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Japan tightens rules on foreign investment in listed firms

  • June 8, 2020
  • , Jiji Press , 6:55 a.m.
  • English Press

Tokyo, June 8 (Jiji Press)–The government tightened its regulations on foreign investment in listed Japanese companies on Sunday in order to prevent the country’s national security from being jeopardized due to potential leaks of domestic technologies abroad.


Foreigners acquiring a stake of 1 pct or more in any of 2,111 listed firms engaged in such operations as weapons and aircraft production, and nuclear business are required to notify the Japanese government of the investment plans in advance.

Previously, the prior notification rules were applied to purchases of a stake of 10 pct or more in national security-related companies.

Among other advanced countries, the United States, Germany and Britain have already strengthened regulations on foreign investment in domestic firms.

The tougher regulations in Japan are spelled out in the country’s revised foreign exchange law, which was enacted in November last year. The 2,111 firms covered by the new rules account for about 40 pct of the some 3,800 listed Japanese firms.

The government will request or order foreigners planning to buy a 1 pct or more stake in any of the designated companies to change or cancel the plans if it judges that the investments could threaten to negatively affect Japan’s national security.

The prior reporting requirement will not apply if certain conditions are met, however, as the government took into account concerns that the stricter rules may help foreign investors, who account for about 70 pct of trading value on the Tokyo Stock Exchange’s first section, shy away from Japanese equities.

The conditions are rigorous for 558 “core” companies, including Mitsubishi Heavy Industries Ltd. <7011>, Toyota Motor Corp. <7203> and Tokyo Electric Power Company Holdings Inc. <9501>, which are all listed on the TSE first section, and relatively mild for the remaining 1,553 firms.

Amid the ongoing novel coronavirus crisis, the government plans to add some related companies to the list of core companies. They may include manufacturers of respirators and other medical equipment, and makers of infectious disease drugs.

Some see the standards for selecting the core companies as unclear, with food ordering and delivery service firm Demae-Can Co. <2484> and public bath operator Gokurakuyu Holdings Co. <2340>, which are not believed to be related to national security, counted among the core firms while Mitsubishi UFJ Financial Group Inc. <8306>, one of Japan’s top three banking groups, not on the core company list.

Demae-Can and Gokurakuyu are listed on the TSE’s Jasdaq market, mainly for startups. Mitsubishi UFJ is trading on the TSE first section.

An official of the Finance Ministry, which came up with the list, said that it selected the core firms based on the results of questionnaires sent to companies and their articles of incorporation and securities reports. Still, specific reasons for the choices are unclear.

It is difficult to know the factors that were used to divide the designated companies into the two groups, and that could make foreigners refrain from investing in Japanese companies, Fumio Matsumoto, chief strategist at Okasan Securities Co., said.

The mechanism needs to be a little more transparent, he added.

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