TCI Demands Sanctions on Japan

A London hedge fund has called on the government to impose sanctions on Japan after Tokyo rejected the fund's attempt to increase its holding in a Japanese power company.

The Children's Investment Fund (TCI) made the demand in a letter to ministers after the Japanese government cited national security in blocking its attempt to double its 10% stake in J-Power.

It is the first time Japan has invoked a trade law allowing it to block foreign investors from acquiring more than 10% of firms considered vital to national security, such as arms manufacturers and utilities.

A source close to the dispute told the Guardian that the fund had written to John Hutton, the business secretary, calling on the government to "formally intervene and impose reciprocal trade and investment sanctions" against Japan. The letter, signed by TCI's managing partner, Christopher Hohn, was also sent to Digby Jones, trade and investment minister, and Malcolm Wicks, energy minister.

The $10bn (£5bn) activist fund has vowed to fight the rejection through the European Union, the Organization for Economic Cooperation and Development, and the World Trade Organization.

TCI is the biggest single shareholder in J-Power, which operates power plants and is building its first nuclear power station.

While Japan has taken advantage of more open economies in recent years, inbound foreign direct investment accounts for just 3% of its economy, compared with 20% in the EU. The EU trade commissioner, Peter Mandelson, said this week that Japan was "the most closed investment market in the developed world".