Japan's Economy
Corporate Reform and the Stock Market Revival
How governance reforms pushed Japanese companies to use cash better, why foreign investors returned, and how the Nikkei hit record highs in 2024.
For decades, Japanese companies were criticised for hoarding cash and ignoring shareholders.
Reforms
- Stewardship Code (2014): encouraging investors to engage with companies.
- Corporate Governance Code (2015): more independent directors.
- Tokyo Stock Exchange pressure (2023): asked companies trading below book value to improve capital efficiency.
Company responses
- Share buybacks and higher dividends.
- Unwinding cross-shareholdings.
- Selling non-core businesses.
The market revival
- The Nikkei surpassed its 1989 record in February 2024, later crossing 40,000.
- Warren Buffett’s Berkshire Hathaway invested in Japanese trading houses from 2020, drawing attention.
Why it matters
Better use of capital can raise productivity and returns for pension funds and savers.
NISA
Japan expanded its tax-free NISA investment accounts in 2024, encouraging households to move savings from bank deposits into stocks.
The cash pile
A Japanese company holds cash worth half its market value. Under pressure from investors and the exchange, it announces a large buyback, and its share price rises.
Thinking Japan's stock market never recovered
The Nikkei surpassed its 1989 peak in 2024.
Key takeaways
- Governance codes pushed companies to value shareholders.
- The Tokyo Stock Exchange pressed firms in 2023 to improve capital efficiency.
- The Nikkei surpassed its 1989 peak in February 2024.
- Expanded NISA accounts encourage household investment.
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