6 minute read | July.01.2026
On May 29, 2026, the Japanese Diet passed amendments to the Foreign Exchange and Foreign Trade Act (“FEFTA”), significantly expanding Japan's foreign direct investment screening framework.
The amendments implement recommendations issued by the Council on Customs, Tariff, Foreign Exchange and Other Transactions in January 2026 (“Recommendations”) and represent the most significant expansion of Japan's investment screening regime since the 2020 reforms.
The amendments to the FEFTA introduce:
The reforms are likely to have the greatest impact on: (a) cross-border M&A transactions involving multinational groups with Japanese operations in designated sectors and (b) sovereign wealth funds, state linked investors and investors from jurisdictions receiving heightened regulatory scrutiny.
Going forward, transaction planning and due diligence on any target group entity which holds interests in Japanese companies should include deeper FEFTA analysis including evaluating whether indirect acquisition rules may be triggered and allocating FEFTA-related regulatory risk in transaction documents.
Most provisions will become effective on a date to be specified by Cabinet Order within one year of promulgation, while the new interagency review framework will become effective upon promulgation, i.e., June 5, 2026.
The most consequential aspect of the reform is the introduction of a new indirect acquisition regime.
Historically, FEFTA focused on direct acquisitions of shares, voting rights, businesses, or other interests in Japanese companies. Acquisitions of foreign holding companies that owned Japanese subsidiaries generally fell outside the scope of FEFTA.
The amendments significantly change this approach.
Under the new regime, certain acquisitions of voting rights in foreign entities that hold interests in Japanese companies may constitute “Inward Direct Investment” requiring prior notification and review.
As currently drafted, notification may be required where an investor acquires 50% or more of the voting rights of a foreign entity that directly or indirectly holds interests in Japanese companies engaged in designated business sectors.
The precise scope of the regime remains subject to future Cabinet Orders and regulations. In particular, important questions remain regarding:
For multinational M&A transactions, Japanese investment screening will now need to be considered even when no Japanese entity is being directly acquired.
The amendments formally incorporate mitigation measures into the statutory framework.
In practice, Japanese authorities have long resolved national security concerns through negotiated commitments, including:
Previously, these measures existed largely as an administrative practice.
The amendments now establish a statutory framework under which:
This reform increases transparency and legal certainty while also creating continuing compliance obligations for investors.
The amendments broaden FEFTA's deeming provisions intended to prevent circumvention.
The new rules extend beyond investments made “for the account of” a foreign investor and may also capture certain investments undertaken:
The exact scope of these provisions will depend heavily on implementing regulations.
The legislative materials suggest that these provisions are primarily intended to target investors regarded as presenting heightened national security risks.
Perhaps the most novel feature of the amendments is the creation of a post-closing intervention regime.
Under current FEFTA, investments falling outside the prior notification regime generally face only post-closing reporting obligations.
The amendments allow Japanese authorities to investigate and potentially impose remedial measures in relation to certain investments that were not subject to prior notification.
The legislative materials indicate that this mechanism is intended principally for investments involving higher risk foreign investors and is expected to be narrowly tailored through implementing regulations.
Nevertheless, the reform introduces an additional layer of regulatory uncertainty because certain transactions may remain subject to government scrutiny after closing.
The amendments establish a statutory framework for interagency consultation during investment reviews.
In addition to the Ministry of Finance and competent ministries, authorities such as:
may formally participate in the review process.
While Japanese authorities have historically consulted across ministries in practice, the amendments formally institutionalize this process and align Japan more closely with the committee-based review models seen in jurisdictions such as the United States.
Many of the most important aspects of the reform have been delegated to future Cabinet Orders and ministerial regulations.
Key issues that remain unresolved include:
Accordingly, the forthcoming implementing regulations are likely to be at least as important as the statutory amendments themselves. Further, such implementing regulations are expected to address other matters addressed in the Recommendations but not reflected in these amendments to FEFTA, including narrowing the scope of designated areas in Information and Communication Technology sectors, to which most venture investments to Japanese start-up companies by non-Japanese investors are currently subject.
We will continue to monitor developments and provide updates as the implementing regulations and government guidance become available.