Increased Screening of Inward Direct Investment into Japan: New Rules Seek to Bolster National Security

I. Introduction
In May 2017, an amendment to the Foreign Exchange and Foreign Trade Act (the ‘Revised Act’) was enacted. Amid growing concerns in Japan over the outflow to overseas countries of Japanese technologies and goods that may potentially harm Japan’s national security, the Revised Act makes two changes to the regulations concerning inward direct investment into Japan with the objective of protecting Japan’s national security.

First, the Revised Act bolsters the inward direct investment screening regime by adding a requirement that a transfer of shares between foreign investors in non-listed Japanese companies in certain business sectors requires the submission of a prior notification subsequent to which the government shall screen the proposed investment to ascertain whether it is highly likely to harm national security. Secondly, the Revised Act introduces new administrative measures that can be imposed on a foreign investor who has made an illegal inward direct investment.

The relevant government orders and public notices set out the detail of the Revised Act as well as set the effective date of the Revised Act as October 1, 2017.

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