However, government restrictions prevented foreign companies from investing. For example, the FIL stated that a foreign company could make an investment only if that investment, "contributed (1) to the attainment of self-sufficiency and the sound development of the Japanese economy and (2) to the improvement of Japan's balance of payments" (Paprzycki & Fukao, 2005, page 14). After 1960 there was significant pressure for Japan to liberalize FDI. The government's response was to allow investments that positively contributed to the Japanese economy and to prohibit any investment that was perceived to be harmful. Japan did this to protect small enterprises, industrial order, and the development of industrial techniques. In the 1970's, Japan became more liberal with FDI, but regulations remained and protected Japanese firms that lacked international competitiveness. In the mid-1970's, foreign investment in Japanese firms became less attractive due to strong domestic competition and high labor costs. At the same time, the Japanese government put a limit on the amount of shares of a Japanese firm that foreign companies could acquire. From 1970 to 1980, FDI in several industries was liberalized and in 1980 Japan abolished the Foreign Investment Law. Although foreign companies no longer needed to seek Japanese government approval, they still had to notify authorities of investments (Paprzycki and Fukao, 2005, page 14).
Though restrictions had been lifted, Japanese culture can also make it difficult for foreign companies to enter the Japanese market. In their textbook Introduction to International Business, Dimon & Gomez (2014) explain that since the 1990s, Japanese firms have actively resisted foreign investment because they fear foreign companies would restructure the firms too harshly. Japanese culture also plays its part when employees stay with the same company for much of their lifetime rendering it much more difficult for foreign companies to recruit talented managers.