Japan to Overhaul Foreign Investment Screening to Strengthen National Security and Boost Efficiency

Japan is preparing a significant revision of its Foreign Exchange and Foreign Trade Act (FEFTA) next year to streamline foreign investment screenings and enhance national security measures. The move, a central initiative under Prime Minister Sanae Takaichi’s economic policy, aims to modernize the review system and make risk assessments more targeted and efficient.

The planned update will be the first major reform since 2019, when the government lowered the threshold for prior review of foreign investments in designated sectors from 10% to 1%. That change caused a surge in filings, with annual submissions jumping from around 500 to over 2,000 since 2020. The current amendment process fulfills a clause in the 2020 FEFTA revision that mandated a five-year policy review.

Vice Finance Minister for International Affairs Atsushi Mimura stated at a Bloomberg event that the government seeks to “streamline and focus” its screening process. While details remain under discussion, a draft bill is expected to be submitted during next year’s ordinary parliamentary session.

The Finance Ministry recently proposed narrowing the scope of IT businesses subject to screening, limiting reviews to companies deemed critical for cybersecurity. Currently, IT and software firms make up more than half of all filings. The ministry also highlighted loopholes in the existing framework—particularly cases where domestic investors are influenced by high-risk foreign entities or where indirect acquisitions occur through control of foreign companies holding Japanese assets.

To bolster oversight, Japan is considering forming a body similar to the U.S. Committee on Foreign Investment (CFIUS). The proposed committee would unify efforts among ministries and agencies, improving coordination in monitoring foreign investments and protecting Japan’s strategic industries.