Ashurst Perkins Coie monthly Japanese finance regulatory update – October 2026
Welcome to the October edition of our Japanese finance regulatory update, which aims to provide you with in-depth analysis and practical insights on select legislative updates that bring significant implications to Japanese corporates and international companies operating or investing in Japan.
We hope you find these updates useful, and we look forward to having a further discussion with you on the topics and any other regulatory issues.
Introduction
With effect from September 16, 2026, Japan has relaxed the regulation of investment management activities connected with overseas venture capital (VC) funds. The amendment eases the conditions of the so-called "foreign fund exemption" where an overseas VC fund receives capital from a domestic VC fund, with the aim of supporting the overseas expansion of Japanese startups.
In short: The general partner (GP) of an overseas VC fund can now accept capital from a Japanese VC fund without registering in Japan as an investment manager, even if the Japanese fund has limited partners (LPs) who are not Qualified Institutional Investors (QIIs).
Background
A foreign manager that manages assets contributed by Japanese residents is generally required to register for investment management business in Japan. The main exception is the "foreign fund exemption" (Cabinet Office Ordinance on Definitions, Art. 16(1)(xiii)). Before the amendment, the exemption was available only where (i) the foreign fund had fewer than 10 Japanese investors, (ii) each of those Japanese investors was a QII or a notified operator of a “Specially Permitted Business for QIIs, etc.”, and (iii) total contributions from Japanese investors did not exceed one-third of the fund. Importantly, condition (ii) also looked through to indirect investment:
- Every Japanese resident investing indirectly through a domestic VC fund or another notified specially permitted business operator (an "indirect investor") had to be a QII.
Japanese VC funds typically include non-QII LPs, such as operating companies and individuals. As a result, when a Japanese VC fund invested in an overseas VC fund, the overseas GP lost the benefit of the exemption. This made overseas funds reluctant to accept Japanese VC capital and hindered partnerships intended to help Japanese startups expand abroad.
Key changes
1. What changed
Interests in a domestic VC fund no longer count toward the "indirect investor" test if the fund meets both of these conditions:
- It is a VC-type fund: More than 80% of contributed capital (net of a deduction set by ordinance) is invested in unlisted securities such as startup equity, namely shares issued by Japanese corporations other than listed companies.
- It is run under the QII-targeted exemption: It is managed as a "Specially Permitted Business for QIIs, etc." under FIEA Art. 63(1)(ii), by either a registered investment manager or a notified specially permitted business operator.
Where both conditions are met, the overseas GP retains the exemption even if the Japanese VC fund has non-QII LPs, and the domestic VC fund's investors are not counted toward the fewer-than-10 Japanese investor limit. The remaining conditions of the exemption were not amended and must still be satisfied.
2. Practical points from the FSA's public comment responses (September 15, 2026)
- Solicitation is not covered: The amendment extends the exemption only to the overseas GP's investment management business. Regulation of solicitation, such as where the overseas GP markets fund interests to a Japanese VC fund (Type II Financial Instruments Business), continues to apply. Commenters asked for solicitation to be exempted as well, but the FSA's response was negative: it considered that this requires careful consideration, because the specially permitted business notification is how it monitors market activity. An overseas GP soliciting in Japan may therefore still need to make a separate filing.
- Why only funds run under the QII-targeted exemption: The FSA explained that this limitation prevents indirect investment by the general public from becoming widespread. The limitation applies even where the domestic fund's manager is a registered investment manager.
- The domestic VC fund's duties are unchanged: It must still monitor the overseas fund and remain accountable to its own LPs.
- Scope of the 80% test: The qualifying assets exclude, among others, securities issued by foreign corporations. In our view, this suggests the domestic VC fund should invest mainly in Japanese startups, with only a minority of its capital going into overseas VC funds.
3. Policy context
The change implements the "Financial Services Strategy to Promote Growth Investment", the upgraded asset management center initiative published on July 21, 2026. For overseas VC managers, it should make it considerably easier to admit Japanese VC funds as LPs.
4. Key takeaways
Principle 1-2 now expressly identifies filing the annual securities report before the AGM as an important measure to facilitate the exercise of shareholder rights. The Interpretive Guidelines state that filing three weeks or more before the AGM is "most desirable".
- Overseas GPs: consider whether Japanese VC fund investors now fall within the relaxed exemption, and separately confirm whether marketing fund interests to Japanese funds requires a solicitation-related filing.
- Japanese VC fund managers: confirm that the fund is operated as a Specially Permitted Business for QIIs, etc. and satisfies the 80% unlisted Japanese equity test before investing in overseas VC funds.
Want to know more?
- Our September edition explores the revised Corporate Governance Code issued by the Financial Services Agency ("FSA") and the Tokyo Stock Exchange ("TSE") on July 21, 2026.
- The August edition covers the amended Tender Offer (TOB) system in the Financial Instruments and Exchange Act ("FIEA") which came into effect on May 1, 2026.
- Our July edition looks into the Large Shareholding Report (tairyou hoyu houkokusho) system.
Authors: Chihiro Ashizawa, Partner and Chiharu Takatori, Associate.
