9 June 2026
Record highs in Japan's stock market have changed global perceptions of the country’s equity appeal. But for long-term focused investors, the more important story is how Japanese companies themselves are changing.
The Nikkei 225 crossed 63,000, a record high, on May 7, making it one of the best-performing major indices in the world this year.[1] Yet the broader TOPIX market trades at just 1.7 times book value — about a third below the developed-market average and well below the US.[2]
A strong market rally has not closed the valuation gap. Japan's ‘governance discount’ could still very much be in place.
For decades, Japanese corporate culture placed shareholders – and especially minorities – at something of a disadvantage. In 2019, only 6.4% of companies cited shareholder value as a key governance purpose; 59.4% listed stakeholders.[3]
But change is afoot, thanks to ongoing corporate reforms that have leveled the playing field for shareholders. Activist investors submitted shareholder proposals to a record 52 companies in June last year.[4] Japan is now Asia’s activism hotspot, accounting for 56% of regional activity in 2025 and 32% in Q1 2026, and the second-most active shareholder activism market globally, ahead of Europe.[5] In fact, Japanese companies are even clamoring for a breather, asking regulators to increase ownership requirements for shareholder proposals.[6]
Despite this progress, the Japan Exchange Group CEO estimated that market reform is only "15-20% complete".[7]
While the standout Asian equity market of the year so far has been Korea[8] owing to its commanding presence in global AI supply chains, corporate governance reforms continue to support Japanese equities, ensuring that companies focus more intensively on shareholder value.
In this evolving landscape, equity-backed financing can help long-term stockholders access liquidity to manage or increase their exposure to a generational change in Japan's corporate sector.
Why now?
The Corporate Governance Code was issued in 2015 and the Stewardship Code in 2013 — yet the real market reaction only came from 2023 onwards.[9] Several converging forces explain the delay.
Resistance to shareholder-focused governance is deeply rooted in Japan's corporate history and culture.
Companies within the same industrial groups held shares in each other, shielding management from outside pressure. And until Japan's Supreme Court struck them down in July 2022, companies could deploy anti-takeover measures (poison pills) that entrenched management and also deterred activist investors.[10]
And with Japan stuck in deflation for much of the past 30 years, simply holding cash made financial sense: it preserved value when prices were falling. Japanese households have historically kept around half of their personal assets in cash — a reflection of the same deflationary mindset that shaped corporate behavior.
But that is also set to change.
The government overhauled its Nippon individual savings accounts (NISAs) in 2024 to encourage long-term saving in equities, and the response has been significant: assets held in such tax-advantaged investment accounts for residents jumped 33% in a single year to an estimated ¥71 trillion ($449 billion).[11]
As more households move savings into the stock market, the government has a stronger mandate in ensuring that listed companies deliver shareholder value.
Further, Japanese companies also found themselves under the spotlight as increasing US-China tensions meant many Asia-focused fund managers reallocated capital from China to Japan.[12]
The evidence so far supports the investment case. Following a request from the Tokyo Stock Exchange in 2023, companies that have announced steps to improve capital efficiency are outperforming those that have made no such disclosures.[13]
It also helps that national security concerns have become part of the reform agenda – approximately half of all takeover bids last year were by other companies as opposed to private equity funds, with Japan’s security buildout a key consideration, according to one analyst.[14]
Of course, for many investors globally, Japan rose to the spotlight in recent times after famous US investor Warren Buffett disclosed increased stakes in Japanese trading houses in 2023, triggering record foreign inflows.[15]
But ultimately Japan investing in its own future (and ensuring its corporate leaders pursue growth) may prove to be a far bigger force in the long haul.
For investors, the Japan opportunity is not just about riding the AI infrastructure wave that has lifted tech sectors globally. In a market where companies are only recently beginning to be held accountable for the capital they control and where the valuation gap remains significant, the growth outlook is particularly strong.
The gap between where Japan's companies are and where they could be is one of the most closely watched developments in global markets.
[1] https://www.reuters.com/world/asia-pacific/japans-nikkei-surges-past-61000-first-time-earnings-mideast-optimism-2026-05-07/
[2] https://www.hennessyfunds.com/insights/investment-idea-japan-valuations
[3] https://www.mdpi.com/2076-3387/13/6/141
[4] https://www.reuters.com/sustainability/boards-policy-regulation/japan-firms-face-record-activist-shareholder-proposals-raising-reform-pressure-2025-06-19/
[5] https://www.businesswire.com/news/home/20260513689466/en/Shareholder-Activism-in-Asia-Surges-23-as-Reforms-Push-Corporate-Governance-Up-the-Agenda
[6] https://www.reuters.com/legal/government/japan-tighten-rules-shareholder-proposals-amid-pushback-against-activism-2026-04-27/
[7] https://asia.nikkei.com/editor-s-picks/interview/japan-bourse-ceo-yamaji-says-market-reform-is-20-of-the-way-there
[8] https://www.bloomberg.com/news/articles/2026-05-06/up-75-already-in-2026-korea-s-stock-market-is-hotter-than-ever
[9] https://chambers.com/topics/japan-corporate-governance-reforms-m-a-commercial-law
[10] https://chambers.com/articles/wolf-pack-activism-vs-poison-pill-in-japan
[11] https://www.fsa.go.jp/common/conference/danwa/20260416_2.pdf
[12] https://www.msci.com/research-and-insights/blog-post/have-corporate-reforms-in-japan-unlocked-shareholder-value
[13] https://corpgov.law.harvard.edu/2025/10/21/tokyo-stock-exchange-initiative-on-cost-of-capital-and-stock-price-conscious-management/
[14] https://japanoptimist.substack.com/p/japans-2025-new-pivots-and-old-trends
[15] https://www.lseg.com/en/insights/ftse-russell/what-has-led-to-japans-come-back
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