Revision of Foreign Exchange Law Regarding Inward Direct Investment

◆The amendment bill of the Foreign Exchange and Foreign Trade Act (referred to below as the foreign exchange law) which strengthens inward direct investment regulations was enacted on November 22. The inward direct investment regulations require foreign investors to submit a prior notification in cases where they plan on acquiring 10% or more shares of a company listed on the stock exchange when said company is a member of a particular industry. A government examination is also required under the regulations.

◆While the amendment bill, expected to go into effect in spring next year, calls for the expansion of the range covered by regulations according to the foreign exchange law where the level of acquisition of shares of a listed company requiring submission of a prior notification would be lowered to 1% or more from the current 10% or more, the proposal at the same time calls for introduction of an exemption of portfolio investment etc. from the requirement to submit a prior notification.

◆The FAQ which was publicized by the Ministry of Finance on October 25 clarifies the standards which must be followed by investors in order to be eligible for exemption from prior notification. The ministry also announced its plan to publish a list of issues requiring prior notification. Publication of the FAQ for the most part relieves concerns that portfolio investment could be impeded by the new regulations.

◆This reconsideration of the regulations has been criticized as placing too many restraints on activist investors, and while the FAQ claims that this is not the case, it is indeed possible that situations could occur where the government refuses to give its approval to an activist investment. Further clarification of examination criteria is therefore desirable.