Japan, citing security concerns, tightens rules on foreign stakes in key companies

TOKYO — Japan announced on Friday a list of companies subject to tighter foreign ownership rules including Toyota Motor Corp. and Sony Corp., as the United States and Europe step up scrutiny of industries key to national security.

Japan identified 518 of roughly 3,800 listed companies with operations core to national security, making them targets for stringent regulations, a list released by the Ministry of Finance showed.

The tighter rules covering foreign investment in a dozen industrial, transportation, communications and technology sectors crucial to national security, such as oil, railways, utilities, arms, space, nuclear power, aviation, telecoms and cyber security, take effect from Friday.

Foreign investors buying a stake of 1 percent or more in Japanese companies in the 12 areas now face pre-screening in principle, compared with the previous threshold of 10 percent.

“The revised law is aimed at accelerating foreign direct investment in Japan,” said Finance Minister Taro Aso, referring to a law passed in November, and adding that technology and patents needed protection from a national security standpoint.

“As we have explained our intention overseas, misdirected criticism such as that we may limit foreign investment in Japan has disappeared.”

Some analysts say the revised law reflects Tokyo’s concern over China’s growing influence in industries such as defense, running the risk of leaks of confidential information and outflows of key technology.

However, critics have argued the regulation discourages foreign investors in Japan’s stock market, and runs counter to government efforts to lure investment to revitalize the economy.

Exemptions to allay such concerns include investment without pre-screening by foreign financial institutions, and the waiver of pre-reporting requirements for certified sovereign wealth funds and other investors who meet certain criteria.

Foreign investors have a huge influence on share prices as they own about 30 percent of Japan’s roughly 575-trillion-yen stock market, and make up about 60 percent of trading turnover.