Japan moves to tighten foreign investment rules

New rules target sensitive industries . . .

The Japanese cabinet approved revisions today to the foreign exchange law that will see tighter controls on foreign investment in companies operating in strategically sensitive industries. Regulators currently need to approve deals where the investor is buying 10% or more of companies in sensitive sectors. The new rules would see that threshold lowered to one per cent. There would also be stricter monitoring of foreign investors’ influence on company governance, including the appointment of directors. If approved by the Diet in December, the revisions could come into force by March 2020.

Part of a larger trend . . .

Japan’s decision to crack down on investments into strategically sensitive industries follows trends in the U.S. and the E. U. and are consistent with broader moves to protect national security at a time of economic slowdown and the U.S.-China trade war. The sectors to be covered by the revisions may expand as the definition of national security for economic purposes changes.

Bottom line for Canada . . .

According to APF Canada’s Investment Monitor, there have been no Canadian investments into Japan since the CPTPP came into force in late 2018. The new Japanese rules may impact how Canada promotes engagement with Japan as part its efforts to improve economic ties under the CPTPP, including in sectors such as aircraft, nuclear energy, oil, agriculture, forestry, fisheries, shipping, and transportation.

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