Japan’s Foreign Exchange and Foreign Trade Act establishes clear rules for cross-border economic activities—referred to as “external transactions”—to ensure the safety and transparency of the Japanese market. Originally enacted to prevent capital flight during economic downturns, the law now embraces free trade while implementing appropriate regulations to safeguard national security and economic stability.
The Four Categories of External Transactions
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Payments, etc.
- Description: Transactions involving remittances and receipts between residents in Japan and non-residents overseas.
- Key Point: Transactions exceeding a certain threshold (e.g., over 30 million yen) require post-reporting, ensuring transparent and swift fund transfers.
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Capital Transactions, etc.
- Description: This category covers various financial transactions—including cross-border dealings in stocks, deposits, bonds, and loans—as well as outward direct investments and specified capital transactions.
- Key Point: Through prior approvals, notifications, and post-reporting requirements, the reliability and safety of the market are maintained. As a result, the Japanese financial market is highly regarded as an international investment environment.
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Inward Direct Investment, etc.
- Description: This involves cases where foreign investors invest in Japanese companies or provide loans aimed at gaining managerial participation (for example, acquiring shares in listed or unlisted companies).
- Key Point: To enhance investment transparency and safety, prior notifications and post-reporting may be required as needed. This framework supports long-term corporate growth and ensures a stable investment environment.
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Foreign Trade
- Description: This pertains to transactions involving the export and import of goods and technology. Special regulations may apply to items such as arms or rare biological species due to international treaties and national security considerations.
- Key Point: In certain cases, the approval or authorization of the Minister of Economy, Trade, and Industry is required, ensuring strict adherence to international standards and regulatory compliance.
Key Considerations for Investing in Japan
Under the Foreign Exchange and Foreign Trade Act (FEFTA), Japan encourages sound investment while addressing transactions that may threaten national security. Foreign investors acquiring shares or making specific investments in Japanese companies are required to submit prior notifications for government screening.
- Regulatory Framework:
- The FEFTA is administered by the Ministry of Finance (MOF).
- The Ministry of Economy, Trade and Industry (METI) conducts screenings as the competent authority for designated industries.
- Screening Process:
- If an investment is deemed to risk national security, the government may issue recommendations or orders to modify or terminate the transaction.
- Investors are strongly advised to confirm whether their activities fall under restricted categories before proceeding.
- Guidance for Investors:
- For questions on METI-regulated industries (e.g., interpretations of designated sectors), submit inquiries via METI’s official inquiry form.
- URL: https://www.meti.go.jp/policy/anpo/toushikanri/invest-control.html
Proactive due diligence ensures compliance and minimizes risks. Consult METI or legal experts early in your investment planning.
A Message to Foreign Investors
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A Secure Investment Environment:
Japan’s clear legal framework and transparent procedures significantly enhance the market’s reliability as an investment destination. These regulations maintain market health, forming a solid foundation for long-term stability and growth. -
Efficient Procedures for Smooth Investment Execution:
In many instances, post-reporting suffices, enabling foreign investors to make swift decisions and execute investments quickly—thus adapting flexibly to market changes. -
Balancing Transparency and Safety:
The Japanese market rigorously manages risks through transparent procedures and strict rules governing external transactions, making your investment activities both safe and trustworthy.
Japan’s Foreign Exchange and Foreign Trade Act harmonizes the freedom to invest with robust security measures, creating an attractive and stable investment environment for foreign investors. Discover new business opportunities in Japan and embark on a journey toward a prosperous future.
FYI https://www.jetro.go.jp/en/invest/jetros_support/ibsc/
https://www.meti.go.jp/english/policy/external_economy/investment/index.html
At Mitsuo Nakamura Administrative Scrivener Office, we offer proxy services for post-reporting through the Bank of Japan’s Online System for Foreign Exchange and Foreign Trade Act procedures. If you encounter difficulties with reporting for inward direct investments or other related matters, please do not hesitate to contact us. info@nakamura-gyosei.biz