Foreign Direct Investment Restrictions Amendments (Asset Management-Related Exemption): Whilst the threshold for prior notification/clearance in respect of a foreign investor buying Japanese listed shares in certain sectors has been lowered, the FDI Amendments (as defined above) have introduced an exemption where a foreign financial institution falling into any of the following categories is exempt from the requirement (as well as from similar requirements for prior notification/clearance in respect of some other types of foreign direct investments):

a) a certain securities firm registered under the Financial Instruments and Exchange Act of Japan (the “FIEA”) or its foreign equivalent;

b) a certain investment manager registered or notified under the FIEA or its foreign equivalent;

c) an investment corporation registered under the Act on Investment Trusts and Investment Corporations of Japan or its foreign equivalent;

d) a bank licensed under the Banking Act of Japan or its foreign equivalent;

e) an insurance company licensed under the Insurance Business Act of Japan or its foreign equivalent;

f) a certain company engaging in trust business under certain Japanese law or its foreign equivalent; or

g) a high-speed trader registered under the FIEA.

Change in Filing Process related to the Specially Permitted Businesses for Qualified Institutional Investors, etc.: As part of the Japanese government’s initiative to optimise the regulatory filing process by computerising the administrative procedures, and as part of the emergency measures against the Covid-19 crisis, the Kanto Local Finance Bureau and other Local Finance Offices (collectively, the “KLFB, etc.”) introduced a new method of submitting the notifications and exhibits in relation to the “Specially Permitted Businesses for Qualified Institutional Investors, etc. (the “SPBQII”)” under Article 63, paragraph 2 of the Financial Instruments and Exchange Act of Japan (the “FIEA”). The general partners that are or intend to be exempt from licence requirements under the FIEA by virtue of the application of SPBQII exemption are subject to various filing requirements under the FIEA, such as the initial filing of notification for commencement of SPBQII, the amendment filing and the regular filing of SPBQII business reports. Since the pandemic started globally, several Japanese and non-Japanese general partners have encountered difficulties in obtaining wet-ink signatures on various documents from the directors, officers and other individuals, especially in the regions on lockdown. In some cases, where original copies of documents with wet-ink signatures had to be submitted to the KLFB, etc. in relation to the commencement of SPBQII, the difficulties led to the delay in required filing and/or the fund launch.

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Newly introduced “Financial Services Intermediary Business (FSIB)”:

1. On 5 June 2020, the Act on Sales, etc. of Financial Instruments (Act No. 101 of 2000) was amended and renamed as the “Act on the Provision of Financial Services” (the “APFS”) which created a new category of business named financial services intermediary business (“FSIB”).The FSIB covers the services of different financial sectors through a single registration as a Financial Services Intermediary Business Operator (“FSIBO”). The newly amended APFS is expected to create more user-friendly ‘one stop’ services after this amendment becomes effective. In particular, fintech companies may provide their customers with various intermediary services relating to bank loans, life insurance or investment products by using the saving and spending data or other information collected through their platform with a registration as an FSIBO.
2. FSIB is defined as conducting intermediation of: (i) core banking business such as bank deposits contracts, money lending contracts or fund transfer contracts; (ii) insurance contracts; (iii) contracts for securities and derivatives transactions; and (iv) loan contracts between non-bank lenders and borrowers. In addition, an FSIBO may provide electronic payment services (i.e. account information and payment initiation services on behalf of bank account holders) without obtaining registration under the Banking Act, which are essential for online personal finance services.

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Japan Offshore Wind Round 1 Auctions: Despite the Covid-19 pandemic, Japan has continued to push forward with its plans for developing a set of offshore windfarms.

The Japanese government ended 2019 with an announcement on 27 December designating an area off the coast of Goto City, Nagasaki (“Goto Promotion Area”) to be the first promotion area for a floating offshore wind project under the Act on Promotion of Use of Sea Areas to Develop Marine Renewable Energy Facilities (Act No. 89 of 2018, as amended). The auction process for the Goto Promotion Area launched on 24 June 2020, when the Ministry of Economy, Trade and Industry (“METI”) and the Ministry of Land, Infrastructure, Transport and Tourism (“MLIT”) jointly released the official public auction guidelines. This is the first public auction under the Marine Renewables Energy Act, and it is set to close on 24 December 2020.

On 17 July 2020, the first meeting of the public-private council for reinforcing competitiveness of the offshore wind industry was convened. In the opening remarks, Mr. Hiroshi Kajiyama, Minister of METI, commented that the forum should discuss longer-term targets to enhance investments in the offshore wind sector.

On 21 July 2020, METI and MLIT designated the remaining round 1 promotion areas: (i) a sea area off the coast of Choshi City, Chiba Prefecture; (ii) a sea area off the coast of Noshiro City, Mitane Cho and Oga City, Akita Prefecture; and (iii) a sea area off the coast of Yurihonjo (North and South), Akita Prefecture. The three promotion areas designated in July 2020 will be bottom-fixed offshore wind farms. On 18 September 2020, METI and MLIT jointly published draft guidelines for the public auctions to be held in relation to the three bottom-fixed offshore wind farms. By the end of November or early December 2020, METI and MLIT are expecting to launch the public auctions for the three bottom-fixed offshore wind farms.

Outline of the benchmark reform initiative in Japan: In line with the global initiatives to tackle the permanent cessation of LIBOR (London Interbank Offered Rate) that could take place after the end of 2021, Japanese market participants and regulators continue to work on the smooth transition from LIBOR, and the incorporation of robust fallbacks into existing financial products/transactions referring to LIBOR. TONA (Tokyo Overnight Average Rate) published by the Bank of Japan has been designated as the risk-free rate for JPY. However, given that JPY takes multiple rate approaches (JPY TIBOR (Tokyo Interbank Offered Rate) and Euroyen TIBOR are also used), the market participants are required to establish appropriate fallbacks for loans and bonds, among others (for derivatives, the fallbacks set out in the ISDA IBORs Fallbacks Supplement would be the default choice). The Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (the Bank of Japan serves as a secretariat, the “Committee”) is the centre of examination and discussion. In the second public consultation launched by the Committee, it is suggested that loans and bonds use the waterfall structure fallbacks where the term reference rate (which is not the compounded risk-free rate to be used for derivatives) is set as the first priority. QUICK Corp. has been selected as an administrator of the new term reference rate, TORF (Tokyo Term Risk Free Rate), and currently publishes the prototype rates. Based on the current roadmap (see page 17 of the second public consultation document – link again?), it is anticipated that the major transition and fallbacks incorporation work will take place in 2021 Q2-Q3. Therefore, market participants are required to make adequate preparations.