The question behind stepped up purchases of J-Power (Electric Power Development Co.) stock by a British investment fund, The Children's Investment Fund (TCI), has a great deal to do with Japan's national security as it concerns the problem of nuclear power generation. At the same time, it may be compared to treading on a picture depicting the Japanese government's basic stance toward foreign investment in Japan.

Nonetheless, the Ministry of Economy, Trade and Industry (METI), which is in charge of power administration, forced out sufficient discussions on the matter and insisted that the conclusion be "rejection." At least there is evidence that cannot deny such an interpretation.

METI Minister Amari ordered to "hold off"

"Delete that matter from the minutes."

On the evening of April 8, METI Minister Akira Amari's voice rang throughout the large conference room on the fourth floor of the Prime Minister's official residence.

It was in the middle of the Council on Economic and Fiscal Policy (CEFP) meeting, which had started on time at 5:30 p.m. Included on the agenda that day were the display of Japan's environmental protection ability and the government's broad policy framework for fiscal 2008. But quickly the discussion turned to the J power issue, on which the government's policy drew much attention.

J-Power has a trunk line power transmission network as well as a frequency changer substation, and is scheduled to go into the construction of its first nuclear power plant in Oma, Aomori Prefecture, in the near future.

One of the private sector members of CEFP commented that if nuclear facilities are considered a question of national security and thus prevent foreign investors from purchasing stock, it may be well to consider separating the facility from J-Power.

Amari sealed up all such discussions. Not only that, but he went so far as to not allow leaving any record of comments made at the advisory meeting. The METI holds that, "Separate items are to be handled at the council meeting of the Foreign Exchange and Foreign Trade Control Law," as a high ranking official of the Ministry put it.

TCI has a 9.9% stake in J-Power and plans to increase it to 20%. For a foreign firm to have more than a 10% share of a Japanese company concerned with national security such as a nuclear power-related business, it is obliged to make an advanced report on it in accordance with the Foreign Exchange and Foreign Trade Control Law. The Committee on Foreign Exchange and Other Transactions examines the content of the report.

On April 11, that Committee held a special meeting on foreign capital, summoned TCI's personnel and listened to their opinions. The present committee meeting was started in 2001, but this was the first time it was actually called. Barely four days later, a second meeting was convened for "intensive deliberations."

Why are the related government ministries, including the METI, in such a hurry for discussion ?

"Before we come to a conclusion at our meetings, they might have been anxious to settle the J-Power problem." That was the opinion of a member of the government panel of experts on foreign investment in Japan--presided over by Haruo Shimada, president of Chiba Commercial College--which was established in January of this year by the Cabinet Office.

Direct foreign investment in Japan is only a little more than 2% of gross domestic product, far below that in advanced nations of the world, where it is 20% to 60%. The government panel will straighten out the regulations and taxation systems barring foreign capital from making investments in Japan. The deadline for an interim proposal is April 21.

One of the committee members, Professor Tetsuzo Yamamoto of Waseda University's Department of Commerce, said, "Every time a foreign firm comes out to invest in a business sector highly public in nature, government offices and agencies concerned come out to argue about "national security" and "public order." That doesn't help improve the predictability of whether foreign investors should buy any Japanese stock. There is no possibility of increases in investment by foreign firms."

There have also been comments made at panels of experts that regulations on foreign capital investments should be reexamined: "Regardless of whether capital is foreign or domestic (Japanese), investment activities which actually threaten Japan's national security should be regulated," and "We should have within the government a centralized organization to check foreign capital investments."

The committee member who made those comments feels that that was why the METI was in such a hurry to come to a conclusion on the J-Power stock issue.

Point of Balance between investment in Japan and National Security

Going forward, what kind of advance report will cause the Committee on Foreign Exchange and Other Transactions to go into inspection, and on what basis will they decide whether stepped-up purchases of stock should be allowed?

There is a need for the government to clarify the standards for maintaining national security. But it is also true that maintaining national security and promoting foreign investment in Japan could create contradictory situations. Thus, it is all the more important for the government to have a sense of delicate balance.

The advisory panel meeting on April 8 was chaired by Prime Minister Yasuo Fukuda. Since it is a delicate issue with divided opinions depending on situations within the government, listening to "different opinions" would have provided fuller meaning. Discussions should not have been forced out, to say the least.

(Toshiyuki Sugiyama, Mariko Kotaki, Staff Writers, Nikkei Business)