[News Commentary] Will regulations on foreign investment and acquisitions of Japanese companies become stricter? - Towards the creation of a Japanese version of CFIUS

The following article appeared in today's Nikkei newspaper, and I will provide a brief commentary on the key points.

Strengthening prior screening for investment in Japan: Towards the creation of a 'Japanese version of CFIUS' to prevent the leakage of technology and information - Nikkei

Japanese version of CFIUS

CFIUS stands for the Committee on Foreign Investment in the United States. It is a U.S. committee that reviews investments or acquisitions of U.S. companies by foreign firms and has the authority to block such investments or acquisitions in certain cases.

According to this report, Japan is also moving in the direction of strengthening regulations on investment in Japan, similar to CFIUS.

In other words, the government is considering creating a consultative body with strong authority to review and, in some cases, block investments made by foreign investors or companies for the purpose of influencing the management of Japanese companies.

Japan already has foreign investment regulations! But...

There are already foreign investment regulations for investments in Japan.

These regulations underwent a major revision around 2021, establishing industry classifications such as 'core industries,' and requiring prior notification to the government when foreign investors acquire 1% or more of shares in companies within these core industries for purposes other than pure investment.

At the time, there were concerns that this would dampen the appetite of foreign investors for Japanese stocks, and it was covered extensively in a series of articles in the Nikkei. Personally, I was at a point where my employer was considering the renewal of takeover defense measures, and I studied these suddenly topical foreign investment regulations quite thoroughly, exchanging opinions several times with lawyers from a major law firm and coordinating with top management.

These Japanese foreign investment regulations have issues. The major points are as follows:

◆ The effect is weak. Stock acquisitions made in defiance of notification requirements remain valid.
◆ The number of companies subject to core industry regulations is abnormally high.

The number of companies subject to core industry regulations now exceeds 800. With so many, the government cannot possibly check them all. Furthermore, another lackluster point of Japan's foreign investment regulations is that it cannot nullify the effects if shares are acquired on the market without permission. While there are penalties for foreign investors who violate the rules, the punishments are not very strict.

In this respect, Japan's foreign investment regulations are said to be 'weak' compared to those of the U.S. and other countries.

As the activities of overseas activists and acquisitions of Japanese companies by foreign firms are increasing, I believe the interest of Japanese companies and foreign investors in this Japanese version of CFIUS will rise again, just as it did back then.

I will post an article if there are any further developments.