On March 17, 2026, the bill for Japan’s proposed overhaul of the Foreign Exchange and Foreign Trade Act (FEFTA) was submitted to the Diet (the "Bill").

The Bill introduces a US CFIUS¹-like investment screening committee, co-chaired by the Ministry of Finance (MOF) and the National Security Secretariat (NSS), to strengthen the review, monitoring and enforcement of inward direct investment in Japan. The committee is expected to begin operations by July 2026.

The Bill sets out countermeasures addressing 5 of the 6 issues raised by the MOF’s council in January 2026 (see figure below), excluding issue (i).

The key reforms in the Bill include the regulation of indirect acquisitions, statutory codification of risk mitigation measures, implementation of post-incident response systems for non-designated business sectors with a 5-year retroactive period, and a planned electronic filing system by fiscal year 2028. The Bill is expected to pass by mid-2026 and the establishment of the Japanese version of the CFIUS is expected to begin immediately, while the remaining provisions are expected to take effect by the summer of 2027. Furthermore, the subordinate legislation has yet to be finalized.

These amendments not only clarify provisions that were previously unclear under the FEFTA, but also make Japan’s current system comparable with those of other countries and take into consideration changes that are needed to bring it in line with global standards, especially for indirect acquisition regulations.

In parallel with such legislative reforms, the government is intensifying enforcement against investments that threaten Japan’s national security. On April 23, 2026, Finance Minister Satsuki Katayama announced that the MOF’s council had recommended that MBK Partners, an Asian investment fund, suspend its plan to acquire Makino Milling Machine Co., Ltd. ("Makino")².³ She further stated that the MOF’s council had made this recommendation based on the fact that the plan contemplated making Makino a wholly-owned subsidiary of MBK Partners, particularly in light of the fact that Makino’s products are widely used by manufacturers of defense equipment in Japan. This is only the second time that such a recommendation under the FEFTA has been made, and the first since the 2017 amendments to the FEFTA. On April 30, 2026, Makino announced that its board had decided not to accept MBK Partners’ investment having regard to the MOF’s council’s recommendation.

Given the content of the Bill and the recommendation regarding Makino, it is anticipated that the screening process for inward direct investment will become stricter, similar to that in the US and other countries. It is therefore important for us to keep a close eye on future developments.

¹ The Committee on Foreign Investment in the United States.

² Makino is one of the world’s leading manufacturers of machine tools which are widely used by manufacturers of defense equipment in Japan.

³ https://www.mof.go.jp/public_relations/conference/my20260423.html (in Japanese)