How governance reforms are helping Japan move beyond its ‘lost decades’
The right legal infrastructure can help reignite a stagnant economy, as the boom in investment and M&A activity shows.
The recent surge of interest and investment in Japan’s economy can be traced back to legal changes initiated more than a decade ago. The impact of these corporate governance reforms has major implications, not only for business, but for the practice of commercial law, both in house and in private practice.
Japan’s corporate governance reforms: a slow-burning catalyst
Identified as a major theme in our recent Asia-Pacific 2026 guide, the regulatory changes are actively reshaping Japan’s equity markets and turbocharging mergers and acquisitions (M&A).
Measures were first initiated during Shinzo Abe’s premiership in the 2010s, with the aims of boosting profitability and growth by shaking up the corporate culture. Japan’s 'lost decades’ of economic stagnation were blamed on low investment, linked to cash hoarding by businesses and a lack of pressure to create shareholder value.
For that reason, a central pillar of the broad set of governance reforms was the creation of codes of accountability, targeting both corporate management and institutional shareholders. The Corporate Governance Code (2015, revised 2018, 2021) lays down responsibilities for listed companies to increase corporate growth and value, with “attention to the needs and perspectives of shareholders”, explicitly mentioning minority and foreign investors.
Meanwhile, the Stewardship Code (2014, revised 2017, 2020) puts an onus on institutional investors to “promote sustainable growth of the investee company and enhance the medium- and long-term return of clients and beneficiaries.”
In other words, the longstanding situation in which many businesses operated cautiously, building their cash reserves instead of distributing them to shareholders or investing meaningfully for growth, could not continue. Boards now had a clear regulatory duty to promote growth and would come under pressure from shareholders newly mandated to hold their feet to the fire.
Or at least, that was the idea.
But Japan’s corporate culture proved stickier than anticipated and, for the next few years, change was slow and incremental. Things finally took a real turn in the 2020s, when a landmark ruling and the right market conditions triggered the current investment boom.
Learn more in the Japan sections of our recent Global Practice Guides: Private Equity 2025 and Equity Finance 2025.
Why now? Three major triggers
When the owners of FamilyMart convenience stores decided to sell up, they accepted an offer from Itochu, already a major shareholder, although the price was lower than FamilyMart’s advisors had recommended.
But Oasis Management, a minority shareholder headquartered in Hong Kong, wasn’t happy. They felt the company had been undersold, and took the matter before Tokyo District Court, who ruled in their favour. This sent shockwaves through the system and a powerful positive signal to foreign investors: that Japan’s courts were ready to champion the rights of minority shareholders in buyouts. Tokyo’s High Court upheld the decision in 2024, mandating an extra payout to compensate shareholders for the low sale price.
As well as the landmark court ruling, the mid 2020s have seen a significant drop in the value of the Japanese yen against the US dollar. Driven largely by a widening interest rate gap between the two economies, one impact has been to make Japanese company valuations look increasingly attractive to international investors.
“External factors [impacting the need for external legal services] include the increasing aggressiveness of activist investors, companies' willingness to engage more with shareholders and private equity's immense interest in Japan.”
Partner, Investment Management Firm
The third key factor is China. Concerns over its ongoing trade tensions with the US, as well as an underperforming economy, have led funds to seek alternative Asian markets. The 2020s to date have seen billions of dollars withdrawn from Chinese markets, and Japan has been a key beneficiary of this reallocated capital.
All of this is adding up to a marked rise in Japanese inward investment across a broad range of sectors. Between 2024 and 2025, private equity (PE) and venture capital deals rose by 53% to a $29 billion total. This accounts for more than a quarter of all deals across the Asia-Pacific region.
These seismic economic shifts have implications both for the nature of demands on in-house counsel and the market for external legal advice. The impact is clearly being felt by many of the firm partners, general counsel (GC) and corporate clients we heard from as part of our extensive research.
“Due to the increase in cross-border M&A and PMI [post-merger integration] of our clients, mainly listed companies, we expect to see an increase in seeking advice from outside lawyers.”
Partner of a Leading Accountancy Firm in Japan
Implications for the legal industry
The high volumes of deal activity are already generating work for M&A practitioners and other commercial lawyers in Japan. Competitive and contested deals between high-profile international players are increasingly common. Bain Capital and KKR’s highly contentious tussle for Fuji Soft is one prominent example.
Listed take-private deals and carve-outs are the two most common types of transactions we’re seeing in the market. The rise in investor activism and hostile takeover bids, spurred by the more favourable regulatory regime, means more defence mandates from companies seeking to protect themselves.
“We're seeing a rise in corporate divestiture in Japan - carving out non-core and non-performance business under pressure for ROI from investors like Berkshire Hathaway and activists. The intersections between government and business are really crowded –merger control and FDI [foreign direct investment]. In the global deals, regulatory approvals are key.”
Partner and M&A Lawyer, Leading International Law Firm
For corporate in-house counsel, the ongoing transformation of Japanese business culture is introducing new complexities: expansion of transparency, higher risk and a heavier regulatory burden. Added to that is the growth in confrontational practices and external pressures, not least from international investors. This environment can only accelerate the trend already reported by general counsel, that their role is rapidly becoming that of a strategic business partner.
Watch: The changing role of general counsel
“Nowadays, the pace of change in the business environment is so fast. The corporate legal department is really making efforts to keep up. ‘How to contribute to the business’ – that’s the underlying question in my mind, all the time. We’re being considered a strategic partner rather than just ticking the box as a gatekeeper.”
Kenji Tagaya, Executive Officer, Head of Legal & Secretariat Division, JERA
Outlook: This is just the beginning
Through 2026 and into 2027, the expected outlook is continued growth in PE activity and a thriving market for M&A and commercial advice. As well as new buyers attracted by the Japanese investment case, the cohort of investors that have entered or expanded in recent years are looking to drive change that will meet their expectations on ROI and capital efficiency.
Behavioural and cultural normalisation to global governance standards will continue as Japan adjusts to its transformational set of legal infrastructure reforms. Alongside a booming stock market, the end of price deflation and signs of wage growth, it looks like the beginning of the end for the lost decades.
Key takeaways
- Japan’s governance reforms are refocusing companies and investors to prioritise growth, capital efficiency and shareholder value.
- A landmark minority shareholder court ruling, a weak yen and capital flight from China all contributed to the current investment surge.
- PE and venture capital activity has accelerated rapidly, with Japan now a leading Asia-Pacific deal market.
- M&A work – especially take-privates, carveouts and defence against activists – is fuelling demand for legal expertise.
- In-house counsel face rising transparency requirements, higher risk and more assertive investor dynamics, elevating their strategic role.
- With sustained PE interest and cultural alignment to global norms, Japan appears to be moving beyond its ‘lost decades’.
Now discover more Asia-Pacific trends in 2026
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