Overview of the Amendment of

the Foreign Exchange and Foreign Trade Control Law

1. Purpose of the Amendment

In order to liberalize cross-border transactions to an extent consistent with global standard, and to further vitalize Japanese financial and capital market, we conducted a fundamental review of the Foreign Exchange Control System and have decided to abolish, in principle, (1) permission and prior notification required on capital transactions and (2) the authorized foreign exchange bank system and the money exchanger system.

2. Overview of the Law

(1) Name change

The word "Control" will be deleted. The revised name will be "Foreign Exchange and Foreign Trade Law."

(2) Chapter 1- General Provisions

(a) Definition

"Electronic money" will be included in the definition of the means of payment.

(b) Foreign exchange rates

Previous provisions concerning the fixed foreign exchange rate system, such as the selling and buying rates of foreign currencies, will be eliminated and replaced by the following sentence. "Authorities make efforts to stabilize the foreign exchange rate through such actions as buying or selling the means of payment."

(3) Chart 2- Authorized Foreign Exchange Banks and Money Exchangers

In order to liberalize foreign exchange business, foreign exchange banks and money exchangers will no longer need permission from authorities. At the same time, the designated securities firm system will also be abolished.

(4) Chart 3- Payment and Receipt of Payments

(a) Method of payment for cross-border transactions

Permission required to engage in netting and other settlements by special method will be abolished and free cross-border payments will be effected.

(b) Conditions necessitating permission

In view of the international requirements regarding the effective implementation of economic sanctions, we will review those conditions where permission is required to make remittances abroad or engage in other external transactions. This will be done to assure the effectiveness of economic sanctions.

(c) Identification requirements for banks

In the case where a customer is required to get permission before conducting foreign exchange transactions, bank and other financial institutions specified by government ordinance (hereinafter "the Banks") will be obliged to ascertain whether the customer possesses the required permission. This proposition applies to foreign exchange transactions by the Postal service.

(d) Prior notification requirements for the export and import of the means of payment

A person who intends to export or import the means of payment is required to make prior notification of the details, except in the cases specified by government ordinance.

(5) Chapter 4-Capital Transactions

(a) Abolishment of permission and prior notification requirements in principle

To enable free capital transactions, permissions and prior notification required on capital transactions will be abolished.

(b) Conditions necessitating permission

In view of the international requirements regarding the effective implementation of economic sanctions, we will review those conditions where permissions is required from the Finance Minister and other ministers in charge of capital transactions.

(c) Account for special international finance transactions

The acquisition from non-residence of securities issued by non-residents will be included in the transactions in the account for special international finance transactions.

(d) Foreign direct investments

Prior notification required on foreign direct investments will be abolished, except for investments in certain industries. Where prior notification is required, the conditions that would necessitate a request or order to suspend or modify the proposed foreign direct investment will be limited.

(6) Chapter 5- Direct investment in Japan

There will be no significant changes in principle. Deregulation measures have already been implemented through the amendment of the law executed in 1992.

(7) Chapter 6- Export and Import Transactions

There will be no significant Changes in principle. Provisions that have little importance these days--such as verification of the payment method in exports and the submission of a warranty for imports--will be deleted.

(8) Chapter 6(bis)- Report

Development of provisions concerning the ex-post facto reporting system:

(a) report of payments

(b) report of the identification by banks and other financial institutions

(c) report of capital transactions

(d) report of direct investment in Japan

(e) report of agreements for importing technology

(f) report of foreign exchange business

(g) report of other matters

(9) Other

(a) Special provision for the use of electronic data processing devices

To prepare for paperless reports, ministers in charge shall take the necessary measures, through governmental ordinance, to enable reports and other specific procedures to be done using data processing devices.

(b) Data of implementationThe new law shall come into force on April 1,1998

(c) Development of related provisionsAny necessary developments of related provisions shall be made.

3. Relationship with the Structural Reform of the Financial System

This amendment of the law is forerunner to the overall structural reform of the financial system and the success of its execution will likely have an effect on the streamlining of that reform.

[About the financial system reformation (The Japanese version of the Big Bang)]