While foreign direct investment rises in Japan, outsiders doing business there are warning that a new law could interfere with that trend. Japan's industrial production has dropped, but domestic automakers say they're actually producing more vehicles to meet rising demand.

The Finance Ministry has announced that foreign direct investment doubled last year to a record amount - topping $36 billion. Direct investment from the United States increased sevenfold. Prime Minister Junichiro Koizumi has set a goal for the nation to double foreign direct investment over the decade compared to the 1990s. But, leaders of the American and European business communities in Japan say a new commercial law could get in the way.

The foreign business groups say the law allows a wide variety of Japanese companies to use many defenses against unsolicited takeover bids.

The chairman of the European Business Council, Richard Collasse, says there is an unfounded fear in Japan of an unwelcome wave of foreign investment - similar to the attitude he once saw in his native France.

"There is a little bit of nationalism. There is natural fear of the unknown. We had exactly the same thing in France 20 years ago," said Mr. Collasse. "We were very much afraid of getting foreign investment into our country. We thought that we would lose our soul - we wouldn't be able to speak French any more."

At the same news conference, officials of the American Chamber of Commerce in Japan warned that global investment funds might reroute their investments to China if Tokyo does not commit to good governance and market principles.

Japanese industrial production fell 2.3 percent in May from a month earlier. Although that is less of a drop than forecast, economists warn the latest numbers suggest the country's economic recovery could be delayed.

Japanese manufacturers say they expect June's output to rise one-percent compared to the previous month, but slip 1.2 percent in July.

Japan's top three carmakers report increased domestic production in May, along with growing sales.

The top automaker, Toyota, says its domestic production rose six percent in May, the fifth straight monthly increase. Number two Nissan says its production climbed 12 percent, offsetting a drop in exports to North America and Europe. And number three Honda also reports increased production of nearly 12 percent for May.

Farm machinery maker Kubota says it will respond seriously to claims and pay an unspecified amount of compensation for deaths believed related to asbestos exposure.

The company has issued a statement saying 79 people died of diseases that may have been caused by asbestos used at two of its plants. Kubota says most of those who died were workers at a plant in western Japan that made reinforced water pipes from the mid-1950s through 1975.

A labor safety group says the deaths were not limited to employees, but also included people who lived near one of the factories.

Kubota's stock plunged as much as eight percent following the announcement.