The United States on Wednesday asked Japan to improve its environment for foreign direct investment by letting companies carry out cross-border stock exchanges for mergers and acquisitions.

In making the request during the second round of bilateral investment talks held in Tokyo, the U.S. pointed out that the cross-border exchange of shares is not allowed in Japan when corporate mergers and acquisitions involve Japanese and U.S. companies.

Japanese firms, however, can readily exchange shares.

"A number of merger and acquisition methods widely used in the U.S. and Europe are not available at present in Japan. The cross-border exchanges of shares could be an important contributor" to these activities for both countries, said Alan Larson, U.S. undersecretary of state for economic, business and agricultural affairs.

Japan will examine the issue, said Hidehiro Konno, vice minister for international affairs at the Ministry of Economy, Trade and Industry.

Larson also urged Japan to promote more foreign direct investment, noting that the $77 billion flow of investment between Japan and the U.S. last year was much lower than the $1.3 trillion between the U.S. and the European Union in the same period.

The investment talks, formally known as the U.S.-Japan Investment Initiative Sub-Cabinet Level Meeting, focus on ways of improving the environment for international investment in both countries. The talks were set up as a part of the U.S.-Japan Economic Partnership for Growth agreed to in June by President George Bush and Prime Minister Junichiro Koizumi.

The two governments will compile a report on the meetings that will be given to the two leaders, who are expected to meet in June.