Top 20 FAQs on the Foreign Exchange Act

This is Hamamoto from TIMEWELL.

"Isn't the Foreign Exchange Act just about currency exchange? What does that have to do with exports?" That question comes up more than you might expect. The Foreign Exchange and Foreign Trade Act (FEFTA) is not just about foreign currency transactions — it also governs the export control of products and technology that are important from a national security standpoint.

Catch-all controls. List controls. Deemed export. The terminology is unfamiliar, but for any company doing business internationally, these are topics you cannot afford to ignore. This article answers 20 questions about the Foreign Exchange and Foreign Trade Act.

The Basics of FEFTA

Q1: What is the Foreign Exchange and Foreign Trade Act (FEFTA)?

Its full name is the "Foreign Exchange and Foreign Trade Act." It is a law enacted in 1949 that has been amended many times since — governing the management of cross-border fund transfers and trade. The part most relevant in the context of export control is the section regulating the export of weapons and dual-use items (products and technology with both civilian and military applications) and the provision of technology. This is what practitioners encounter most in day-to-day work.

Q2: What activities are regulated under FEFTA?

Primarily three things. The export of regulated items (physical movement of goods), the provision of regulated technology (sending design drawings, providing technical guidance, etc.), and asset-freezing measures against specific countries and organizations. This article focuses mainly on questions about the first two.

Q3: What is the relationship between FEFTA and the Export Trade Control Order?

FEFTA is the overarching legislation; the Export Trade Control Order (commonly "the Export Control Order") is subordinate to it. FEFTA establishes the broad framework of "what is regulated," and the Export Control Order specifically lists "which items are covered." Below that is the Ministerial Ordinance on Goods and Technology, which specifies the technical parameters (performance thresholds) for each item category.

Q4: What happens if you violate FEFTA?

Criminal penalties include imprisonment of up to 10 years, and fines of up to 30 million yen for individuals and up to 1 billion yen for corporations. Administrative sanctions include an export ban of up to 3 years. Violators' names are publicly disclosed on METI's website. Beyond the loss of credibility with business partners, companies can also be excluded from supply chains. In 2016, a subsidiary of Seiko received an administrative sanction for exporting precision instruments to a North Korea-linked organization — a case that sent shockwaves through the industry.

Questions About List Controls

Q5: What are list controls?

List controls regulate the export of specific items and technology that are pre-identified and listed in Annex 1 to the Export Trade Control Order. They are organized into 15 categories covering nuclear-related items, chemical weapons-related items, missile-related items, and advanced technology (dual-use items). Exporting list-controlled items requires a license from the Minister of Economy, Trade and Industry, regardless of destination.

Q6: How are the 15 categories of list-controlled items organized?

Category 1 covers weapons; Category 2 covers nuclear-related items; Categories 3–4 cover chemical and biological weapons-related items; Categories 5–9 cover missile-related items; and Categories 10–15 cover dual-use items (advanced materials, electronic components, telecommunications equipment, sensors, navigation equipment, encryption devices, and more). The categories that general companies most need to pay attention to are Categories 10–15, which include familiar products such as machine tools, electronic measuring instruments, and high-performance computers. It is not unusual for companies to be surprised to discover that their products fall within these categories. TRAFEED (formerly ZEROCK ExCHECK) uses AI to automate cross-referencing against these item categories.

Q7: What is the basis for determining whether a product falls within list controls?

The determination is based on the technical parameters (thresholds) defined for each item category. For machine tools, the key parameter is positioning accuracy; for encryption devices, it is key length; for sensors, it is detection sensitivity. If a product's specifications exceed the threshold, it is "applicable" (controlled); if not, it is "non-applicable." This determination process is what is called export classification.

Questions About Catch-All Controls

Q8: What are catch-all controls?

A common misconception: not being on the list does not mean you can export freely. If there is a concern that a product — even a non-listed item — could be diverted for the development or manufacture of weapons of mass destruction or conventional weapons, an export license is still required. This is catch-all control — a supplementary mechanism that "closes the gaps in the list."

Q9: When does catch-all control require a license?

There are two requirements. The subjective requirement: when the exporter itself recognizes concerns about the product's intended use or the end-user. The notification requirement (Inform): when METI notifies the exporter that "you must file a license application." If either applies, a license is required.

Q10: Which countries are subject to catch-all controls?

In principle, all countries. However, countries classified as white-listed countries (Group A) — including the United States, EU member states, and Australia — are exempt from WMD catch-all controls. Conventional weapons catch-all controls apply only to UN arms embargo countries and regions. The classification of covered countries has been revised in the 2025 regulatory review, so verify the latest information.

Q11: What are end-use and end-user verification?

End-use verification means investigating what the exported product will be used for; end-user verification means investigating who will use it. Specifically: verifying the stated purpose in contracts, interviewing customers, obtaining end-use certificates, and cross-referencing against METI's Foreign User List. As the volume of cases grows, manual end-user verification becomes unmanageable — using TRAFEED (formerly ZEROCK ExCHECK)'s screening function for automated cross-referencing is the efficient approach.

Questions About Deemed Export

Q12: What is a deemed export?

Imagine this scenario: at your office in Japan, you hand technical materials to a foreign-national engineer. At first glance, this seems unrelated to export. But if those materials contain regulated technology, this could be deemed an "export." Deemed export is the concept that providing regulated technology to a non-resident while they are in Japan is regulated as an "export."

Q13: What changed with the 2022 "Clarification of Deemed Export Management"?

Under the previous rules, the provision of technology between residents in Japan was excluded from deemed export. However, under the May 2022 amendment, technology provided to residents who fall into certain "specified categories" became subject to regulation. The specified categories are: individuals with employment contracts with foreign governments, individuals receiving 25% or more of their annual income from a foreign government, and individuals acting under the direction of a foreign government. Honestly, this amendment significantly expanded the scope of coverage.

Q14: Do universities and research institutions also come under deemed export rules?

Yes. Technical guidance provided to international students and foreign researchers, and technology sharing in joint research, can all potentially be subject to deemed export rules. Many universities have established export control committees and conduct export classification reviews of research content. There is an exception for basic research, but the scope of that exception must be interpreted strictly.

Questions About Technology Transfer Controls

Q15: What does "technology" mean in the context of technology transfer controls?

Design drawings, manufacturing know-how, test data, software source code, oral technical instruction — essentially all information related to the design, manufacture, or use of a product. This includes not just tangible documents, but also technical discussions in emails, phone calls, and online meetings. The inclusion of "oral" communication is the key point: even a technical conversation at an international conference can potentially fall within the scope of regulation.

Q16: Does providing technical explanations on an overseas business trip also fall within the regulations?

Yes. Providing an explanation of regulated technology overseas constitutes "export of technology." Presentations at overseas trade shows and technical discussions at client sites also require attention if the content of the explanation involves regulated technology. Before traveling, conduct an export classification check, and obtain a service transaction license if required.

Q17: What about placing technical materials in the cloud in a way that allows access from overseas?

If regulated technology is stored in the cloud and is accessible from overseas, this can constitute "provision" of technology. Countermeasures include restricting access rights to residents within Japan, and separately encrypting and managing regulated technology. With remote work now widespread, this is a commonly overlooked risk point — please be vigilant.

Questions About Practical Compliance

Q18: Where can I find the latest regulatory information?

METI's "Security Trade Control" page is the authoritative source. CISTEC also provides explanations of regulatory amendments and seminars. JETRO's Trade and Investment Consultation Q&A is also rich with practical answers to real-world questions. Personally, I recommend subscribing to CISTEC's email newsletter — it makes it much harder to miss regulatory change information.

Q19: How do I check whether a business partner is subject to sanctions?

You need to cross-reference against multiple lists: METI's Foreign User List, the U.S. OFAC SDN List, EU sanctions lists, and others. Manual cross-referencing has real limits as volume increases. TRAFEED (formerly ZEROCK ExCHECK) has a counterparty screening function that handles automated cross-referencing, including handling name variations (different alphabetical spellings, etc.).

Q20: What should I do immediately to comply with FEFTA?

Three things. Conduct export classification for the products and technology your company handles (if you haven't done this yet, it's the top priority). Designate an export control officer and establish an internal classification workflow. Build a systematic process for end-user verification of counterparties. You don't need to achieve perfection all at once — start with export classification and progressively build out your framework.

Summary

Key points on FEFTA and export control:

• FEFTA governs not just currency, but the export control of products and technology
• List controls cover specific items; catch-all controls cover even non-listed items in certain circumstances
• Deemed export applies to technology provided domestically — the scope expanded with the 2022 amendment
• Publishing technology on the cloud and providing technical explanations on business trips can both constitute "export"
• Penalties for violations: imprisonment up to 10 years, fines up to 1 billion yen

FEFTA is amended frequently — even if you understand it now, periodic updates are essential. "Thinking you understand it" is the most dangerous position to be in. See also the related article "Top 20 FAQs on Export Control Basics." For streamlining export classification and counterparty screening, TRAFEED (formerly ZEROCK ExCHECK) covers it all.

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References

• Ministry of Economy, Trade and Industry, "Security Trade Control Q&A," 2025
• JETRO, "Security Trade Control Quick Reference Guide," 2024
• Ministry of Economy, Trade and Industry, "Clarification of Deemed Export Management Operations," 2022