Japan’s stock market hit an all-time high in mid-August. Valuations were boosted by President Donald Trump’s decision to delay new trade tariffs on China, but also reflect the country’s more benign economic landscape and record-breaking M&A activity.
At first glance, the International Monetary Fund’s forecasts for Japanese economic growth appear lackluster, with GDP projected to expand by 0.7 percent this year and by 0.5 percent in 2026. But this represents an acceleration from 2024’s figure of 0.2 percent, and in Japan itself, the central bank is increasingly optimistic about the country’s growth prospects, pointing to strengthening corporate profitability and relatively modest levels of inflation.
The latter has helped the Bank of Japan to hold back on interest rate increases that many economists had predicted.
Japan might also eventually be in a better position than many countries in terms of its trade relationship with the US, having verbally agreed to a bilateral trade deal in late July, limiting tariffs on Japanese exports to the US to 15 percent, well below the 25 percent originally proposed. A recent request that Japan buy more rice from the US could slow talks in the near term, though.
However, the political backdrop is more challenging, particularly since July’s elections, which saw Japan’s ruling coalition lose its majority in the country’s upper house. However, Prime Minister Shigeru Ishiba insists he can continue to govern with stability, and the election result doesn’t appear to have weakened the yen, which continues to show strength against other major world currencies.
Japanese companies are also outperforming, with earnings growth that outstrips their US and European rivals. Governance reforms have also boosted the attractiveness of the country’s companies to global investors.
Together, these positive factors are driving a remarkable uptick in M&A. Both inbound and outbound dealmaking have spiked, with strategic buyers and PE investors stepping up activity. Given the breadth of these drivers, there is reason to be optimistic about the prospects for further activity in H2 and beyond.
Inbound M&A breaks records
There were 1,660 inbound and domestic deals for Japanese companies in the first half of 2025. Though that figure was slightly down on the same period of 2024, which saw 1,740 transactions, value has soared. First-half M&A in Japan totaled US$139.9 billion, representing more than triple the deal value of H1 2024, as well as a record high for any H1 period. At the time of writing (August 26), year-to-date figures had risen to 2,219 deals totaling US$157 billion, higher than the annual total for any year from 2008 to 2023.
The largest deal of the year so far was Toyota Motor’s US$33 billion bid to take Toyota Industries private. The transaction would give the Toyoda family greater control over a key supplier to Toyota Motor but is also in line with the trend away from big Japanese companies holding large crossover stakes with subsidiaries and related businesses, a governance concern that has often worried investors in Japan.
The second-largest deal was also a take-private transaction, with Nippon Telegraph and Telephone announcing the US$16.4 billion acquisition of its subsidiary NTT Data, of which it already owns 57.7 percent. NTT has plans for a major expansion of NTT Data’s data centers division, as it seeks to benefit from booming demand for AI infrastructure.
While strategic bidders took the top two places, there has also been strong appetite from PE investors. Buyout firms undertook 394 deals (including buyouts, secondaries and exits) worth US$28.4 billion in H1, compared to 442 transactions collectively valued at US$8.7 billion a year ago. By August 26, there had been 595 deals with a value of US$38.2 billion, already eclipsing 2024’s total value figure of US$36.2 billion.
The largest PE deal saw Bain Capital agree to pay US$5.5 billion to acquire the supermarket holdings of Seven & i Holdings, the operator of 7-Eleven stores in Japan. Bain believes it can scale the business rapidly while streamlining operations and optimizing the supply chain, with a view to an IPO for the company within three years or so.
Inbound deal drivers
These transactions typify many of the factors driving Japanese M&A to new heights, particularly around the reshaping of governance and ownership structures. Since the Tokyo Stock Exchange’s 2023 directive that required listed companies to set out their cost of capital and to detail their strategies for enhanced capital efficiency, attitudes are shifting. A growing number of businesses are restructuring or divesting non-core holdings, while also looking to simplify complicated group structures. Activist shareholders and strategic buyers are also taking advantage of it, while family-controlled businesses are rethinking their approach to stock market listings.
This focus on return on equity is accompanied by a growing appreciation of Japan’s economic stability, particularly amid its ongoing low-interest rate environment and trade deal with the US. Japanese negotiators are particularly relieved to have secured a deal on silicon chips and pharmaceutical products—key exports to the US —which guarantees they will always receive the lowest tariff rate from the US.
Amid such positivity, inbound M&A activity in Japan shows little sign of slowing down.
Outbound M&A takes off
The rise in outbound M&A in Japan in the first half of the year was almost as spectacular as the surge in inbound dealmaking. Japanese acquirers announced 219 deals for overseas targets in a spending spree amounting to US$70.7 billion—twice the value of the 234 deals reported in H1 2024. At the time of writing (August 26), figures had risen to 268 deals with a total value of US$81.7 billion, outstripping the value figure for the whole of 2024 (US$69.4 billion).
Corporate buyers have not limited themselves to neighboring Asian markets, but have looked to Europe, the US and the wider APAC region as they seek to pursue new routes to growth and to diversify and expand supply chains amid global uncertainty.
Major cross-border deals in the first half included trading house Mitsui’s US$5.3 billion acquisition of a 40 percent stake in the Rhodes Ridge iron ore mining asset in Australia, run by Rio Tinto, reflecting a determination to secure the raw materials needed to produce steel.
Elsewhere, insurance company Meiji Yasuda agreed to pay US$2.3 billion to acquire the US protection business of British insurer Legal & General. The deal provides the Japanese company with a valuable opportunity to expand its US business, including in the fast-growing pension risk transfer market.
Japanese PE investors also stepped up to the plate. These buyout firms announced 20 deals worth US$51.2 billion in H1, representing a 12-fold increase on the US$4.2 billion of transactions in the first half of 2024. At the time of writing (August 26), this year’s figures had risen to US$53.5 billion from 30 deals—well ahead of the total annual value for 2024 (US$19.9 billion).
This dealmaking fervor, from both companies and sponsors, underlines Japanese acquirers’ determination to increase their exposure to global investment themes, including digital transformation, decarbonization and demographic change—as well as to confront challenges such as trade tensions, resource shortages and increasing domestic competition.
Outlook
There is every reason to expect the pace of Japanese dealmaking to continue, with M&A activity on target to hit a record high by the end of 2025. Japanese businesses have expressed ambitious targets for international growth, particularly through M&A. Investment bank Mizuho, for example, has publicly committed to becoming a top ten player in Europe through its acquisitions strategy.
For companies, recent guidance from Japanese regulators has cleared the way for more unsolicited takeovers on the domestic market, adding further fuel to the M&A fire. Outbound dealmaking also looks set to continue, with little sign of international trade tensions easing. Transactions aimed at moving Japanese companies into new markets or securing their supply chains should proliferate.
As for PE investors, deal flow remains strong, particularly as Japanese companies continue to make divestments and contemplate restructurings, and as the trend for take-privates continues. In late July, for example, EQT announced a US$2.7 billion bid for Japanese elevator manufacturer Fujitec, in what would be the firm’s largest-ever investment in Japan.
While challenges remain—mainly from the uncertainties of domestic politics and ongoing geopolitical tension—the drivers of deal activity in Japan, both inbound and outbound, remain compelling.
AloJapan.com