Japan must make clear its criteria for restricting foreign direct investment if it hopes to attract capital from abroad, financial services minister Toshimitsu Motegi said Wednesday.

The Ministry of Economy, Trade and Industry got an earful from overseas investors after it ordered The Children's Investment Fund (TCI), a British hedge fund, to drop its bid to raise its 9.9 percent stake in Electric Power Development Co. to 20 percent in May.

Threats to national security, such as the TCI case, and certain businesses should be restricted, Motegi noted, but the criteria should be transparent nonetheless.

"It is confusing if (foreign companies) have to ask the umpire if it's a three-strike rule or four," said Motegi, 52, a native of Tochigi Prefecture.

FDI in Japan accounts for 2.5 percent of gross domestic product, which is far below Britain's 44.6 percent and the 33.2 percent in France.

Commenting on the U.S. subprime loan crisis, Motegi said Japanese financial institutions avoided the substantial damage suffered by banks and brokerages in the U.S. and Europe.

Motegi pointed out that Citigroup Inc. posted losses equivalent to some ¥5.85 trillion and Merrill Lynch & Co. about ¥4 trillion due to the subprime loan crisis, whereas the total loss of Japanese financial organizations was ¥850 billion.

"The condition of financial organizations, at this point in time, is stable," he said. "But we will continue to closely monitor developments."

Motegi meanwhile expressed concern over the falling outstanding balances of loans to small and midsize companies — an indication that those firms are having a tough time borrowing money from banks.

"I will dispatch FSA senior officials to regions to gather information on banks' attitudes toward lending, borrowing demand from local companies and the state of the regional economies," he said.

Deeming it no longer necessary, the FSA didn't try to extend a law that expired in March allowing the state to inject public funds to strengthen financial institutions.