the Amendment Bill itself, the Advisory Opinion acknowledges the recent increase of the number of FEFTA filings and recommends narrowing the scope in which filings are required in accordance with the associated level of risk. Details below.
I. Overview of the Amendment Bill
1. Regulation of Indirect Acquisitions
(a) Newly Covered Indirect Acquisitions
Under the current regime, foreign direct investment2 and “Specified Acquisitions”3 are only subject to FEFTA when directly acquiring the shares or voting rights of a Japanese company. In other words, indirect acquisitions of a Japanese companies are not currently considered foreign direct investment or Specified Acquisitions.
Accordingly, even where an indirect acquisition occurs in relation to a Japanese company engaged in a “Designated Industry,”4 such acquisition is not subject to ‘notification’ (prior approval) requirements. In response, the Advisory Opinion recommended that prior notification (prior approval) requirements and other corresponding measures apply also to indirect acquisitions — for example, the acquisition of a foreign corporation that directly holds voting rights in the Japanese company (a "Direct Holding Entity") by another foreign investor (an "Indirect Acquirer").
In line with such recommendation, the Amendment Bill adds the following two categories of indirect acquisitions to the definition of "foreign direct investment:" (1) indirect acquisitions of voting rights; and (2) appointing a majority of directors that control a Direct Holding Entity. A summary of each category is described below.
(1) Acquisition of Voting Rights
Under this new category, FEFTA would be triggered when a foreign corporation or other entity organized under foreign law (a "Foreign Entity") acquires — directly or indirectly — 50% or more of the voting rights in a Direct Holding Entity through an acquisition. The Direct Holding Entity must also either:
(i) hold shares or equity interests in an unlisted Japanese company; or
(ii) hold at least a "specified percentage" (defined below) of the shares or voting rights in a listed Japanese company.
A Direct Holding Entity is a Foreign Entity that owns shares, equity interests, or voting rights in a Japanese company.5 The calculation to determine whether 50% or more of the voting rights of the Direct Holding Entity have been acquired must also include the sum of the voting rights held by:
(A) the acquirer;
(B) any corporation the acquirer directly holds 50% or more of the voting rights (i.e., subsidiaries of the acquirer); and
(C) any entity designated by a Cabinet Order as having a permanent economic relationship with the acquirer based on its shareholdings or other similar relationships.
Under the Amendment Bill, the "specified percentage" referred to in (ii) above will be set by Cabinet Order, but must be at least 1%. Until such Cabinet Order is released, the exact "specified percentage" will remain unknown. On this point, the Advisory Opinion recommended a different threshold for "High-Risk Foreign Investors" (further discussed below). For this category, the Advisory Opinion recommended that the indirect acquisition rules should require notification whenever the Direct Holding Entity holds 1% or more of the voting rights in a Japanese company. For all other foreign investors, the Advisory Opinion recommended notification where the Direct Holding Entity holds 50% or more. As a result, a Cabinet Order will likely prescribe different thresholds depending on whether the Indirect Acquirer is a High-Risk Foreign Investor — with a significantly lower threshold to trigger notification requirements for listed Japanese companies.
On the other hand, the Amendment Bill does not prescribe a threshold for shares or equity interests in unlisted companies held by a Direct Holding Entity. Accordingly, where a Direct Holding Entity holds even a single share in an unlisted company engaged in a designated industry, any act of newly acquiring 50% or more of the voting rights a Direct Holding Entity would be subject to the prior notification (prior approval) requirement which will likely generate an important number of notifications. In light of the Advisory Opinion's position on this point, it remains to be seen whether any limitations will be introduced though a Cabinet Order or otherwise, and publication of the draft Cabinet Order is currently pending as of the date of this article.
What are "High-Risk Foreign Investors?"
Throughout the Advisory Opinion, the Council recommended a higher degree of scrutiny when reviewing investments for "foreign investors who cannot use the prior notification exemption and who, by their nature, require a higher level of review." Foreign investors who cannot use the prior notification exemption include those who were subject to a disposition under FEFTA within the last five years and foreign governments. Foreign governments also include any enterprises they control, as well as any other individual or entity that is obligated to cooperate with such foreign government's information gathering activities, whether by contract or under foreign law. In this article, this category of foreign investors is referred to as "High-Risk Foreign Investors."
(2) Appointing a Majority of Directors that Control a Direct Holding Entity
This rule is triggered when a foreign investor would have the power to appoint a majority of the directors in any of the three categories of entities below. The directors of the foreign entity, along with any other related party that may be determined by a Cabinet Order, are also taken into account when determining whether a majority exists.
(i) A Direct Holding Entity that (a) owns unlisted shares or equity interests in Japan, or (b) holds at least a specified percentage of the shares or voting rights of a listed Japanese company;
(ii) a corporation that directly holds 50% or more of the voting rights in such Direct Holding Entity (i.e., a Direct Holding Entity's parent company); or
(iii) any other Foreign Entity designated by Cabinet Order as having a permanent economic relationship with the Direct Holding Entity based on shareholding or other similar relationships.
(b) Enforcement in Relation to Indirect Acquisitions
Where an indirect acquisition involves a Direct Holding Entity and there is an imminent risk that the Direct Holding Entity' ownership of the Japanese company may prejudice national security or give rise to other specified circumstances, the government may issue an order directly to the Direct Holding Entity. Such order can require the Direct Holding Entity to dispose of their ownership rights in the Japanese company, or other measures as the government deems appropriate. However, the government will only do so when it would be extremely difficult to eliminate that risk by issuing orders to the Indirect Acquirer itself.6
2. Codification of Risk Mitigation Measures
(a) Operation of "Covenants" Under the Current Regime
Under the current regime, when reviewing a prior notification (prior approval filing), the government may require a foreign investor to make "covenants" on certain matters — for example, commitments relating to national security — as a condition for approving the notification.
In practice, this process has typically worked as follows:
(i) The authorities present the foreign investor with draft covenants setting out the proposed commitments.
(ii) The reviewing ministries generally request the notifying party to voluntarily withdraw its prior notification in order to consider and negotiate the terms of the draft covenant, as it will not be possible to complete the process within the 30-day statutory review period.
(iii) Once the reviewing ministries and the foreign investor reach agreement on the terms, the agreed upon covenants are added to the "method of management involvement" section of the notification form.
(iv) The notification is then resubmitted as a new prior notification (prior approval request), and typically approved within five business days.
However, the Council identified several concerns with this practice. Those concerns included the absence of a clear legal basis for these covenants under FEFTA, and the lack of clear procedures for addressing changes in circumstances that arise after the investment has been consummated.
(b) Risk Mitigation Measures to be Included in Notifications
The Amendment Bill formally establishes the covenant system developed under the current regime. Where a foreign investor intends to implement measures to eliminate or alleviate the national security risk that a foreign direct investment or Specified Acquisition would give rise to ("Risk Mitigation Measures"), the investor is now required to notify the authorities by listing them on the notification form.7
The Amendment Bill also sets out rules for situations where Risk Mitigation Measures need to be changed or updated.
During the prohibition period: Foreign direct investments are subject to a 30-day prohibition period starting on the date the notification is received. Under the Amendment Bill, foreign investors may notify the government of their desire to modify the substance of any Risk Mitigation Measures during the prohibition period.8 If the remaining prohibition period from the date of acceptance of the amended notification is shorter than 14 days, the prohibition period will be extended so that it runs until 14 days have passed from the date of acceptance of the amended notification.9
After the prohibition period: Where a foreign investor desires to modify its Risk Mitigation Measures after the prohibition period has expired, including after clearance has been obtained or the investment has already been consummated, a fresh prior notification must be submitted in relation to the modification.10 The same procedures applicable to ordinary prior notifications will apply here as well.11
Additionally, where a foreign investor fails to actually implement the Risk Mitigation Measures it described in the notification form, the Minister of Finance and other minister(s) with jurisdiction over the subject business sector(s) may order the relevant investor to dispose of their ownership interests or to take other measures as deemed necessary.12
Finally, it is worth noting that the Advisory Opinion recommended that the authorities publish guidelines setting out the categories and specific examples of Risk Mitigation Measures that should be included in the notification form. This was to ensure that the regime operates in a way that gives foreign investors a reasonable degree of predictability. Such guidelines have not been released as of the date of this article.
3. Expanded Anti-Circumvention Measures for Domestic Japanese Investors Acting on Behalf of Foreign Investors
Under the current law, where a domestic investor conducts foreign direct investment on behalf of a foreign investor without using that foreign investor's name, the domestic investor is deemed to be a foreign investor and FEFTA applies accordingly.13
The Amendment Bill expands upon these anti-circumvention provisions. Going forward, where a domestic investor carries out any of the acts described in (i) through (iii) below on behalf of a foreign investor, without using that foreign investor's name, and in a manner that is equivalent to a foreign direct investment or a Specified Acquisition, the domestic investor will be deemed to be a foreign investor and the foreign direct investment notification rules will apply:
(i) acts conducted for the account of the relevant non-resident (essentially the same as the current law);
(ii) acts conducted pursuant to a contract, foreign laws and regulations, or similar instruments (limited to those prescribed by Cabinet Order); or
(iii) acts conducted by a person having a permanent economic relationship with the relevant non-resident based on shareholding or other similar relationships, a familial relationship, an employment relationship, or such other special relationship as prescribed by a Cabinet Order.14
With respect to categories (ii) and (iii), the Advisory Opinion recommended that the prior notification (prior approval) requirement under the anti-circumvention provisions should be limited in scope to those who are under the control or influence of High-Risk Foreign Investors. Consistent with this recommendation, items (ii) and (iii) will likely be narrowed though a Cabinet Order or otherwise so that they only apply to persons or entities under the control or influence of High-Risk Foreign Investors.
4. Introduction of Post-Investment Intervention Measures
Under the current law, where a foreign investor invests in a Japanese company that does not engage in any Designated Industry, such investment is not subject to the prior notification (prior approval) requirement. Additionally, a post-investment report is only required when a foreign investor obtains voting rights equivalent to 10% or more of such a company. The relevant authorities currently cannot make recommendations or give orders with respect to investments in non-Designated Industries.
(a) Overview of Post-Investment Intervention Measures
Under the Amendment Bill, when a foreign investor invests in a non-Designated Industry, the Minister of Finance and the relevant minister(s) may require the investor to submit a post-investment report covering the investment's business purpose, the number of shares held, and such other matters as prescribed by a Cabinet Order. This request may be made when the foreign direct investment or Specified Acquisition falls within a category prescribed by a Cabinet Order as presenting a high risk of constituting a national security concern in the future, for example, due to changes in international circumstances, and the ministers consider it necessary to require such a report.15 This gives the government a chance to review, ex post facto, any foreign direct investment in Japan that is outside of the prescribed national security sensitive business areas. However, as noted below, it is expected that regulations will limit this review to certain investments by High-Risk Foreign Investors within a period of time after consummation of the investment.
If, based on that report, the Minister of Finance and the relevant minister(s) determine that there is a high risk that the reported investment or acquisition would give rise to circumstances prejudicial to national security, they may take further action. Before doing so, they must first seek the opinion of the Council on Customs, Tariff, Foreign Exchange and Other Transactions. Following that consultation, the ministers may either recommend or order that the reporting party dispose of the shares acquired in connection with the relevant investment or acquisition or take other measures as they deem necessary.16
(b) Expected Limitation of Scope for Post-Investment Intervention Measures
Covered foreign direct investments
Foreign direct investments subject to post-investment intervention measures are limited to acquisitions of shares or voting rights in listed and unlisted companies, the succession to a business by way of absorption-type company split or merger, and the transfer of a business from a Japanese resident to a foreign investor.17 Notably, this means that appointing a majority of directors that control a Direct Holding Entity (one of the new categories of foreign direct investment added in the Amendment Bill) are not subject to the post-investment reporting requirement.
Additionally, investments where a prior notification has been or should have been submitted or investments which are exempt from prior notification are also excluded from the scope of post-investment intervention measures.18
Heightened scrutiny for High-Risk Foreign Investors
Foreign direct investments and Specified Acquisitions subject to post-investment intervention measures are limited to those falling within a category prescribed by Cabinet Order as presenting high national security risks. In this regard, the Advisory Opinion recommended that post-investment intervention measures be limited to acquisitions of 10% or more of shares or voting rights by High-Risk Foreign Investors, and such limitations will likely be prescribed at the Cabinet Order level or below.
Time limit for intervention
As a prerequisite for post-investment intervention, the government must send the foreign investor a "request" to file a report. However, the Amendment Bill puts a time limit on when the government can retroactively make such a request. Specifically, a reporting "request" may be made for up to five years from the date on which the relevant foreign direct investment or Specified Acquisition was consummated.19
5. Japanese-Style CFIUS
The Advisory Opinion noted the growing importance of economic security considerations and the fact that discussions within the Government regarding the creation of a "Japanese-style CFIUS" were already underway. Against that backdrop, the Advisory Opinion recommended strengthening the existing cross-ministerial review framework. This expansion would include cooperation with security-related divisions of the government, including the National Security Secretariat.20
In response, the Amendment Bill introduces a new provision requiring the Minister of Finance and other relevant minister(s) to seek the opinions of the Prime Minister, the Minister for Foreign Affairs, and the heads of other relevant administrative authorities, where they consider it necessary to do so. The requirement arises (i) when determining whether a foreign direct investment or Specified Acquisition relates to national security, and (ii) under the post-investment intervention regime, in order to determine whether the investment falls within a category subject to a report "request."21
As a result, a broader group of ministers and authorities will now be able to participate in the review of foreign direct investments and Specified Acquisitions beyond the Minister of Finance and other ministers who have historically led such reviews. Most notably, the National Security Secretariat, which operates under the jurisdiction of the Prime Minister, the Ministry of Foreign Affairs and the Ministry of Defense, which did not previously have jurisdiction over relevant business sectors, will now be able to participate.
Finally, it should be noted that, while the Amendment Bill is sometimes described as the creation of a "Japanese-style CFIUS," it does not establish a new standalone organization in the way that the U.S. CFIUS was established. The reforms instead expand participation within the existing ministerial framework similarly to other existing FDI regimes where key government stakeholders are consulted during the FDI review process.
II. Recommendations in the Advisory Opinion Not Addressed by the Amendment Bill — Addressing the Increase in Prior Notification Filings
Taking account of the increase in the number of prior notification filings, the Advisory Opinion recommends that the scope of investments and industry sectors subject to the prior notification requirement be reviewed and calibrated appropriately in accordance with the associated level of risk. Specifically, the following measures were recommended. As these are not included in the Amendment Bill, it is hoped that they will be addressed through a Cabinet Order in due course.
(1) For voting shares in favor of affiliated directors of the foreign investor, the re-appointment of the same director should not require a prior notification in the absence of any material change in circumstances.
(2) The Designated Industry category of "information and communications technology-related industries" should be limited to industries where there is a genuine need to implement cybersecurity measures.
(3) The government should conduct a review to verify whether there are any investor attributes or categories of conduct that present a low level of national security risk that are nonetheless subject to the prior notification (prior approval) requirement, and reduce regulatory burdens accordingly.
(4) The government should ensure that investments in Japanese companies holding important technologies or information are subject to the prior notification (prior approval) requirement.
1 Supplementary Provisions, Article 1 of the Amendment Bill.
2 Article 26, Paragraph 2 of FEFTA.
3 A "Specified Acquisition" refers to the acquisition of shares in or equity interests of an unlisted company from a foreign investor. Article 26, Paragraph 3 of FEFTA.
4 "Designated Industries" are the industries and business sectors that have been designated through Public Notices by the Japanese government as sensitive from a national security, public order, or public safety perspective under FEFTA. Foreign direct investment into companies operating in these industries are subject to heightened regulatory scrutiny, such as prior notification requirements.
5 Article 26, Paragraph 5 of the Amendment Bill.
6 Article 29, Paragraph 9 of the Amendment Bill.
7 Articles 27, Paragraph 1 and 28, Paragraph 1 of the Amendment Bill.
8 Articles 27-3, Paragraph 1 and 28-3, Paragraph 1 of the Amendment Bill.
9 Articles 27-3, Paragraph 2 and 28-3, Paragraph 2 of the Amendment Bill.
10 Articles 27-4, Paragraph 1 and 28-4, Paragraph 1 of the Amendment Bill.
11 Articles 27-4, Paragraph 2 and 28-4, Paragraph 2 of the Amendment Bill.
12 Article 29, Paragraph 1, Item 3 of the Amendment Bill.
13 Article 27, Paragraph 14 of FEFTA.
14 Articles 27, Paragraph 14; 27-2, Paragraph 7; 28, Paragraph 9; 28-2, Paragraph 7; 29-2, Paragraph 13; and 55-5, Paragraph 3 of the Amendment Bill.
15 Article 29-2, Paragraph 1 of the Amendment Bill.
16 Article 29-2, Paragraphs 2 and 6 of the Amendment Bill.
17 Article 29-2, Paragraph 1 of the Amendment Bill.
18 Article 29-2, Paragraph 1 of the Amendment Bill.
19 Article 29-2, Paragraph 11 of the Amendment Bill.
20 Article 69-3 of FEFTA.
21 Article 69-4 of the Amendment Bill.
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