Japan is reportedly set to significantly revise its foreign investment screening regulations in 2026, with the objective of refining how potential national security threats are identified and managed.
According to a report by Reuters, this move forms a key part of the policy agenda of Japanese Prime Minister Sanae Takaichi.
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The planned amendments would represent the most substantial changes to the Foreign Exchange and Foreign Trade Act (FEFTA) since 2019.
At that time, the threshold for scrutinising share purchases in certain sectors by foreign companies was lowered from 10% to 1%.
This has led to a substantial increase in filings. Since 2020, annual submissions averaged more than 2,000, compared to around 500 in previous years, prompting calls for greater efficiency.
When the FEFTA was last amended, a provision was included that necessitated the law to be reassessed five years post-implementation.
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By GlobalDataJapan’s Vice Finance Minister, Atsushi Mimura, stated that work on the revision is now under way, with a draft bill potentially set for submission in the ordinary parliamentary session of 2026.
Details of possible changes were not provided.
At a Bloomberg-hosted event, Mimura said: “We do see some areas where we think we need to streamline… to make sure we can hit the right target in a more efficient manner.”
Last week, the Finance Ministry submitted a document to the foreign investment screening panel recommending that only IT businesses deemed critical from a cybersecurity standpoint be subject to prior review, thereby narrowing the scope of companies requiring such scrutiny.
More than 50% of all screenings are represented by the IT sector, including software services.
The ministry also highlighted certain regulatory gaps. One issue involves domestic investors that are technically exempt from review but may be influenced or controlled by “high-risk non-residents”, including overseas governments.
Another concern relates to indirect acquisitions – if a foreign investor gains shares in a Japanese company through control of another foreign company holding those shares. Such transactions currently fall outside the FEFTA’s oversight, even if earlier purchases were reviewed.
To improve coordination across government agencies, authorities are considering the creation of a body akin to the US Committee on Foreign Investment, which would unify efforts to review and respond to cross-border investments.
