Japan to Tighten Foreign Investment Reporting Requirements

By Makiko Yamazaki

TOKYO (Reuters) – Japan’s finance ministry plans to close a loophole in reporting requirements for foreign investors under the Foreign Exchange and Foreign Trade Act to prevent intelligence leaks to foreign governments.

This move comes amid global efforts to strengthen control over economic supply chains after various disruptions, including U.S.-China trade tensions.

The proposed change, discussed at a finance ministry panel on Thursday, will require prior notifications from foreign investors that may cooperate with foreign governments in intelligence collection. This requirement will apply when such a company seeks to acquire 1% or more of firms considered critical to Japan’s national security.

Although the panel did not specify any country, the plan is likely aimed at Chinese companies, which are compelled to support national intelligence work under Beijing’s 2017 national intelligence law.

Currently, prior notifications for government review are not needed for general investors if the stake acquired is less than 10% and there are no intentions to get involved in management.

This regulatory change could prevent incidents like Tencent Holdings’ 3.65% acquisition of Japanese e-commerce firm Rakuten Group in 2021, which didn’t require prior notifications.

Last year, Japan’s ruling Liberal Democratic Party (LDP) called for changes to the exemption criteria to enhance scrutiny of foreign investments in designated industries.

The revised regulations may be implemented in the first half of this year following public consultation.