Increasing Interest in Inbound Investment Review 

In recent years, enhancing the effectiveness of inbound direct investment reviews based on the Foreign Exchange and Foreign Trade Act (hereinafter referred to as the “Foreign Trade Act”) has become a major policy priority in Japan from the perspective of economic security. 

 

A recent case that garnered significant attention was the 2025 review of a Tender Offer Bid (TOB) by a major Taiwanese electronic components manufacturer for a Japanese semiconductor and electronic components company. Although ultimately approved, the review period lasted seven months, sparking widespread discussion. Furthermore, in April 2026, a recommendation to suspend an acquisition plan by an Asian investment fund for a Japanese company in the machine tool industry was issued under the Foreign Trade Act. 

 

In parallel with these movements, as of late April 2026, the Diet is deliberating an amendment to the Foreign Trade Act aimed at strengthening the effectiveness of inbound investment reviews, further heightening attention both domestically and abroad. Accordingly, this article provides an overview of the basic structure of the inbound direct investment review system under the Foreign Trade Act. 

 

System Overview and Pre-notification Requirements 

The Foreign Trade Act aims to promote healthy investment while preventing the outflow of technologies related to national security. It requires foreign investors to file a pre-notification and undergo a review when making certain investments in Japanese companies. 

 

Specifically, a pre-notification must be submitted to the Minister of Finance and the minister in charge of the relevant industry when (1) a foreign investor (2) makes an investment in a company (3) engaged in a specified business sector (business sectors designated from the perspective of national security, hereinafter referred to as “specified sectors”). 

 

1. RegardingForeign Investors 

Subject parties include non-resident individuals, foreign companies, and Japanese companies or funds that receive 50% or more of their investment from such parties. Examples range widely, including individuals residing in countries other than Japan (including those with Japanese nationality), corporations or funds established abroad, and investment funds in which a foreign corporation holds a stake of 50% or more. 

 

2. RegardingSpecified Sectors 

Specified sectors are determined by “public notices.” Among these, areas of particularly high importance—such as weapons, aircraft, nuclear power, space, machine tools, semiconductors, and electric power—are classified as “core sectors.” Compared to other specified sectors, the use of the “exemption system” described below is more limited for these sectors. If the target company is engaged in even one specified sector, it is, in principle, subject to the notification requirement. 

 

3. RegardingInvestment Activities 

These include the acquisition of shares (in principle, 1% or more for listed companies, and one share or more for unlisted companies, including fractional shares), consent to the appointment of directors or auditors by a foreign investor or its related parties, and proposals or consent to the transfer or abolition of a business belonging to a specified sector. 

 

It should be noted that an exemption system for pre-notification is available if certain requirements are met. However, eligibility depends on factors such as whether the company is listed or unlisted, the attributes of the investor, and whether other detailed requirements are satisfied. Furthermore, when core sectors are involved, the application of the exemption system becomes even more restricted. 

 

Additionally, the party responsible for filing is the “foreign investor.” Therefore, when a foreign investor considers an investment in Japan, it is essential to confirm at an early stage whether they are subject to regulation. 

 

Review Process and Results 

After notification, the Minister of Finance and the relevant minister conduct a review. The review period is, in principle, within 30 days from the date of acceptance, but it can be extended up to five months if necessary. However, in practice, there are cases where the review becomes prolonged. According to reports, in the aforementioned TOB by the Taiwanese company, the authorities requested a temporary withdrawal and re-submission of the notification, resulting in a period of seven months until approval. 

 

If the results of the review show no issues, the investment can be executed. On the other hand, if there is a risk of harming national security, a recommendation for modification or suspension may be issued after consultation with a council. Orders may be issued if the recommendation is not followed. Furthermore, if such an order is violated, a divestment order for the shares or other measures may be issued. Violations of these orders may also be subject to criminal penalties. 

 

Future Trends—Amendment Bill and Direction of Regulatory Strengthening 

The amendment bill currently under deliberation in the Diet as of late April 2026 expands the scope of “foreign investors” and “investment activities” subject to prior review. Additionally, based on this amendment, there are plans to establish a “Committee on Foreign Investment in Japan (Japanese version of CFIUS),” modeled after the U.S. CFIUS (Committee on Foreign Investment in the United States), to strengthen the cross-ministerial review system (details of the amendment points are scheduled to be outlined in a separate article at a later date). 

 

The regulatory environment surrounding the Foreign Trade Act continues to evolve. For foreign investors considering investment in Japan, it has become increasingly important to continuously stay informed of the latest regulatory trends. 

 

(References) 

Ministry of Finance, “Investment by Foreign Investors – Inbound Direct Investment Review System Based on the Foreign Trade Act” (Obtained April 30, 2026, https://www.mof.go.jp/policy/international_policy/gaitame_kawase/fdi/20240913fdi_3.pdf) 

 

Ministry of Finance, “Annual Report on the Inbound Direct Investment Review System for FY2024” (Obtained April 30, 2026, https://www.mof.go.jp/policy/international_policy/gaitame_kawase/press_release/annual_report2024.pdf) 

 

Ministry of Economy, Trade and Industry, “Regarding the Inbound Direct Investment Review System (Foreign Trade Act)” (Obtained April 30, 2026, https://www.meti.go.jp/policy/anpo/toushishinsaseido.pdf)