Japan's Foreign Investment Rule Change: What You Need To Know

Japan’s parliament passed a bill Friday that aims to protect certain domestic companies from foreign investors by cutting the investment threshold at which investors have to notify regulators ahead of purchasing shares in “sensitive companies” from 10% to 1%, according to The Japan Times.

The law passed Nov. 22 involves the Foreign Exchange and Foreign Trade Act, which requires overseas investors to seek government permission before obtaining a 1% or higher stake in a listed Japanese firm engaged in business related to “weapons, nuclear energy, semiconductors [or] railroads,” lowering the threshold from the current 10%.

The move is in step with measures by Europe and the U.S. to strengthen investment controls amid growing concerns about possible leaks of sensitive information and critical technologies to countries such as China.

Japanese Economy 

The Japanese economy is a developed free market environment — the third-largest in the world — and is noted for its stability. Prime Minister Shinzo Abe has became Japan's longest-serving prime minister this his month. Overall, his track record on the Japanese economy has been mixed.

Capital Economics said that under Abe, GDP growth has hovered around 1%, with inflation at 0.5%, an improvement on the preceding two "lost decades."

The unemployment rate has dropped to its lowest level since the early 1990s, and the labor force participation rate has risen substantially. As promised, monetary policy has been ultra-loose, and progress has also been made in corporate governance reform.

A Look At Foreign Investment, Upcoming Olympics  

The country is encouraging more foreign companies to do business in Tokyo, said Yoshinao Ogawa, the senior director for strategic projects in the office for strategic policy and ICT promotion at the Tokyo Metropolitan Government. 

For Japan, foreign asset managers will be the future growth engine of the asset management industry, Ogawa said during a Monday press conference. 

Tokyo Gov. Yuriko Koike also highlighted the city’s recent environmental, social and governance initiatives and the FinCity Tokyo group which welcomes foreign investors to launch businesses in Tokyo.

The Financial Times recently reported there is a shrinking foreign presence on Tokyo’s market, reflecting Japan’s declining relevance as a financial hub and the long-frayed patience of those who have waited in vain for a surge of domestic savings in the nation’s stocks.

On Nov. 18, Airbnb and the International Olympic Committee announced a partnership deal worth $500 million.

The upcoming 2020 Olympics will be held in Tokyo, and the agreement includes accommodation provisions that will reduce costs for Olympic Games organizers and stakeholders, minimize the need for construction of new accommodation infrastructure for the Olympic Games period and generate direct revenue for local hosts and communities.

Price Action

The JPMorgan BetaBuilders Japan ETF BBJP was trading up 0.64% at the time of publication,. 

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