Tue. Nov 30th, 2021

Regulation HK

Financial Regulator

Japan to Tighten Approval Threshold for Foreign Investment

2 min read

The stricter rules could create a significant new hurdle to investment in Japan, with foreign fund managers reportedly describing their effect as “chilling”.

Japan is reportedly planning to tighten its rules on foreign investment in industries related to national security.

The plan is aimed at bringing Japan in line with the US and Europe, where rules on foreign investment have been tightened to prevent advanced technology and confidential information from falling into the hands of foreign firms such as those in China.

According to the FT, finance ministry officials say the government intends to lower the threshold for approval to hold a stake in strategic sectors from the current 10 percent to as low as 1 percent.

The move, if approved, would force many institutional investors to seek approval whenever they invest in listed companies involved in aviation, arms-making, aerospace, power, gas, telecommunications, broadcasting, railway, chipmaking and software.

Under the plan, foreign investors who already own 1 percent or more in specified companies would not be subject to additional screening, but they would be required to report to the government if they wish to further increase their stakes, according to Nikkei Asian Review.

Another measure reportedly being considered is to subject board nominations in sensitive industries to government review. This could affect the ability of foreign investors to nominate new board members at shareholder meetings.

The new rules could create a significant new hurdle to investment in Japan, with hedge funds and long-only pension funds describing their effect as “chilling”, the FT reports.

Japan has notably been promoting foreign investment in Japan through the introduction of a governance code and stewardship codes – initiatives which have been perceived as major driving factors behind the rise in the country’s financial markets since 2012.

The new rules are still be subject to public consultation and parliamentary debate, which will likely see criticism from foreign funds and local institutions alike.

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