TOKYO -- Japan's cabinet has signed off on tougher controls on investments in companies involved in strategically sensitive industries, aiming to prevent leaks of advanced technology but rankling international investors in the process.
The government approved draft revisions to the foreign exchange law at a cabinet meeting on Friday. The proposal is to be submitted to the Diet before the current session ends in December, and could come into force by the end of the fiscal year through March 2021.
Under the new rules, overseas investors would need approval from regulators to buy stakes of 1% or more in Japanese companies in certain sectors, including semiconductors and nuclear power. Currently, the screening requirement is set at 10%.
Foreign investors would also be required to seek prior approval from regulators when they appoint directors or propose selling important operations of the Japanese companies they invest in.
The government wants greater power to block deals that could threaten Japan's national security, at a time when the U.S. and Europe are also increasingly worried about technology leaks -- especially to China.
But the Shinzo Abe government's move has raised concerns in the market that day-to-day transactions will be affected.
To dispel those worries, the plan includes some exceptions. Asset management companies, including hedge funds, will be exempted from the tighter regulations on the condition that they will not be involved in management.
Foreign brokerages and other market players will not have to seek approval when they engage in block trades aimed at giving liquidity to the market. Obligations to report afterward, when acquiring 1% or more, will also be relaxed.
The government, though, will be able to demand changes or halt stock purchases if they are deemed problematic.
After the bill is passed, the government says it will hear the opinions of market players and clear up any details through ministerial ordinances.
