Contract Problems in U.S.-Japanese Joint Ventures

U.S.-Japanese joint ventures are by far the most important form of direct foreign investment in Japan. For unlike most advanced governments elsewhere in the world, Japanese officialdom has, with precious few exceptions, denied validation under the Law Concerning Foreign Investment to all enterprises wholly-owned or even majority-owned by foreigners. Furthermore, it was basic Japanese policy not to validate even a minority equity in a Japanese enterprise unless the foreigner possessed essential technology which he would not make available to Japanese industry by straight patent or know-how licensing arrangements. Since before July 1963 validation only meant the right to repatriate capital and earnings in foreign currency, many foreign firms had chosen to forego validation and operate a wholly-owned or majority-owned Japanese corporation for yen only, but even this opportunity for an unapproved and underprivileged majority holding was foreclosed on July 1, 1963, when the Japanese Government declared that the so-called "yen operation" could no longer be established without official validation.