This article was written as of November 2025.

On October 31, 2025, the Subcommittee on Foreign Exchange and Foreign Trade, an advisory board to the Minister of Finance of Japan, convened to review the inbound direct investment screening system. Under a supplementary provision in the Foreign Exchange and Foreign Trade Act (FEFTA), it is stipulated that a review of the FEFTA must be made every five years following its implementation. The issues identified in this agenda are likely to prompt amendments to the FEFTA in the Diet.

The Subcommittee handout¹ identifies the following five primary issues to resolve:

¹ https://www.mof.go.jp/about_mof/councils/customs_foreign_exchange/sub-foreign_exchange/20251031-4.pdf (In Japanese)

1. Increase in the Number of Prior Notifications

Due to a major revision of the FEFTA in 2019, the number of prior notifications has increased approximately fivefold compared to the previous year (2,903 in FY 2024), creating a significant administrative burden for both investors and the authority.

According to the handout, countermeasures such as "exempting director reappointments from prior notification when no material change is involved," and "narrowing the scope of ICT-related industries to those deemed necessary from a cybersecurity standpoint" are being considered.

2. Unclear Positioning of Risk Mitigation Measures

The relevant ministries have, as a practical operational measure, requested that investors comply with the stipulated requirements in the prior notification form as a condition for clearance. However, imposing obligations on investors without an explicit statutory basis raises significant due-process concerns.

3. Insufficient Regulation of Indirect Investments

The current system in Japan regulates only cross-border transactions. Consequently, unlike the United States and the United Kingdom, which also regulate indirect investments occurring outside their jurisdictions, Japan’s system does not adequately address situations in which an ultimate shareholder changes without any transfer of shares in the Japanese company itself.

4. Existence of Particularly High-Risk Investors

Under current law and practice, only investors abroad are subject to the FEFTA’s regulations and domestic investors are, in general, outside of its regulatory scope except for some limited circumstances (such as subsidiaries of foreign corporations in Japan²). However, even some domestic investors falling outside this scope may pose national security concerns.

² Article 26, Paragraph 1, Items 3 through 5 of the FEFTA. See also Article 27, Paragraph 14 of the FEFTA.

5. Need to Strengthen Enforcement Mechanisms

Japan faces continuing challenges in post-transaction interventions such as monitoring and enforcement. Since the 2008 suspension order, no publicly disclosed enforcement cases, including corrective orders³ introduced by the 2017 amendment, have been implemented.

Against the backdrop of a global trend toward strengthening economic security, such as increased enforcement by the Committee on Foreign Investment in the United States (CFIUS), Prime Minister Sanae Takaichi has advocated since her candidacy for establishing a Japanese analogue to CFIUS. Since taking office, her administration has announced priority public-private investments in 17 strategic sectors, including AI, semiconductors, and cybersecurity. Further developments in Japan’s investment screening regime are expected, and continued close monitoring will be essential.

Also, Mr. Atsushi Mimura, Vice Finance Minister for International Affairs, told the press that work on the revision has just begun and that a draft bill could be submitted to the Diet during the ordinary parliamentary session in 2026, which is from January to July. Even if the Diet passes the bill, it will still take between 6 months and 2 years to enforce the updated law through Japan’s normal legislative process.

³ Article 29 of the FEFTA