• Reuters, Kyodo


Japan is finalizing a plan that will tighten scrutiny of foreign investment in 12 key sectors, four government sources with knowledge of the matter have said.

The sectors would include industries like defense, nuclear power, aerospace, utilities, gas, cyber security and telecommunications, two of the sources said.

Under the plan, foreign investors purchasing a stake of 1 percent or more in certain companies in Japan will be subject to prescreening, against 10 percent now.

About 400 to 500 listed Japanese firms will fall under the revised criteria. The government plans to publish a list of the firms in April, one of the sources said.

The Diet passed a bill in November to tighten regulations on foreign investments in listed companies in the nation related to national security, in a move that reflects concern China could gain access to key confidential technology.

The amended law will require foreign stakeholders to give advance notice if they will influence management through measures such as dispatching board members or selling core businesses.

If an investment is made without observing the rules, the government will be able to order a suspension or order divestment of the shares.

Finance Minister Taro Aso said Friday that the law revision — which is expected to take effect in May before mid-year shareholders meetings — was aimed at boosting direct investment in Japan and responding to concerns about national security.

“As a result, it should encourage Japan-bound investment rather than discouraging it,” Aso told reporters after a Cabinet meeting.

The move followed similar steps taken by the United States and Europe in recent years to allow greater scrutiny of ownership in industries deemed as critical to national security.

As part of the government’s efforts to avoid deterring direct investments in Japan with the tighter rules, the amended law will exempt foreign investors from prior notification if they plan to buy stocks solely for asset management purposes.

Market participants have expressed concern that the criteria for exemption from prior notification remain obscure, and that the tighter rules could prompt capital flight from Japan.

They have also criticized a lack of clarity on how the new rules would be implemented, and on which investments would be subject to exemptions.

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