The Japanese government’s proposals to tighten screening of foreign investors may keep the country a little safer—at the cost of undoing several years of hard work in improving the investment climate.
If proposals published by the Ministry of Finance this week take effect, foreign shareholders would have to inform regulators when their stake in certain listed companies reaches 1%, down from the current 10%. The sectors affected would range from defense to telecommunications to marine transport, though there is no strict determination of which of Japan’s 3,680 listed companies fall within a covered category. The onus would be on the investor to decide.
The unspoken intent seems to be increase government scrutiny of sensitive Chinese investments, but a much wider swath of foreign activity would be caught.
The current notification process, conducted only in Japanese, is paper-based and generally onerous. Investors inform the government once they cross the threshold, triggering a review that can lead to the trade’s being canceled. A decision takes 30 days, although the Ministry of Finance says it will reduce this.
Trading value of stocks by investor type,Sept. 24-27
Source: Tokyo Stock Exchange, Inc.
Note: $1 = ¥107.48. Categories other than foreignersare Japanese investors.
0 trillion yen
Western brokers working for Japanese investors—including Wall Street’s top banks—would be at a disadvantage to their Japanese competitors, since the proposed rules don’t differentiate between end-investors and intermediaries. Activists attempting to assemble a stake, perhaps pursuing the 3% level at which they can call a general meeting of shareholders, also would be frustrated.