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2026 Japan FEFTA Amendment: Indirect Acquisition & FDI Review Reform

Mar 16, 2026UP!

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At the Ministry of Finance’s “Customs and Foreign Exchange Council” (Subcommittee on Foreign Exchange and Foreign Trade), full‑fledged discussions have begun on the next round of amendments to the Foreign Exchange and Foreign Trade Act (FEFTA).

With the number of prior notifications reaching around 2,900 in FY2024, the government now faces two key challenges: “streamlining the review process” and “closing loopholes.”

This article explains the expected direction of the FEFTA amendments that may be implemented in 2026, based on materials published by the Ministry of Finance on 31 October 2025, and highlights six practical issues that in‑house legal teams should keep in mind.

 

1. Overview of the amendments: from blanket “tightening” to a more targeted, risk‑based approach

Key takeaway: the overarching keyword of the amendment is a “risk‑based” approach. The system is expected to shift towards reducing unnecessary filings (rationalization) while capturing investments that pose genuinely high risks, such as indirect acquisitions and investments from certain countries.

 

Against the backdrop of rising geopolitical tensions, G7 countries have been reinforcing their foreign investment screening regimes. In Japan as well, it is now urgent to ensure “predictability” so that the system can respond to changes in the security environment without discouraging sound investments.

The Ministry of Finance’s policy direction can be summarized in the following three points.

1. Streamlining the review process: To curb the rapid increase in notifications, low‑risk cases such as the reappointment of directors will be streamlined.
2. Expanding the scope of coverage: Loopholes under the current framework—such as changes in the ultimate parent company after the initial investment—will be addressed.
3. Clarifying procedures: Practical arrangements such as security‑related mitigation measures will be clearly reflected at the level of laws, regulations, and forms.

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2. Issue 1: “Rationalization” and “prioritization” of prior notification

Key takeaway: as the annual number of prior notifications approaches 3,000, “formalistic” notifications, such as those for director reappointments, are likely to be abolished.

 

Background to the recent surge in notifications

The number of prior notifications in FY2024 reached 2,903, about five times more than in FY2018. The breakdown of the figures highlights two main drivers.

• Notifications related to shareholder actions: 1,058 cases, with consent to the appointment of directors accounting for a large portion.
• Investments in information and communication technology (ICT): 2,072 cases (cumulative), representing more than half of all filings.

Likely directions of the amendments

The Ministry of Finance is considering a more differentiated approach that better reflects the risk profile of each case.

💡 Main targets for rationalization

• Exemption for director reappointments: A strong candidate for reform is to waive notifications where the same individual is reappointed as director and there are no material changes in circumstances.
• Further scoping of the ICT sector: From a cybersecurity perspective, the authorities will reassess whether the current coverage correctly focuses on areas that truly require screening.

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3. Issue 2: Codifying “mitigation measures”

 

Key takeaway: the conditions for clearing the screening process (mitigation measures) will likely be incorporated into the official notification forms, and the procedures for post‑closing changes will also be formalized.

Current practical challenges

In practice, foreign investors sometimes voluntarily offer mitigation measures—for example, a commitment to “no involvement in management”—to address national security concerns. However, such measures are currently handled only as a matter of administrative practice, which raises the following issues.

• The measures are often described in the free‑form “manner of involvement in management” section of the notification form, so their legal status is unclear.
• There are no formal rules on the process to follow if circumstances change after closing (including breaches of the commitments).

Likely directions of the amendments

• Revision of notification forms: A dedicated section for mitigation measures is expected to be added to the prior notification forms.
• Establishing change procedures: The authorities are likely to clarify how to notify changes to mitigation measures after closing and how these changes link to remedial orders (such as share divestment) in the event of violations.

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4. Issue 3: Capturing post‑closing “indirect acquisitions”

 

Key takeaway: situations in which an investor is acquired and its “ultimate parent” changes are highly likely to become subject to screening.

 

The major loophole

Under the current framework, if a foreign investor (Company A) that has already passed screening later becomes the target of an acquisition by another foreign investor (Company C), this change in the “effective controller” of the Japanese company is not subject to prior notification or review.

⚠️ Image of an indirect acquisition

1. Foreign investor A acquires shares in Japanese company B (screening cleared).
2. Foreign investor C later acquires A.
3. As a result, C indirectly controls B, but this is currently not captured under FEFTA.

Likely directions of the amendments

In line with the practice in other major jurisdictions, “indirect acquisitions of shares” of this kind are expected to be brought within the scope of the prior notification and review system. In M&A practice, it will therefore become even more critical to manage changes in the “ultimate beneficial owner (UBO)” behind the buyer.

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5. Issue 4: Enhanced scrutiny of high‑risk investors

 

Key takeaway: following the May 2025 amendments to cabinet and ministerial ordinances, investors under the influence of foreign governments will face even more stringent oversight.

 

Who are “specified foreign investors”?

From May 2025, foreign investors that are under an obligation to provide information or otherwise cooperate with foreign governments are defined as “specified foreign investors”, and their access to blanket exemption schemes is restricted.

Likely directions of the amendments

The forthcoming amendments are expected to further strengthen these rules, with the following measures under consideration.

• Anti‑circumvention measures: Addressing attempts to evade regulations through dummy companies or other structures.
• Regulation of domestic investors in substance: Considering responses where “domestic” investors—currently outside the scope of FEFTA screening—are in fact under the substantial influence or control of foreign governments.

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6. Issue 5: Ex post intervention in non‑designated sectors

 

Key takeaway: even in non‑designated sectors that are currently outside the scope of prior notification, the government’s ability to intervene ex post is expected to be strengthened where risks materialize.

 

Limitations of the current framework

For sectors that are not designated as sensitive, investments are only subject to an ex post report when the shareholding ratio reaches 10% or more. However, there are limited tools to address situations in which a high‑risk investor acquires stakes in a non‑designated sector and national security concerns later come to light.

Likely directions of the amendments

• Extending the scope of corrective orders: The legal basis for ordering remedial measures (such as divestment of shares) is likely to be clarified so that such orders can also be issued in ex post report cases where national security is at risk.

 

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7. Practical implications and recommended actions

 

Looking ahead to the anticipated 2026 amendments, in‑house legal teams should start preparing along the following lines.

1. Strengthening KYC and investor profiling: Enhance processes to identify the “ultimate parent” behind investors and assess any connections to foreign governments.
2. Revisiting contractual provisions: In investment agreements, consider including obligations to provide advance notice of changes in the investor’s shareholding structure, coupled with termination or adjustment clauses.
3. Managing mitigation measures: Build internal systems to monitor and ensure ongoing compliance with any commitments made to the authorities, such as “no involvement in management.”

The Ministry of Finance is also working to reinforce its enforcement capacity through closer coordination with other Japanese ministries and with foreign authorities. Companies are therefore expected not only to maintain formal compliance, but also to proactively assess and manage substantive national security risks.

Reference: designated sectors and treatment of foreign investors

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