Japan to tighten investment pre-screening amid security concerns
Overseas investors have to notify the Japanese government for pre-approval, before they can invest in 1% or more of Japanese firms’ listed shares
JAPAN plans to strengthen pre-screening measures for overseas investors that could potentially cooperate with foreign intelligence gathering efforts, addressing rising national security concerns.
The Finance Ministry will introduce new regulations requiring relevant overseas investors to notify the Japanese government for pre-approval, before they can invest in 1 per cent or more of Japanese firms’ listed shares. Currently, investors meeting specific criteria and considered low-risk are exempt from these requirements.
While the updated regulations will impose an additional step for a broader range of investors, those who pass the screening can still invest in Japanese companies.
There has only been one case in the past where the Foreign Exchange and Foreign Trade Act had prevented foreign investment, according to the Finance Ministry. In 2008, concerns over power supply and nuclear energy led Japan to block the London-based Children’s Investment Fund from buying shares in Electric Power Development known as J-Power.
Still, the creeping up of pre-approval measures reflects worries within the Japanese government over national security.
Japan’s ruling Liberal Democratic Party said last year that high-risk foreign investments, as identified based on investor profiles and the nature of the targeted Japanese business, should face tighter restrictions on exemptions from pre-screening. The new rules are expected to take effect this spring, after a period of public consultation.
In 2021, a 3.65 per cent investment into Rakuten Group by a subsidiary of Chinese internet giant Tencent Holdings raised concerns within part of the government. Former Economic Security Minister Sanae Takaichi called for a tightening of regulations in a blog at the time, while citing concerns over Tencent.
While the Tencent subsidiary’s investment into Rakuten wasn’t subject to pre-approval in 2021, the latest change will likely mean similar cases now will require sign-off from the Japanese government.
In 2017, China implemented its National Intelligence Law, which requires individuals and organisations to cooperate with the state’s intelligence activities, regardless of where they are based – that development has raised concerns within the Japanese government. BLOOMBERG
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