On Jan. 7, 2026, the Council on Customs, Tariff, Foreign Exchange and Other Transactions – an advisory body to Japan’s Ministry of Finance – published a report addressing key reforms to Japan’s Foreign Exchange and Foreign Trade Act (FEFTA). Following this report, legislation titled the “Act for Partial Amendment of the Foreign Exchange and Foreign Trade Act” (the “Amendment Act”) was officially enacted by the Japanese Diet on May 29, 2026. The Amendment Act is scheduled to come into force on a date specified by Cabinet Order within one year from the date of its promulgation.
These statutory amendments come five years after the landmark 2020 FEFTA reforms and are driven by the increasing complexity of international economic security. This GT Alert describes key developments relevant to investment into Japan, including the codification of risk mitigation measures, the creation of a “Japanese-style CFIUS” inter-agency framework, and the expansion of anti-circumvention regulations.
Key Topics & Practical Implications
Prior Notification Requirements for Certain Indirect Acquisitions (Acquisitions of Foreign Parent Companies)
The Amendment Act expands the definition of “Inward Direct Investment, etc.” under FEFTA to include certain “Indirect Acquisitions.” Specifically, when a foreign investor acquires 50% or more of the voting rights of a foreign entity that directly holds shares in a Japanese company operating in a designated business (the “Direct Holder”), or enters into an agreement under which the majority of the Direct Holder’s board will consist of affiliates of the foreign investor, such transactions will become subject to regulation.
- General Foreign Investors: The prior notification requirement is expected to apply only where the Direct Holder owns 50% or more of the voting rights or equity interests in the Japanese company.
- High-Risk Foreign Investors: For sovereign wealth funds or entities legally obligated to cooperate with foreign intelligence-gathering activities, the prior notification threshold may drop significantly. A filing may be required if the Direct Holder owns as little as 1% or more of the voting rights or interests in the Japanese company, creating a strict, asymmetric regime based on investor profile.
Codification and Clarification of Risk Mitigation Measures
Under current practice, when national security concerns can be resolved through certain risk mitigation measures, investors typically withdraw an initially filed prior notification and refile an amended notification incorporating those measures. Clearance is then generally granted within five business days of refiling.
The Amendment Act formalizes and transparently codifies this mechanism (Amended Articles 27(1) and 28(1)).
- Introduction of the “Amendment Filing”: Foreign investors will be permitted to submit an “amendment filing” to modify risk mitigation measures during the statutory waiting period without withdrawing the initial notification (New Articles 27-3(1) and 28-3(1)).
- Impact on the Waiting Period: If the final day of the statutory waiting period falls before the 14th day from the acceptance of the amendment filing, the waiting period will be extended to the date marking exactly 14 days from such acceptance (New Articles 27-3(2) and 28-3(2)). This mechanism may streamline the overall process and reduce the total time to clearance compared to the traditional withdraw-and-refile approach.
- Post-Closing Non-Compliance: If a foreign investor fails to implement the agreed risk mitigation measures or breaches them, authorities will have explicit statutory authority to issue corrective orders, including mandatory disposition of acquired shares or equity interests (New Article 29 (1)).
- Post-Closing Modification & Waiver Procedures: The new framework will require a separate prior notification if an investor seeks to amend or remove agreed risk mitigation measures after closing, due to a change in circumstances (New Articles 27-4(1) and 28-4(1)). Non-compliance with these procedures will also subject the investor to share disposition orders.
Creation of a “Japanese-Style CFIUS” (Inter-Agency Consultation) Framework
While the Ministry of Finance (MOF) and the relevant competent ministry per industry (such as the Ministry of Economy, Trade and Industry) currently serve as the primary FEFTA screening authorities, the Amendment Act mandates that these ministries seek opinions from the Prime Minister (who oversees the National Security Secretariat (NSS)), the Minister for Foreign Affairs, and the heads of other relevant administrative agencies when evaluating whether a transaction triggers a modification or discontinuation order, or a post-closing call-in review (New Article 69-4).
This will formalize the legal basis for ministries traditionally outside the definition of “competent ministry” – including the NSS, the Ministry of Foreign Affairs, and the Ministry of Defense – to officially participate in the screening process. In current practice, MOF already coordinates informally with these agencies. Accordingly, this change may not result in immediate or significant procedural changes from an investor’s perspective. However, it may signal the Japanese government’s intent to conduct more rigorous and unified national security reviews. Market participants should monitor how this is implemented in practice.
Expansion of Anti-Circumvention Regulations Applicable to Non-Foreign Investors
The Amendment Act tightens the existing anti-circumvention provisions – which deem non-foreign investors acting on behalf of foreign investors to be “foreign investors” – by extending regulations to investments made by non-foreign entities (such as domestic Japanese companies or individuals) that fall within any of the following categories (Amended Articles 27(14), etc.):
i. Investments made for the account of a foreign investor (already covered under current law).
ii. Investments made pursuant to a contract, foreign law, or similar arrangements (limited to those specified by Cabinet Order).
iii. Investments made by individuals or entities holding a “special relationship” with a foreign investor, including ownership links, close economic ties, family relationships, or employment relationships (limited to those specified by Cabinet Order).
Practical Note: The report indicates that the expanded anti-circumvention categories (types ii and iii above) are intended to apply only in cases involving “High-Risk Foreign Investors.” Subordinate regulations are expected to define the applicable scope in a manner that limits the impact on compliant general foreign investors while addressing regulatory gaps associated with high-risk profiles.
Key Takeaways
Although the Amendment Act has been formally passed by the Diet, there is a grace period before its official implementation, and the new rules are not yet in effect. The legislative focus now shifts to the preparation for enforcement. Several critical practical thresholds – including the precise definition of “High-Risk Foreign Investors” and the specific types of contracts or special relationships that trigger anti-circumvention rules – have been delegated to forthcoming Cabinet Orders and Ministerial Ordinances. Therefore, understanding the full practical impact on future transactions will require close analysis of these subordinate regulations as they are drafted.
The report also outlines several non-statutory initiatives not explicitly addressed, including: the rationalization of designated businesses (e.g., narrowing the scope of cybersecurity-related IT sectors to areas of genuine national security concern), the reinforcement and expansion of post-transaction monitoring personnel, and the overhaul of the online filing system scheduled for fiscal year 2028.
Companies engaged in, or planning, cross-border M&A transactions, 対日投資 (inbound investments into Japan), or acquisitions of foreign targets with Japanese subsidiaries may wish to monitor upcoming drafts of the subordinate regulations, public comments, and any government-related guidance. Early-stage review of transaction timelines and adjustment of due diligence may help identify and mitigate regulatory risks.
