Meanwhile, despite inflationary pressures, household consumption has gradually but steadily increased, contributing to Japan’s GDP growth and signaling the emergence of wage increase expectations. In the near term, policy support remains in place as Samaenomics prioritizes anti-inflation measures until real wage growth materializes, which are unlikely to be blocked by opposition parties. In the long term, given the resilience of recent Japanese corporate earnings despite the US tariff increases, combined with a severe labor shortage as the boost from rising elderly and female workforce participation fades, we expect a long-awaited wage-price cycle to finally take root, reviving domestic demand and sustaining household consumption to bolster Japan’s economic growth in 2026. This is likely to allow the Bank of Japan (BoJ) to resume the monetary policy normalisation, although the pace has been slower than expected amid rising political uncertainty in both Japan and the US.
Corporate governance reform: More than a decade of transformation
Corporate governance has been advancing for over a decade, since Japan introduced the Stewardship Code in 2014 and the Corporate Governance Code in 2015. In terms of capital market practices, since 2023, the Tokyo Stock Exchange (TSE) has intensified its market restructuring efforts to promote capital efficiency and improve stock price among listed companies. These efforts initially focused on the Prime and Standard markets.
From 2025, the TSE entered the second phase, shifting its focus to the functionality of the Growth Market listing start-ups and high-growth companies. The exchange also ended the transition measures introduced in 2022 for companies failing to meet the listing requirements.
In 2026, the TSE will take the final step in its restructuring plan by initiating the delisting procedures for companies that have not made sufficient improvements.
In alignment with the TSE, the Japanese Financial Services Agency (FSA) finalized the third revision of Japan’s Stewardship Code this year to strengthen engagement effectiveness and accountability. The FSA plans to revise Corporate Governance Code next year, with key agenda items including effective capital allocation and better utilization of cash for investment.
We expect the continued progress in corporate governance to drive improved capital efficiency and profitability, underpinning the long-term performance of Japanese equities.
