When a firm enters into an FX forward or a cross-currency swap with an overseas counterparty, the terms of the contract and whether the counterparty is a resident or non-resident decide whether the procedures of the Foreign Exchange and Foreign Trade Act apply. When settlement moves funds across the border, the Act's payment rules apply as well.

Purpose and structure of the Act

The Foreign Exchange and Foreign Trade Act (the "Act" below) is based on the freedom of foreign exchange, foreign trade, and other cross-border transactions, and applies only the minimum necessary control or adjustment to them. Its aims are the sound development of cross-border transactions, the maintenance of peace and security for Japan and the international community, and the balance of payments and currency stability1.

The Act was enacted in 1949 as the "Foreign Exchange and Foreign Trade Control Act," which in principle prohibited cross-border transactions. The 1980 amendment moved to a system that is free in principle, and the 1998 amendment in principle abolished the systems of prior permission and notification. That amendment also removed the word "Control" from the title2.

The chapters of the Act that bear on FX derivatives are the following.

Chapter Articles Content
Chapter I General Provisions Articles 1 to 9 Purpose, definitions such as residents and non-residents, emergency suspension of transactions
Chapter II Measures for the Maintenance of Peace and Security of Japan Article 10 Countermeasures based on a Cabinet decision
Chapter III Payments, etc. Articles 16 to 19 Permission duty for payments, etc.; banks' duty of confirmation and identity verification
Chapter IV Capital Transactions, etc. Articles 20 to 25-2 Definition of capital transactions, permission duty, prior notification of outward direct investment
Chapter VI-2 Reports, etc. Articles 55 to 55-9 Reports on payments, etc. and capital transactions; reports on foreign exchange business
Chapter VI-2-2 Compliance Standards for Foreign Exchange Transactions Service Providers Articles 55-9-2 to 55-9-4 Setting of compliance standards, guidance, recommendations, and orders

Capital transactions are cross-border financial transactions that involve no transfer of goods or services. They include deposits, loans, sales and purchases of foreign means of payment and claims, financial indicator futures contracts, and acquisitions of securities3. FX derivatives appear in the Act in two places: in capital transactions, and in the payments, etc. that settlement involves.

The Act sets the framework and leaves the details to cabinet orders and ministerial ordinances. The laws and regulations that bear on FX derivatives are the following.

Law or regulation Content that bears on FX derivatives
Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949) Definition of capital transactions, permission duty, reports, framework of compliance standards
Foreign Exchange Order (Cabinet Order No. 260 of 1980) Transactions excluded from financial indicator futures contracts, capital transactions that need no report, scope of foreign exchange transactions service providers
Ministerial Ordinance on Foreign Exchange (Ministry of Finance Ordinance No. 44 of 1980) Procedure for applying for permission for capital transactions
Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (Ministry of Finance Ordinance No. 29 of 1998) Reports on payments, etc., capital transactions that need no report, reports on derivatives transactions

The Minister of Finance imposes the duty to obtain permission for capital transactions, and the Minister of Economy, Trade and Industry does so for specified capital transactions, such as loans directly tied to imports and exports of goods. The competent minister imposes the permission duty for payments and similar transfers4. The Bank of Japan handles tasks such as receiving applications, notifications, and reports. An application for permission for a capital transaction is submitted to the Minister of Finance through the Bank of Japan5.

This page reflects the version of the provisions published as of October 22, 2026 (last amended July 23, 2026).

Residents and non-residents

The Act divides the parties to a transaction into residents and non-residents. Residents are individuals who have a domicile or residence in Japan and corporations that have their principal office in Japan. Non-residents are all other individuals and corporations. "Japan" means Honshu, Hokkaido, Shikoku, Kyushu, and the attached islands specified by ministerial ordinance6.

A non-resident's branches, offices, and similar establishments in Japan are deemed residents, even if the principal office is abroad. Where the distinction is unclear, it follows what the Minister of Finance determines.

Japanese nationals are in principle residents, and foreign nationals are in principle non-residents. Residency of individuals and corporations is determined as follows7.

Party Treatment
A foreign national who works at an office in Japan Resident
A foreign national who has been in Japan for six months or more since entry Resident
A foreign corporation's branch or office in Japan Resident
A Japanese national who has left Japan to stay abroad for two years or more and stays abroad Non-resident
A Japanese national who has left Japan to work at an office abroad and stays abroad Non-resident
A Japanese corporation's branch or office abroad Non-resident

For FX derivatives, a counterparty that is the Tokyo branch of a foreign bank is a resident, and one that is an overseas branch of a Japanese bank is a non-resident. Even within the same banking group, whether a trade is with a resident or a non-resident depends on the office that signs the contract.

How FX derivatives are treated

A financial indicator futures contract is a contract for a transaction that does not provide for delivery of the underlying and instead exchanges money based on the difference between an agreed figure and an actual figure. By the Act's definition, it is a contract for OTC derivative transactions, market derivative transactions, and similar transactions, minus what a cabinet order excludes. Among OTC derivative transactions, those that provide for delivery of financial instruments (except those settled only by paying the difference) and option transactions that trade a right to bring about a purchase or sale of financial instruments are excluded8. The Bank of Japan explains that market derivative transactions, OTC derivative transactions, and similar transactions on foreign markets are covered only when physical settlement is not provided for under the system9.

A financial indicator futures contract falls under two items of the definition of capital transactions. Item 8 covers the creation of a claim and similar events under a contract between a resident and a non-resident. Item 9 covers the creation of a claim and similar events that are payable in a foreign currency under a contract between residents, and those that are payable in yen and relate to a financial indicator in a foreign currency.

An FX forward falls under a different item as a contract for the sale and purchase of foreign means of payment or claims. Even between residents, a contract in a foreign currency, such as a deposit, a loan, or a sale and purchase, is a capital transaction because it creates a claim payable in a foreign currency. A contract between residents in which both the payments and the financial indicator are in yen only is not a capital transaction10.

Tracing the provisions, an NDF can be read as falling under the Financial Instruments and Exchange Act's definition of OTC derivative transactions, as a transaction that provides for payment of a difference, and as not covered by the cabinet order's exclusions11. The following table assumes that an NDF is a financial indicator futures contract, and sets out each contract's relation to that definition by its terms.

Contract terms Relation to financial indicator futures contracts
FX forward (the currencies are delivered) A capital transaction as a sale and purchase of foreign means of payment, etc.; excluded from financial indicator futures contracts
NDF (only the difference is paid in one currency; if taken to be a financial indicator futures contract) No delivery; a transaction that provides for payment of a difference, so it is taken to be a financial indicator futures contract
Currency option (a right to bring about a sale and purchase of the currency) A right to bring about a sale and purchase is excluded; a right to receive the difference directly is not excluded
Cross-currency swap (principal is exchanged) Transactions that provide for transfer of principal are excluded; those settled only by the difference are not excluded

A forward exchange contract is a capital transaction12. How an NDF works is covered on the Non-Deliverable Forwards (NDF) page.

Permission, prior notification, and after-the-fact reporting

The Minister of Finance's regulation of capital transactions takes three forms: a permission system, a prior notification system, and an after-the-fact reporting system13.

Procedure Timing Relation to FX derivatives
Permission Apply before the transaction Required only for transactions on which a duty has been imposed
Prior notification Notify before the transaction For capital transactions, limited to some direct investment
After-the-fact reporting Report after the transaction or payment Capital transactions in FX derivatives need no report; payments, etc. above a set amount do. Banks above a size threshold, financial instruments business operators, and similar firms report their derivatives transactions monthly

Permission

The Minister of Finance may impose a duty to obtain permission for a capital transaction in any of the following cases14.

  • When the performance of a treaty or other international commitment, or the contribution to international peace, is likely to be hindered
  • When the Cabinet has decided on a countermeasure
  • When maintaining the balance of payments becomes difficult
  • When the yen exchange rate fluctuates sharply
  • When a large movement of funds adversely affects domestic financial or capital markets

A transaction on which no duty has been imposed needs no permission. According to the Bank of Japan, the capital transactions subject to permission are set out in a public notice, and all of the measures are based on the performance of treaties and similar grounds15. Permission for economic sanctions is handled under this system. (The permission system for dealings with sanctioned parties is covered on the AML and Sanctions page.)

Prior notification

The capital transactions that require prior notification are outward direct investment in a specified industry. A resident notifies the Minister of Finance in advance. The investment cannot be carried out until 20 days have passed from the date the notification was accepted, and during that period the Minister of Finance may recommend changing or stopping it16. Some inward direct investment by foreign investors, as specified by cabinet order, also requires prior notification and cannot be carried out until 30 days have passed from acceptance17. Derivative contracts such as FX forwards and NDFs are not covered.

After-the-fact reporting

The 1998 amendment in principle changed the regulation of capital transactions to an after-the-fact reporting system. Amendments to the reporting ordinance on May 1, 2011 and January 17, 2012 then made most after-the-fact reports unnecessary13. The main reports that bear on FX derivatives are the following three.

  • Reports on payments, etc. Payments from Japan to foreign countries, receipts from foreign countries, and similar flows are reported, except small ones of 30 million yen or less in equivalent value and a few others18.
  • Reports on capital transactions. When you become a party to a capital transaction that needs a report, you report it each time. The capital transactions that need no report are defined broadly19.
  • Reports on foreign exchange business. The Minister of Finance requires reports from persons whose foreign exchange business exceeds a certain size. Reports on the state of derivatives transactions fall under this system20.

Scope and deadlines of reports

Capital transactions in sales and purchases of foreign means of payment or claims, such as FX forwards, and in financial indicator futures contracts need no report, whether they are between a resident and a non-resident or between residents in a foreign currency21.

When funds cross the border to settle a contract, the payment or receipt is treated separately as a payment, etc. Payments, etc. above 30 million yen in equivalent value are subject to reporting, except those that the reporting ordinance excludes. For payments, etc. that involve an exchange transaction, the resident submits the report to the bank that carried out the transaction22.

ReporterBankMinisterReportVia BOJ
Figure 1Submission route for payment reports via a bank
Figure description

The figure shows the order in which the report on payments, etc. involving an exchange transaction is submitted: from the reporter to the bank, etc., and from the bank, etc. through the Bank of Japan (BOJ) to the Minister of Finance (shown as Minister). The two arrows show the flow of the report, not of funds. The route for payments, etc. made without a bank is not in the figure; it is in the perspective box.

Derivatives transactions themselves are covered by a separate report. The reporting firms are banks, financial instruments business operators, insurance companies, investment trust management companies, and asset management companies. Any of them whose transactions related to foreign exchange business exceed 10 billion yen in equivalent value in a month reports the state of its derivatives transactions for the following month. The deadline is the 15th of the month after that, and the report is submitted to the Minister of Finance through the Bank of Japan. The report form published by the Bank of Japan has columns for option transactions, futures and forward transactions, and swap transactions, and transactions with non-residents are entered in it24.

Emergency suspension

When the competent minister finds an urgent need because of a sudden change in international economic conditions, the minister may order the suspension of transactions or payments, etc.25 When there is an urgent need to stabilize the currency, the Minister of Finance may order the suspension of capital transactions in currencies. The order may cover participants in the interbank foreign exchange market, members of financial instruments exchanges, financial instruments business operators, and others. The suspended transactions include market derivative transactions and OTC derivative transactions in currencies, and the suspension period does not exceed one month26.

Judgment examples

An actual judgment depends on the terms of the transaction and the authorities' practice.

Consider a hypothetical example in which Bank V and Company W both have their principal offices in Japan and are residents, and Company W enters into an FX forward to buy USD 1 million in six months. The contract creates a claim payable in US dollars, so it is a capital transaction even between residents. A sale and purchase of foreign means of payment between residents is a capital transaction that needs no report, and unless a duty to obtain permission has been imposed on the transaction, neither permission nor a report is needed.

If the same two parties enter into an interest rate swap exchanging a yen floating rate for a fixed rate, the payments and the financial indicator are in yen only. The swap is outside the definition of capital transactions, so the permission and reporting rules for capital transactions do not apply.

Consider a hypothetical example in which Company W enters into an NDF on an emerging-market currency with Bank U (a non-resident), which has its principal office abroad, and receives the difference in US dollars from Bank U on the settlement date. If an NDF is taken to be a financial indicator futures contract, this contract is a capital transaction between a resident and a non-resident, and no report is needed as a capital transaction. In that case, if the difference received is 20 million yen in equivalent value, it is a small payment, etc. and needs no report. If it is 50 million yen in equivalent value, it exceeds 30 million yen and is subject to a report on payments, etc.

Foreign exchange transactions service providers

Foreign exchange transactions service providers are the firms that a cabinet order specifies from three groups: financial institutions such as banks, fund transfer service providers, and money changers. They are persons for whom arrangements to confirm whether a transaction is subject to a permission duty are found to be especially necessary. They are banks and similar institutions, fund transfer service providers, electronic payment instruments service providers and similar firms, and money changers, and the banks and similar institutions include banks, long-term credit banks, shinkin banks, and credit cooperatives27. Financial instruments business operators are not on this list.

The competent minister sets, by ministerial ordinance, the compliance standards that these providers follow. The standards specify what is needed to confirm whether payments, etc. and capital transactions are subject to a permission duty, and providers trade in line with them. The competent minister gives guidance and advice, makes a recommendation if a provider still violates the standards, and may issue an order if the provider does not follow the recommendation28. Before carrying out an exchange transaction, a bank confirms that the customer's payment is not one that requires permission or, if it is, that permission has been obtained29.

Entering into a capital transaction contract also involves identity verification of the customer. Banks and similar institutions, trust companies, financial instruments business operators, and electronic payment instruments service providers and similar firms verify identity when they enter into a contract for a capital transaction with a customer or take a similar action. Such actions include concluding a contract for the sale and purchase of foreign means of payment or claims and concluding a financial indicator futures contract, and actions with a customer whose identity has already been verified are excluded30.

What this page does not cover

The permission system for dealings with sanctioned parties, the screening of inward direct investment, regulation of foreign trade, and penalties are not covered on this page. Capital transactions in crypto-assets and electronic payment instruments, foreign exchange regulation in other countries, and the content of the 2026 amendment are also not covered. Which item of the definition of capital transactions covers currency options and cross-currency swaps, which are excluded from financial indicator futures contracts, is not covered either.

Notes

  1. Foreign Exchange and Foreign Trade Act (external site) (in Japanese), Article 1 (Purpose). ↩

  2. Ministry of Finance, "Purpose and history of the Foreign Exchange and Foreign Trade Act" (external site), main text (explanation of the 1949 enactment and the 1980 and 1998 amendments) (外為法の目的と変遷, in Japanese). ↩

  3. Foreign Exchange and Foreign Trade Act (external site), table of contents, Articles 10, 16 to 19, 20, and 55 to 55-9-4. The definition of capital transactions is also explained in Q1 of the Bank of Japan's "Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions)" (external site) (外為法Q&A（資本取引編）, in Japanese). The Act's term 金融指標等先物契約 is rendered here as "financial indicator futures contract" after the official translation's "futures contract on a financial indicator." ↩

  4. Foreign Exchange and Foreign Trade Act (external site), Article 16, paragraph 1 (payments, etc.: competent minister), Article 21, paragraph 1 (capital transactions: Minister of Finance), Article 24, paragraph 1 (specified capital transactions: Minister of Economy, Trade and Industry). ↩

  5. Bank of Japan, "What is the Foreign Exchange and Foreign Trade Act?" (external site) (外為法とは何ですか？, in Japanese), and the Ministerial Ordinance on Foreign Exchange (external site) (外国為替に関する省令, in Japanese), Article 12, paragraph 1 (an application for permission is submitted to the Minister of Finance through the Bank of Japan). ↩

  6. Foreign Exchange and Foreign Trade Act (external site), Article 6, paragraph 1, items 1, 5, and 6, and paragraph 2. ↩

  7. Bank of Japan, Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions) (external site) (revised April 2026 [Reiwa 8]), Q2, table of residency criteria. ↩

  8. Foreign Exchange and Foreign Trade Act (external site), Article 6, paragraph 1, item 14, and Foreign Exchange Order (external site), Article 2, paragraph 4. ↩

  9. Bank of Japan, Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions) (external site), Q3 (8). ↩

  10. Foreign Exchange and Foreign Trade Act (external site), Article 20, item 3 (sale and purchase between a resident and a non-resident), item 4 (foreign-currency contracts between residents), item 8 (financial indicator futures contract between a resident and a non-resident), item 9 (financial indicator futures contract between residents). ↩

  11. Financial Instruments and Exchange Act (external site) (in Japanese), Article 2, paragraph 22, items 2 to 5, and Foreign Exchange Order (external site), Article 2, paragraph 4. ↩

  12. Bank of Japan, Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions) (external site), Q3 (5). ↩

  13. Bank of Japan, Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions) (external site) (revised April 2026 [Reiwa 8]), Q4, regulation of capital transactions under the Act. ↩ ↩2

  14. Foreign Exchange and Foreign Trade Act (external site), Article 21, paragraphs 1 and 2, and Article 10, paragraph 1. ↩

  15. Bank of Japan, Q&A on the Foreign Exchange and Foreign Trade Act (Capital Transactions) (external site), Q5 (1). The notice is given as Ministry of Finance Notice No. 99 of 1998. ↩

  16. Foreign Exchange and Foreign Trade Act (external site), Article 23, paragraphs 1, 3, and 4. That there are five specified industries is stated in Q4 of the Bank of Japan's Q&A (external site). ↩

  17. Foreign Exchange and Foreign Trade Act (external site), Article 27, paragraphs 1 and 2. ↩

  18. Foreign Exchange and Foreign Trade Act (external site), Article 55, paragraph 1, and the Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site) (外国為替の取引等の報告に関する省令, in Japanese), Article 1, paragraph 1 (an amount equivalent to 30 million yen or less) and paragraph 2. ↩

  19. Foreign Exchange and Foreign Trade Act (external site), Article 55-3, paragraph 1, Foreign Exchange Order (external site) (in Japanese), Article 18-5, paragraph 1, and the Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 5. ↩

  20. Foreign Exchange and Foreign Trade Act (external site), Article 55-7, Foreign Exchange Order (external site), Article 18-7, paragraph 2, and the Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 16, paragraph 1 (citing Article 18-7, paragraph 2, item 2 (c), (f), and (g) of the Order). ↩

  21. Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 5, paragraph 2, items 1 and 1-2, and the table in Q6 (reporting system for capital transactions) of the Bank of Japan's Q&A (external site). ↩

  22. Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 1, paragraph 1, and Article 3, paragraph 1. Article 1, paragraph 2 lists the payments, etc. that need no report regardless of amount. ↩

  23. Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 3, paragraphs 1 to 4. The deadline for payments, etc. made without a bank is in Article 2, paragraph 1. ↩

  24. Ministerial Ordinance on Reports of Foreign Exchange Transactions, etc. (external site), Article 16, paragraph 1, and the Bank of Japan's Appended Form 27 (external site) (別紙様式第二十七, in Japanese), instruction 4 for completing the form. ↩

  25. Foreign Exchange and Foreign Trade Act (external site), Article 9, paragraph 1. ↩

  26. Foreign Exchange Order (external site), Article 3, paragraphs 2 and 4. ↩

  27. Foreign Exchange and Foreign Trade Act (external site), Article 55-9-2, paragraph 1, and Foreign Exchange Order (external site), Article 6-2, paragraph 1, and Article 18-10, paragraph 1. The Act's term 外国為替取引等取扱業者 is rendered here as "foreign exchange transactions service providers," after the official translation of the Order. ↩

  28. Foreign Exchange and Foreign Trade Act (external site), Article 55-9-2, paragraphs 2 and 3, Article 55-9-3, and Article 55-9-4, paragraphs 1 and 2. ↩

  29. Foreign Exchange and Foreign Trade Act (external site), Article 17 (banks' duty of confirmation). ↩

  30. Foreign Exchange and Foreign Trade Act (external site), Article 22-2, paragraph 1, and Foreign Exchange Order (external site), Article 11-5, paragraph 1, items 5 and 7. ↩