The Big PictureCategory

From Lost Decade to Golden Age: A New Paradigm for Japan Inc.

By Equity Research Team
2 min read

After three decades of darkness, the sun is rising for investors in Japan.

A confluence of factors – including the taming of deflation and a dramatic push for corporate reform by the Tokyo Stock Exchange (TSE) – has Japan poised to deliver some of the world’s best global investment returns through 2030.

The TSE’s ambitious reforms include a 2021 revision of its corporate governance code to emphasize the importance of corporate boards and their committees in enhancing shareholder value. And in early 2023, the TSE reforms expanded to require companies to show evidence they are taking action to improve shareholder returns, or else face delisting in 2025.


Although change in Japan can seem incremental by Western standards, once a new consensus has been formed, the resulting change in behavior can be both durable and dramatic. All the evidence is that such a consensus has now been formed and the changes underway should prove “irreversible,” according to Chris Wood, Global Head of Equity Strategy at Jefferies.

As Japan executes its ambitious internal reforms, it is also the one developed country where inflation is a net positive, since it is ending Japan’s decades-old deflation difficulties. “Japan finds itself getting a relative easing in monetary policy by doing nothing,” according to David Zervos, the Chief Market Strategist at Jefferies.

This has led to a relative devaluation of the yen that could finally take Japan out of the quagmire (of loan growth, high real rate, debt deflation) that it has been in for 30 years.

Global investors are already taking notice of the emerging opportunities in Japan. Although foreign direct investment has historically been small as a share of Japan’s economy, it is growing fast, reaching $47.5 billion in 2022. Berkshire Hathaway also recently announced it was increasing its stake in five Japanese trading houses by about 70%. It now owns an average of 8.5% of Mitsubishi Corp., Mitsui & Co., Itochu, Marubeni and Sumitomo Corp, and Berkshire founder Warren Buffet has said, “we’re not done” investing in Japan.

The opportunity for global investors is just beginning and there at least four consequential developments to expect in the years to come.

  1. Japan will be one of the best equity markets through 2030: The next 12-18 months will likely generate superior returns as the TSE’s March 2025 deadline for corporate improvement approaches.
  2. More regulatory reforms to come: TSE says it will remain “relentless” in pushing for reforms and we predict that more than 80% of companies will respond to the TSE's asks.
  3. Consolidation will accelerate domestic and cross-border: Initially, expect more domestic consolidation (largely friendly M&A) with more cross-border partnerships and joint ventures over time.  
  4. Japan Inc.’s new religion is Return on Equity. With prudent guidelines from TSE, Japan Inc. will reallocate capital toward assets that generate returns greater than the cost of capital.

In this moment of tremendous uncertainty, it is always possible that cyclical headwinds from a global recession could offset some of Japan’s structural gains.

But these are truly dramatic times in Japan’s capital markets, and reforms are already far enough along to suggest that this is a generational opportunity to invest in Japan, Inc.

To learn more about why Jefferies believe investors should look to Japan, we invite you to read our recent equity research report, “From Lost Decade to Golden Age: A New Paradigm for Japan Inc.”