Japan to expand foreign investment restrictions in IT and semiconductor sectors

The Nihon Keizai Shimbun reported that the Ministry of Finance and the Ministry of Economy, Trade and Industry will expand restrictions on foreign investment in the IT sector as early as 2019. Japan's Foreign Exchange Law stipulates that foreign investment plans in the manufacturing and software development fields of mobile phones, personal computers, semiconductor memories, etc. will be suspended if it is determined that they will threaten Japan's security. This is a measure to prevent technology outflows and ensure network security, in line with the United States, which is strengthening its tough stance.

       From the perspective of security, Japan's Foreign Exchange Law sets investment restrictions on designated industries such as aircraft, nuclear-related, and weapons manufacturing. These target industries will also include manufacturing industries such as integrated circuits and semiconductor memory. It is expected that a total of 20 industries will be added, including software development and information processing services.

       Specifically, if an overseas investor acquires more than 10% of the shares of a listed company in a related industry, or acquires shares of an unlisted company, they need to submit an application to the Japanese government for review in advance. If problems are found, the Japanese government can ask the overseas investor to adjust or suspend the plan. For example, imagine that an overseas investor invests in companies such as Hitachi, NEC, and Panasonic and their affiliates.

       In terms of digitalization and globalization, overseas investors are indispensable to the development of Japanese companies. Recently, Japan Display (JDI) decided to merge with the Chinese mainland and Taiwan enterprise alliance, and Toshiba Memory will be sold to the US-Japan-Korea alliance including Bain Capital. The purpose of this measure is to show the Japanese government's attitude of intervening as soon as possible when it is considered that there are huge problems with the acquisition or investment of overseas investors.

       Japan has taken the above measures to keep pace with Europe and the United States and improve cybersecurity. However, if investors become wary of the Japanese government's actions, it may lead to necessary investment away from Japan. It is very important for the Japanese government to show the transparency of its judgment criteria when ordering investors to change or terminate their plans.

       European countries have also strengthened relevant countermeasures. France added the semiconductor industry to the list of restricted foreign investment in January 2019.

       In 2008, the Japanese government issued an order to suspend the purchase of J POWER shares by British investment fund TCI for the first time under the Foreign Exchange Law. Considering the importance of the nuclear business, it showed a tough attitude, but the opacity of the review criteria was also pointed out.