© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of the Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020. REUTERS/Kim Kyung-Hoon/File Photo

TOKYO (Reuters) – The Japanese government is considering tightening regulation on foreign funds that hold stakes in domestic firms with important technology in areas such as the nuclear industry and defence, the Yomiuri newspaper reported on Wednesday.

The new regulation will aim to prevent overseas funds and companies from slapping demands on Japanese companies that may weaken their competitive edge or leak technological expertise, the paper said, without citing sources.

The government plans to come up with specific measures by the end of this year and move toward crafting the necessary legislation, the paper said.

A trade ministry official denied the report, saying they were not considering tightening regulations. The finance ministry was not immediately available to comment.

The Yomiuri said measures being considered included one that would order foreign funds that break the new rules to sell their holdings of the Japanese firms.

Through the new regulation, the government would seek to stay involved with supporting retention and development of technology deemed important even after foreign funds have already made their investment, it added.

Any new measures would come after another set of government rules that imposed tighter foreign ownership rules on hundreds of firms designated as having operations core to national security across a dozen sectors took effect in May last year.

Foreign investors buying a stake of 1% or more in the core firms across the dozen sectors deemed crucial to national security have since faced pre-screening in principle, compared with the previous threshold of 10%.

The 12 sectors selected as crucial to national security include areas such as oil, railways, utilities, arms, space, nuclear power, aviation, telecoms and cyber security.