Key Points
- The technologies held by Japanese companies are undervalued by the stock market, and the risk of acquisition by foreign capital is rising.
- The Foreign Exchange and Foreign Trade Act alone is an insufficient defense; funds from countries of concern can hide behind allied capital, making exit management ever more important.
- Companies must build economic security into the core of management, and the state must take responsibility not only for regulation but for fostering and, where necessary, rescuing companies.
MBK Partners (MBK) has abandoned its bid for Makino Milling Machine (Makino). Never before has the hard reality that Japan’s market for corporate control cannot be separated from geopolitics been brought home so unmistakably.
In April 2026, the government, acting under the Foreign Exchange and Foreign Trade Act (FEFTA), issued an extraordinary recommendation to halt the tender offer (TOB) launched by MBK, an Asian investment fund, for Makino. As a result, this takeover battle, which had grown to roughly 250 billion yen, came to a close at the end of that month with MBK’s withdrawal.
The episode began at the end of 2024 with an attempted tender offer by Nidec, a major motor manufacturer. As Makino, seeking to preserve its independence, activated defensive measures and pushed back, it was MBK that stepped forward as a white knight. At first glance, this appeared to be the outcome of purely economic activity: a legitimate corporate defense in the capital market, followed by rescue financing from an investment fund. But the high-performance five-axis machining centers, other advanced multi-axis machine tools, and electrical discharge machines that Makino manufactures constitute sensitive controlled goods with significant potential for military diversion. Fearing the outflow of critical technologies indispensable to Japan’s production of defense equipment, the government intervened on economic security grounds.
M&A transactions involving Japanese companies in 2025 reached approximately 33 trillion yen, a record high for the first time in seven years. Acquisition approaches from foreign capital are surging, even counting only those that have come to light: the completed acquisition of Shibaura Electronics, the leading manufacturer of thermistors, by Yageo, and the acquisition proposal by Alimentation Couche-Tard (ACT) for Seven & i Holdings (Seven & i), among others. Coming amid this surge, the Makino–MBK case is no mere acquisition drama involving a single company; it has become a touchstone for drawing a new boundary between the state and the market. We must therefore reconsider, from the perspectives of both institutions and corporate governance, how this reality should be addressed.
“Cheap Japan” and the Undervaluation of Technology: A Fundamental Vulnerability
The main reason foreign acquirers continue to approach Japanese companies is straightforward: Japan abounds in companies possessing distinctive and advanced technologies, yet their share prices remain low. The intangible assets that constitute Japan’s strength, technology above all, are undervalued by the market.
Mid-sized companies that hold advanced security-relevant technologies yet carry enterprise values below 10 billion yen are, from a buyer’s standpoint, particularly attractive acquisition targets because they are undervalued relative to the technologies they possess. The value held by the mid-sized and smaller companies that make up our supply chains, niche technologies, portfolios of patents, manufacturing know-how, skilled labor, and customer data, is poorly reflected in share prices. As security practitioners often note, attackers tend to target the weakest link. These intangible assets, once lost, can never truly be recovered. Makino was a company of comparatively large market capitalization, but that does not alter the fact that the fragile structure of undervalued technology running through the Japanese market continues to attract the attention of foreign capital.
The Peril of a One-Legged Defense: Over-Reliance on FEFTA
Against this offensive by foreign capital, the main institutional barrier from an economic security standpoint is investment screening under FEFTA. Under the amended Act that entered into force in 2020, the investment ratio threshold requiring prior notification for inward direct investment by foreign capital was lowered from 10% to 1%, and the deterrent effect this has produced deserves recognition.
It is an illusion, however, to suppose that the movements of foreign capital targeting Japanese companies can be repelled by relying on FEFTA alone. At its core, the Act is a framework for managing the balance of payments and external transactions; it is by no means omnipotent. Where a company is directly bound up with national policy, forceful intervention remains possible, as in the present case involving Makino and its strategically indispensable technologies, or the earlier case in which the government issued a cease order against the investment fund The Children’s Investment Fund (TCI) as it built up its stake in J-POWER (Electric Power Development Co., Ltd.). But to demand equivalent intervention from the government in every case is to demand the impossible.
At the same time, the state must resist the temptation to adopt the simplistic view of “all acquisitions are bad” or that “foreign capital is the enemy,” or to intervene excessively in every case that arises. Such conduct would distort the market’s creation of value, breed moral hazard, render capital allocation inefficient, and, by forfeiting the trust of foreign investors, risk destroying healthy capitalism itself. What is required is a carefully calibrated line: one that makes full use of market mechanisms while protecting what must be protected.
Asymmetric Legal Systems and the Trap of the “Allied Fund”
Viewed globally, gaps remain in Japan’s legal architecture. The proposed acquisition of Seven & i threw into relief the institutional asymmetry between the two countries concerned. ACT’s home country is Canada; under the Investment Canada Act, transactions are screened not only for security implications but also for whether they yield a “Net Benefit” to Canada. Beyond that, with public opinion as a backdrop, a national security review invoking “food security” as its rationale remains a possibility. Taken as a whole, Canada’s foreign investment regime is in practice stricter than Japan’s. As the reach of economic security extends from semiconductors and military technologies into the foundations of daily life, Japan’s own institutions must be revised without pause to meet the demands of the times, securing an equal footing with other nations.
More vexing still is the provenance of capital. Economic security encounters its greatest difficulties where the capital of allies and friendly nations is involved. A fund of nominally friendly nationality may well have, standing behind it, money from countries of concern mingled among its actual funding sources. Strengthening the intelligence capabilities of government and the private sector to see through such arrangements is an urgent task. Establishing a Japanese equivalent of the Committee on Foreign Investment in the United States (CFIUS)—one capable of aggregating such information and channeling it into secondary review by national security authorities—is a natural response to the demands of this era.
Above all, it is dangerous to assume that allied capital means friendly capital. The ultimate purpose of an investment fund is the exit: to sell the company at the highest price. Even if an acquisition by a friendly American or Asian fund is approved at the entry stage, if the company is resold several years later to a buyer from a country of concern, the technology could easily flow out. If acquisitions by funds are to be permitted, then the management of the final exit, restrictions on resale, the handling of critical technologies, and the like, becomes the critical task. Investment is a process, not a point in time; unless the entire period through to exit is brought under management, the exercise is meaningless.
This recognition is already crystallizing into law. In May 2026, the amended FEFTA was enacted, writing into statute the creation of a Japanese equivalent of CFIUS, the regulation of indirect acquisitions, and mandatory notification of risk mitigation measures. The basic framework of the system is now in place. What will be tested from here on is its effectiveness.
Designing Not Only Regulation but “Rescue and Finance”
To defend companies, the shield of regulation alone is not enough. Without an adequate supply of capital, no matter how tightly the state locks the door, the company itself may collapse. For companies undervalued by the stock market and exposed to the threat of acquisition, the options must include not only public regulation but “rescue” encompassing private capital formation and finance.
The state, for its part, has begun to consider support against risks arising from non-market factors, including capital reinforcement for private companies responsible for critical goods and technologies, in the National Security Strategy and the Basic Policy on Economic and Fiscal Management. As noted above, rescue loosens managerial discipline and thus carries the danger of moral hazard. Yet abandoning rescue would ultimately force the state to bear the enormous costs associated with technology outflow. In the many cases that fall outside the state’s limited support, private funds dedicated to economic security, supporting private-to-private financing, should play an important role.
The State as Stakeholder and the Autonomy of the Corporation
In the era now opening, corporate governance itself cannot escape fundamental change. As we move from the old shareholder primacy, “the company belongs to its shareholders,” toward a stakeholder capitalism accountable to all concerned parties, the state, the very institutional foundation that makes the corporation possible, should likewise be recognized as a key stakeholder.
Companies can no longer survive by passively awaiting regulation from outside. What is demanded of them is to build economic security into their own management. This is not a matter of the legal department processing FEFTA paperwork. Economic security must be woven into the basic architecture of the company: the preservation of technology and supply chains, capital policy, M&A strategy, intelligence, cybersecurity, cooperation with allies, and the management of the exit after acquisition.
The Makino case has impressed upon us the reality that economic security has penetrated, inescapably and deeply, even the M&A arena in which relatively undervalued Japanese companies have become targets. Each company must discern which part of its value is not reflected in its share price, and must prepare autonomously, asking what financing structures and contractual safeguards, beyond regulation, it has put in place to protect that value.
At the same time, the state must be prepared to take responsibility not merely for prohibition and regulation but for fostering companies, rescuing them, and restoring fair conditions of competition. Japan must carefully incorporate into its institutions and corporate governance the tension between shareholder primacy and stakeholder capitalism, as well as the difficult balance between openness and defense. Doing so is nothing less than the collective effort required if Japan is to preserve its strategic indispensability and enable its companies to navigate an unprecedented age of M&A.
(c)Alamy Stock Photo/amanaimages
