Corporate governance reforms in Japan are designed to force bosses to focus more on financial results and returns for capital owners – and this is leading investment houses to become more energetic in their engagement efforts with the firms they hold.

An asset manager with $495 billion in AuM has increasingly used that market clout to engage with Japanese firms, taking advantage of more leeway to put pressure on the country’s businesses to deliver results.

Asset Management One said yesterday that it has increased its engagement with investee companies over the past year, engaging with 718 Japanese companies on issues of concern on 2,215 separate occasions. That’s up from engagement with 672 companies on 2,167 occasions in the previous year.

Corporate governance reforms, which have encouraged Japanese companies to deploy their cash in a more disciplined way, are also thought to be partly behind and increase in returns on equity, Asset Management One said. 

Growing awareness of Japan’s corporate reforms has started to gain attention from international investors. Robin Harris, regional head, APAC, at Ocorian, wrote in this publication last year that “Japan, long considered a paradox in the investment world, has seen a dramatic resurgence in its appeal over the past year after decades of stagnation, deflation, and demographic challenges.”

“Once the economic darling of the 1980s and early ’90s, the country spent years in limbo, but sweeping corporate reforms and a resurgent economy have reignited global investor interest. Asian and overseas investors are once again pouring capital into the world’s third-largest economy, drawn by confidence in its growth potential and a lingering fondness for the Land of the Rising Sun,” he wrote.

Previously, Japanese firms were protected from activist shareholders by multi-generational cross-shareholdings with other large Japanese corporates. Shareholders unhappy about performance had few options. However, in 2012, a new Liberal Democrat government led by Shinzo Abe began reforms. It introduced and subsequently revised the Stewardship Code in 2014 and Corporate Governance Code in 2015. This was designed to make boards more independent, diverse and accountable.

As pointed out in a note from Alliance Witan in July 2025, reforms ratcheted up in 2023. The Tokyo Stock Exchange moved to tackle Japan’s reputation as a “value trap” – where the prices of seemingly undervalued shares continue to resist re-rating. 

Asset Management One said just over a quarter (27 per cent) of its engagements with Japanese companies were to discuss issues relating to corporate strategy, rising from 25 per cent a year before. Half (50 per cent) of the engagements were to discuss issues. 

Expected return on equity (ROE) for Japanese companies has risen from below 9 per cent last year to 10.5 per cent. The 15-year average for the ROE for Japanese shares was 8.14 per cent (Factset, MSCI).

As this publication has noted before, moves by Japanese firms to unlock large surpluses of cash on their balance sheets have been a factor behind rising stocks in the country, although returns to non-Japanese investors have at times been affected by the yen-dollar exchange rate. (See a related article here, based on an interview with the firm Zennor Asset Management.)