JAPAN Law and Practice Contributed by: Makoto Terazaki, Taku Matsumoto, Suguru Yokoi, Naoko Takasaki and Jun Suzuki, Anderson Mori & Tomotsune
6.2 Transactions Subject to FDI Screening Under the FEFTA, FDI screening applies to: (i) inward direct investments by foreign investors in domestic entities; and (ii) specified acquisitions. Inward direct investments include share or business acquisitions and the establishment of joint ventures and sub- sidiaries. Specified acquisitions are shares or other equity interests in domestic entities acquired from other foreign investors, including in unlisted compa - nies. Listed companies are caught in principle from 1% of shares or voting rights; unlisted companies are caught regardless of the percentage acquired. Pure licence agreements are not caught. There is no mon - etary threshold. That said, foreign investors satisfying certain condi - tions may benefit from an exemption from prior noti - fication, provided that they refrain from appointing directors or statutory auditors, proposing the divest - ment of functions or assets of the designated busi - ness, and accessing non-public information relating to the target’s technology. In core sectors, further restrictions apply, including restrictions on attending board or committee meetings and making written rec - ommendations. 6.3 Mandatory vs Voluntary Notification If a transaction falls within the relevant scope, prior notification is mandatory, and there are no exceptions based on turnover, asset size or transaction value. There is no optional notification regime as such, but investors may seek formal confirmation of whether a filing is required through the Bank of Japan and may also consult the competent authorities in practice. If a notifiable transaction is implemented without prior notification, the authorities may order the return of the acquired shares or other necessary measures, and may also impose criminal penalties. If the omis - sion is identified after the transaction, the investor is expected to submit the notification that should origi - nally have been filed, together with a case investi - gation form, and to obtain clearance, even after the transaction. 6.4 Review Process and Timetable Notifications are filed with the MOF and the compe - tent minister through the Bank of Japan. As a gen -
tions, and companies holding such technologies are subject to FDI screening. Important national security matters in Japan are delib - erated by the National Security Council (the NSC; chaired by the Prime Minister and comprise the Chief Cabinet Secretary, the Minister for Foreign Affairs, the Minister of Defense, and others). The National Secu - rity Secretariat (NSS), which serves as the NSC’s secretariat, co-ordinates important matters relating to Japan’s national security among the relevant min - istries and agencies. 6. M&A, Joint Ventures and Foreign Direct Investment in the Defence Sector 6.1 FDI Screening Legislation and Regulatory Framework Japan’s foreign direct investment (FDI) screen - ing regime is principally governed by the Foreign Exchange and Foreign Trade Act (FEFTA). Screening is conducted by the Ministry of Finance (MOF) and the minister having jurisdiction over the relevant business. The FEFTA is designed to permit foreign investment in principle while allowing pre-screening of investments that may raise national defence or security concerns. There is no standalone statute that directly targets the defence sector as such. In sectors related to defence, typical defence indus - tries such as weapons manufacturing, related equip - ment manufacturing and defence-related industries are overseen by the MOD, while related businesses such as aircraft manufacturing, space exploration, dual-use items and cybersecurity are supervised, depending on the business line, by the MOD, the Ministry of Economy, Trade and Industry (METI) and other relevant ministries, separately or jointly. Many of these businesses fall within the scope of the des - ignated core sectors under the FEFTA, which are designated for highly sensitive businesses subject to more exacting review, and the conditions for exemp - tion from prior notification are correspondingly stricter.
129 DEFENCE CONTRACTS 2026
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