Japanese equities are set for a boost from Japan’s Financial Services Agency plans to get companies to deploy their excess cash, says Asset Management One, which is one of Japan’s largest fund managers with $510bn in assets under management.
It said that reforms by the regulator to the Corporate Governance Code, aimed at getting companies to use their cash stockpiles, will give fresh impetus to the official drive to improve their capital efficiency. The Financial Services Agency reforms are expected to be announced in June.
Asset Management One says that Japanese companies, excluding financials, have an average cash-to-assets ratios of 20.8%. In contrast, the ratio for US companies is around 7.9%, while for European businesses, it is approximately 8.7%. This hoarded cash has been a drag on Japanese companies’ returns-on-equity.
Since the Tokyo Stock Exchange started its campaign to improve capital efficiency, corporate governance, and share price performance at listed companies in 2023, Listed Japanese companies have responded by buying back their shares and untangling cross holdings, or stakes in client and supplier companies.
Share buybacks for the 2025 financial year* are on course to hit Y20 trillion (£93.9 billion) and set a new record, Asset Management One said. This would be 7% higher than the current record of Y18.7 trillion for buybacks, which was set last financial year.
“Sizeable buybacks are likely over the next few years, underpinning demand for Japanese equities,” said Asset Management One chief strategist Hitoshi Asaoka.
“Major domestic financial institutions, including megabanks and large insurers, have indicated plans to continue selling cross-shareholdings through 2030. The cash raised from these sales can be used to fund shares buybacks.”
Asset Management One says Japan was “the standout performer” among developed markets in 2025, with the Topix index climbing 22.4%.
Since the TSE started its campaign to get Japanese companies to become more capital efficient, the proportion of “Prime” or top tier companies with price-to-book ratios of 1 or lower has fallen from approximately 50% to 44% A price to book ratio of less than 1 means a company trading at less than its assets are valued at.
At the same time, the profitability of Japanese companies has improved, as measured by their returns-on-equity. The proportion of TSE Prime companies with RoE ratios of 8% to 15% had increased from around 34% to 37%, while those with returns of 0% to 8% had fallen from 41% to 38%.
Additionally, Asset Management One says that planned tax reforms from Prime Minister Sanae Takaichi’s government to boost domestic business investment and research in key sectors should encourage Japanese companies to deploy their cash reserves in search of high returns on investment.
Tokyo wants Japanese companies to invest in strategic areas such as robotics, quantum technologies and semiconductors.
Kazuhiko Hosaka, senior product specialist at Asset Management One, said: “We think these changes will strengthen incentives for companies to deploy their cash reserves and government initiatives are expected to encourage corporate investment throughout 2026.”
*Financial year 2025 covers the 12 months to the end of March 2026
