Japan FEFTA M&A Guide - Foreign Investment Screening for Acquisitions in 2026
外為法第26条 Pre-Notification: When It Applies, How It Works, and What Foreign Buyers Must Do Before Signing
Last Updated: April 2026 · Reading Time: ~15 min
Japan M&A Has a Regulatory Gate Most Foreign Buyers Miss
Japan has a foreign investment screening framework that applies directly to cross-border acquisitions. Under the Foreign Exchange and Foreign Trade Act (外為法 (FEFTA), L-03, R1), a foreign investor acquiring shares in a Japanese company that operates in a designated industry must file a pre-notification with the Japanese government and receive clearance before the transaction closes.
This requirement is not limited to large transactions. It is not triggered by deal size. It is triggered by the industry of the target company and the identity of the acquirer as foreign.
Foreign buyers who proceed to closing without addressing FEFTA pre-notification face two risks:
(a) Administrative orders requiring modification or unwinding of the transaction (b) Criminal penalties under 外為法 for proceeding without required pre-notification
The screening framework was significantly tightened in 2019-2020 with amendments to 外為法, extending the designated industry list and lowering the shareholding thresholds that trigger notification obligations. Understanding the current scope is a pre-condition for any cross-border Japan acquisition.
The Legal Foundation
The inward foreign direct investment screening framework is established under:
- 外為法第26条 (Article 26 of FEFTA, L-03, R1): defines what constitutes inward direct investment (対内直接投資 (tainai chokusetsu toshi)) and requires pre-notification for designated industries
- 外為令 (Foreign Exchange Order, R2): specifies designated industries and detailed procedures
- Ministry of Finance (財務省 (MOF)) and Bank of Japan (日本銀行 (BOJ)) jointly administer the notification and review process; sectoral ministries advise on national security assessment
The framework targets transactions where:
- A foreign investor acquires 1% or more of shares in a listed Japanese company in a designated industry
- A foreign investor acquires shares in an unlisted Japanese company in a designated industry (any percentage, unless an exemption applies)
- A foreign investor acquires the right to exercise significant influence over a Japanese company (through board representation, veto rights, or similar governance mechanisms)
- A foreign investor acquires assets from a Japanese company where those assets constitute a business in a designated sector
What Counts as a Designated Industry
The designated industry list (指定業種リスト) is published by the Ministry of Finance. As of 2026, designated industries with the highest screening intensity include:
Core designated industries (most heavily reviewed):
- Defence equipment and technology (防衛関連)
- Weapons, ammunition, and explosives
- Nuclear energy and nuclear materials (原子力)
- Aerospace
- Cybersecurity and information security
- Key infrastructure: electricity, gas, water, telecommunications, broadcasting, railways, airports, ports
- Biological and chemical materials with dual-use potential
- Software and technology embedded in core infrastructure
Second-tier designated industries (reviewed but with broader exemption access):
- Financial services and securities
- Pharmaceutical and medical device manufacturing
- Agricultural and fishery production
- Mining and resources
- Manufacturing sectors with supply chain security relevance
⚠️ The designated industry list is not a fixed short list. It has expanded multiple times since 2019. Before assuming a target is not in a designated industry, the classification should be confirmed against the current official list. Classification is based on the target's actual business activities, not its stated corporate purpose alone.
The Two Notification Paths
Path 1: Pre-Notification (事前届出)
The core requirement for designated industry acquisitions. The foreign investor files a pre-notification form with the Bank of Japan (which transmits to the Ministry of Finance and relevant sectoral ministries) before executing the acquisition.
Statutory waiting period: The standard waiting period is 30 days from acceptance of the notification by the reviewing authorities. During this period, the investor must not proceed with the transaction.
Extension: The 30-day period can be extended to 5 months in cases where an in-depth review is initiated. This extension is not automatic: it is triggered by the reviewing authority's determination that the transaction requires additional examination.
Shortening: For transactions that are straightforwardly within the exemption criteria or where the review authority determines no concern exists, the waiting period can be shortened to a matter of days or weeks.
Outcome: One of three results:
(a) The authorities advise that the transaction may proceed as filed
(b) The authorities recommend modifications to the transaction structure, governance arrangements, or technology transfer terms as a condition of approval
(c) In cases involving serious national security concern, the authorities may order prohibition or modification under 外為法第27条 (R2)
Path 2: Post-Reporting (事後報告)
For acquisitions that do not require pre-notification (either because the target is in a non-designated industry, or because an exemption applies), a post-completion report must be filed within 45 days of the acquisition closing.
Post-reporting is administrative rather than a clearance process: it does not involve a waiting period or substantive review. However, it is mandatory and missing the deadline is a violation.
Exemptions: When Pre-Notification Is Not Required
The 2019-2020 amendments introduced a structured exemption framework (免除制度) to allow routine portfolio investment and passive acquisitions to proceed without the pre-notification burden.
The main exemptions for acquisitions in designated industries:
Passive Investment Exemption (ポートフォリオ投資免除): Applies when the foreign investor acquires less than 10% of total shares in a listed company AND commits to:
- Not seeking board representation
- Not proposing the transfer or discontinuation of designated business
- Not accessing non-public technical information
- Not voting on business disposals or restructuring proposals
This exemption is designed for passive financial investors and is not available to strategic acquirers seeking control or operational involvement.
Exemption for Investors Meeting Prior-Approval Criteria: Certain classes of foreign investors (principally investors from OECD countries that meet criteria established under the framework) may be eligible for pre-notification exemption for specified industries based on pre-registration with the authorities. The availability and scope of this exemption have evolved with the 2019-2020 amendments and should be confirmed against current MOF guidance for the specific target industry.
📌 For strategic acquisitions involving control or board representation in a designated industry, assume that pre-notification is required. The exemptions are structured for passive investors, not for buyers pursuing operational control.
Which Ministry Reviews Your Transaction
FEFTA screening involves the Ministry of Finance as the primary administrative authority, but the substantive review is conducted by the sectoral ministry responsible for the target's industry. The relevant ministry varies:
| Industry | Lead Ministry |
|---|---|
| Telecommunications, broadcasting | Ministry of Internal Affairs and Communications (MIC, 総務省) |
| Defence, dual-use technology | Ministry of Economy, Trade and Industry (METI, 経済産業省) |
| Energy (electricity, gas, nuclear) | Ministry of Economy, Trade and Industry (METI) + Ministry of Land, Infrastructure, Transport and Tourism (MLIT, 国土交通省) for some sub-sectors |
| Financial services, securities | Financial Services Agency (FSA, 金融庁) |
| Pharmaceuticals, medical devices | Ministry of Health, Labour and Welfare (MHLW, 厚生労働省) |
| Aviation | Ministry of Land, Infrastructure, Transport and Tourism (MLIT) |
| Agriculture | Ministry of Agriculture, Forestry and Fisheries (MAFF, 農林水産省) |
When a target operates across multiple designated industries, multiple ministries are involved in the review. A transaction that spans three or more ministries materially increases the complexity and potential duration of the review.
What the Notification Covers
The pre-notification filing requires the investor to disclose:
- Identity and ownership structure of the acquirer (individual or entity, ultimate beneficial owner, corporate group structure)
- Identity of the target company, its business activities, and its relevance to designated industry criteria
- Transaction structure (share purchase, business transfer, subscription, or other form of investment)
- Intended post-acquisition governance (board representation, voting rights, operational role)
- Planned changes to target's business operations, technology access, or management
- Any existing relationships between the acquirer and the target
The reviewing authorities use this information to assess whether the transaction poses a concern for national security, public order, or public safety.
Confidentiality: The notification is not public. The fact of filing, the content of the notification, and the outcome of the review are treated as confidential between the investor and the authorities.
Timeline Implications for Deal Structuring
FEFTA pre-notification is a deal-timeline factor that must be built into the acquisition process from the outset, not addressed at signing.
Common structuring approaches:
File before signing: Some buyers file a pre-notification before executing a binding share purchase agreement, using a draft structure based on negotiated terms. This avoids the contractual risk of a signed agreement with a 30-day (or potentially 5-month) uncertain waiting period.
Sign with FEFTA condition precedent: More commonly, the share purchase agreement includes a condition precedent requiring FEFTA clearance (or expiry of the waiting period without adverse action) before closing is obligated. The agreement is signed, but closing is deferred until the FEFTA process completes.
📌 Aligning the signed SPA with the FEFTA waiting period is the standard approach for most cross-border Japan acquisitions. The acquisition price can be locked at signing while the regulatory process runs. Buyers should build at least 60-90 days of post-signing runway into their deal timeline to accommodate the standard process, with contingency for extension.
Material implications for LOI and exclusivity:
If the buyer is requesting exclusivity from the seller during due diligence, the exclusivity period should be set with reference to the expected FEFTA timeline. An exclusivity period that expires before FEFTA clearance forces a re-negotiation or leaves the seller exposed during the review period.
When FEFTA Does Not Apply
FEFTA's inward investment screening framework is targeted at foreign acquirers. Purely domestic transactions (Japanese buyer, Japanese target) do not trigger FEFTA pre-notification.
FEFTA does not apply when:
- The acquirer is a Japanese entity with no foreign controlling interest (purely domestic deal)
- The acquisition is below the 1% threshold for listed companies AND the buyer is not seeking governance influence
- The target's business is entirely outside the designated industry list
- The acquisition qualifies for a recognised exemption and the buyer has confirmed eligibility
Note that "Japanese entity" means truly Japanese-controlled: a Japan subsidiary of a foreign company remains a foreign investor for FEFTA purposes if the investment decision is directed from abroad or if the ultimate parent is foreign. FEFTA look-through analysis is applied to investment vehicles.
Antimonopoly Act Notification: A Separate and Parallel Obligation
For larger transactions, the Japan Fair Trade Commission (公正取引委員会 (JFTC)) requires notification under the Antimonopoly Act (独占禁止法, L-06, R1) when:
- The domestic turnover of the target exceeds ¥5 billion (approximately), AND
- The aggregate domestic turnover of the acquiring group exceeds ¥20 billion (approximately)
Antimonopoly notification is a separate process from FEFTA pre-notification and has its own waiting period (30 days, extendable). Both processes may run in parallel for qualifying transactions.
⚠️ For large-cap acquisitions, FEFTA and Antimonopoly Act notifications must both be filed and cleared. Managing these two parallel processes, with potentially different ministries involved and different waiting periods, requires coordinated regulatory strategy. The sequencing of filings, condition precedents, and closing logistics should be planned with specialist regulatory advice.
Practical Steps: FEFTA Pre-Screening Workflow
Before committing to a deal timeline or signing an LOI, foreign buyers should complete a FEFTA pre-screening:
Step 1: Industry classification Confirm whether the target's business activities fall within a designated industry under the current 外為令 classification. This requires review of the target's actual operations, not just its stated business purpose.
Step 2: Acquirer structure review Confirm the classification of the acquirer as a foreign investor under 外為法. Review the corporate chain from the Japan acquisition vehicle to the ultimate beneficial owner.
Step 3: Threshold check For listed targets: confirm the post-acquisition ownership percentage relative to the 1% threshold and applicable exemption criteria. For unlisted targets: confirm that the acquisition structure triggers the investment (any percentage of shares in a designated industry unlisted company generally requires pre-notification).
Step 4: Pre-notification filing preparation Prepare the notification form and required disclosure materials. The filing requires detailed group structure charts, business descriptions, and a narrative on post-acquisition plans.
Step 5: Filing and waiting period management File with the Bank of Japan as the transmitting authority. Monitor the waiting period. Respond to any questions from reviewing authorities promptly.
Step 6: Clearance confirmation Obtain written confirmation that the waiting period has expired without adverse action, or a formal clearance letter. Retain this documentation as part of the deal file.
Summary
FEFTA pre-notification is a non-negotiable step in any cross-border acquisition of a Japanese company in a designated industry. It is not optional, it is not addressable after closing, and the list of designated industries is broader than most foreign buyers expect.
The key points:
- Pre-notification is required before closing (not after) for designated industry targets.
- The standard waiting period is 30 days; extension to 5 months is possible for complex cases.
- Exemptions exist for passive investors but do not apply to strategic acquirers seeking operational control.
- Multiple ministries may be involved depending on the target's sectors.
- FEFTA screening is separate from and may run parallel to Antimonopoly Act notification for large transactions.
- Deal timelines and condition precedents must be structured around the FEFTA process from the LOI stage.
FEFTA pre-notification analysis should be conducted by a regulatory advisor familiar with the current designated industry framework and Ministry of Finance practice. The above is an informational overview of the framework, not legal advice for any specific transaction.