PBR Reform

This is Part 2 of a two-part series. Part 1 covered the June 2026 Code revision and the ¥126 trillion ($840bn) cash question. Part 1 described the revised Corporate Governance Code – what it asks companies to prove. This article covers what happens to those that do not comply. There are two sources of pressure. The first is structural: a multi-year reconstitution of the TOPIX index that will eject roughly 500 companies by July 2028. The second is behavioural: an activist and institutional investor community that submitted a record 399 shareholder proposals in the 2025 AGM season and is preparing for a 2026 season that falls immediately after the Code revision. ...

This is Part 1 of a two-part series on the next phase of Japan’s corporate governance revolution. Part 2 covers the consequences: the delisting wave, the 2026 AGM season and where to look. Japanese equities are outperforming every major developed market in 2026. TOPIX is up 29% over the past year while the S&P 500 has returned 15% and the DAX has gone negative. The YTD gap is wider still. With the BOJ hiking while the Fed holds, local currency returns understate the divergence for dollar-based investors. ...

If there is one thing that separates the current Japanese equity rally from previous false dawns, it is the corporate governance revolution. This is not a government talking point or a consultant’s slide deck. It is a measurable, accelerating change in how Japanese companies allocate capital, return cash to shareholders and engage with investors. For overseas investors evaluating the Japan opportunity, understanding this reform is essential. It explains why buybacks are hitting records, why cross-shareholdings are being unwound and why the valuation gap with the rest of the world is likely to narrow. ...