Japan will introduce exemptions from the new restrictions on foreign investment in companies dealing with sensitive for national security issues, according to government sources. In this way, the authorities seek to preserve foreign capital in the country.

Foreign hedge funds and asset managers who own or invest heavily in Japanese stocks and help to strengthen Tokyo’s financial market – a key element of Prime Minister Shinzo Abe’s stimulus policies – will benefit from the exceptions.

In November, parliament passed a law change that tightens foreign investment requirements in sectors related to national security, reflecting domestic and international concerns that China may gain access to key confidential technologies.

Given these restrictions, which are expected to come into force in early May, foreign investors who buy a stake of 1% or more in Japanese companies in 12 areas crucial for national security will be subject to prior review, compared with the 10% threshold now applicable to a wider range of companies.

The government has already identified a few exceptions, such as allowing some financial institutions to invest without first checking or buying shares that are not among the 12 areas if they meet certain criteria, such as not providing access to any sensitive information.

According to sources, the authorities are ready to extend access to these 12 sectors if the respective investor agrees to certain conditions.

Foreign investors will not have the right to participate in the voting of the general meetings of companies in making key management decisions and to submit written business proposals to the governing bodies of the respective company, the sources indicate.

Broader exceptions follow some foreign investors’ fears that stringent rules may make it difficult for them to invest in Japan.

These changes will be incorporated into a government decree specifying details of the revised law. The industry covered by Japan’s foreign investment restrictions includes sectors such as defense, nuclear power, aerospace, utilities, gas, cybersecurity, and telecommunications.

About 500 of the 3703 listed companies in Japan would fall under these criteria. The government plans to publish the list of companies in April.