Japan’s New Look for Investors Piques Foreign Law Firm Interest

Japan is easing the path for foreign lawyers to work in the country as it courts outside investments.

The country in July streamlined its foreign lawyer registration process, as US and UK lawyers continue to be a tiny fraction of the local legal industry. Hurdles remain, but interest from outside law firms is expected to grow with corporate dealmakers eyeing more opportunities on the ground.

“Japan’s ‘lost decades’ of the last 20 or 30 years are finally coming to a close,” said Jun Usami, a corporate lawyer who runs White & Case’s Tokyo office. “Foreign investors are more keen on investing in Japan than before the global financial crisis.”

The yen’s depreciation has made Japanese assets more attractive, boosting mergers and acquisitions and other investments. Warren Buffett is among those pouring money into Japanese businesses, driving the stock market to record highs.

That means more opportunities for international law firms, especially those advising on cross-border deals. Several leading firms are repositioning in the region, shifting away from China to Singapore and other nearby locations.

“China is no longer the top market due to geopolitical risks,” Usami said.

Slow and Steady

The opening of the Japanese legal market, once a key target of US trade negotiations with Tokyo, has been gradual.

The new rule changes are designed to streamline the foreign lawyer registration process. Law firms employing those attorneys can submit required paperwork once, rather having to start from scratch every time they register.

A little more than 500 foreign lawyers are registered to work in the country, about 1% of the total number of attorneys, according to the Japan Federation of Bar Associations. That’s up about 45% from 2010.

A total of 235 US lawyers were registered to work in Japan last year, up about 11% from 2010.

The country started loosening restrictions in the 1980s. It was not until 2005 that Tokyo allowed foreign and Japanese law firms to set up joint structures. That permitted foreign qualified lawyers to be equity partners with management rights and let foreign firms to hire Japanese attorneys.

Most of the largest global firms in Tokyo lean heavily on Japanese lawyers. San Francisco’s Morrison & Foerster is an exception, with its 90 lawyers divided evenly between Japanese and foreign attorneys. Baker McKenzie, White & Case and DLA Piper are among other large, international firms with outposts in the city.

The corporate departments are the largest groups in global law firms’ Tokyo offices, according to data compiled by Firm Prospects.

The country’s government also taken steps to welcome investors.

It introduced non-binding guidance last year urging companies to seriously consider takeover offers, prompting an uptick in domestic deals.

Canadian retailer Alimentation Couche-Tard Inc.'s bid to buy Seven & i Holdings Co. has emerged as an early test of how foreign mergers and acquisitions will fare. Japan’s Seven & i, which operates 7-Eleven convenience stores, is among a list of companies that the government has deemed important for national security.

Entry Challenges

Even as Tokyo removes some red tape for law firms, significant barriers remain.

Japan generally doesn’t allow law firms to operate as limited liability partnerships, the prevalent structure for firms in the US and UK. The LLP structure shields individual partners from liability for the firm while providing certain tax benefits.

Many global firms reducing their presence in China and moving elsewhere in the region have opted for Singapore. The country, where English is commonly spoken, makes it easier for foreign businesses to operate than does Japan, according to Robert Bata, principal at law firm consultancy WarwickPlace Legal LLC.

“In Singapore, there are very clear and transparent rules for the operations of foreign lawyers and law firms,” Bata said. “The government of Singapore has long ago determined that it is in Singapore’s best interest to attract professionals, rather than put up roadblocks.”