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Japan passes bill to tighten foreign investment rules for security

Japan's parliament passes a bill on Nov. 22, 2019 to tighten regulations on foreign investments in Japanese companies related to national security. (Kyodo)

TOKYO (Kyodo) -- Japan's parliament passed a bill Friday to tighten regulations on foreign investments in Japanese companies related to national security, including arms production and nuclear energy, following similar steps implemented in Europe and the United States.

    The revised foreign exchange and foreign trade law will require overseas investors to seek prior notification before obtaining a 1 percent or higher stake in a listed Japanese firm, lowering the threshold from the current 10 percent. The amended law is expected to take effect next spring.

    The move is in step with measures by Europe and the United States to beef up investment controls amid growing concerns about possible leaks of sensitive information and critical technologies to other countries, such as China.

    But as part of the government's efforts not to deter direct investments in the country with the tighter rules, the amended law will exempt foreign investors from prior notification if they plan to buy stocks solely for asset management purposes.

    Industries requiring prior notification by foreign investors also cover utility, broadcasting and telecommunications.

    The amended law will require foreign stakeholders to give advance notice if they are to influence management through measures such as dispatching board members and selling core businesses.

    Market participants have expressed concern that the criteria for exemption from prior notification remain obscure and that the tighter rules could prompt capital flight from Japan.

    To alleviate such worries, the government plans to specify detailed rules and present by early April a list of Japanese listed companies requiring prior notification by foreign investors.

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