New regulations require foreign entities to seek approval when investing in Japanese semiconductor manufacturing

The Japanese Ministry of Finance (MOF) today announced that foreign investors must now “file a prior notification for screening” when making an inward direct investment on companies that build semiconductor manufacturing tools and advanced electronic components. This move is an expansion of Japan’s Foreign Exchange and Foreign Trade Act (FEFTA), which regulates foreign direct investment in Japanese companies.

The expansion of “specified critical products” under the Economic Security Promotion Act is driven by the need to ensure a stable supply chain for Core Business Sectors and prevent other countries from using economic pressures to influence decisions by the Japanese government in international relations. According to the MOF (PDF), these are the sectors that require approval:

The Economic Security Promotion Act was enacted as a response to international events, including Russia’s politically motivated halt of energy exports to Western Europe during the early stages of its invasion of Ukraine. Another example is when Beijing attempted to link its claims on the Japanese Senkaku Islands in the 2010s to a bilateral trade agreement in rare-earth metals.

But aside from supply chain security, the Japanese government also wants to “address the risk of technology leakage and diversion of commercial technologies into military use” with this expansion. Japan has recently invested billions of dollars in semiconductors , and it likely wants to ensure that the money it has spent will benefit the country and not be used against it.

Some of these investments include over one trillion yen in TSMC, almost a trillion yen for a 2-nm chip fab, and over a billion US dollars in subsidies for a Micron EUV fab. Japan has already set strict rules for chip subsidies like the ones that you can find applied to U.S. CHIPS Act recipients. This expansion shows how the country is trying to balance expanding its domestic production via collaboration with foreign companies, but simultaneously protect its interests from foreign interference.