Japan’s in the midst of a historic overhaul. Investment, policy changes, and markets are shifting in ways that favor a buy-and-hold approach. And that could make this the start of a once-in-a-lifetime opportunity to lock in value.
What’s this shakeup all about?
Political stability is back, inflation and wage growth are returning, the Bank of Japan is changing course, and a new investment cycle has been taking shape.
At the same time, major reforms – like changes to the Tokyo Stock Exchange (TSE), new incentives to get savers into stocks, and a push toward greener investments – are giving Japan’s market a long-overdue boost.
The TSE has been calling companies out – and it’s working. It’s pressuring companies to improve returns, “naming and shaming” them for poor returns or unimpressive balance sheets. And that’s forcing a real change in mindset across capital allocation, governance, and shareholder engagement.
Here’s the issue: roughly half of the companies on Japan’s main index (the TOPIX) trade below their book value. That’s wild – especially when many of them are solid businesses weighed down by bloated structures, underperforming subsidiaries, or too much cash just sitting there.
Japan’s historically weak returns haven’t been about bad leadership – just bad capital allocation. But the tide’s turning. Governance codes have become sharper since 2014, and with a deadline looming, companies are finally waking up. They’re approving more share buybacks, special dividends, and a new focus on productivity and growth.
Those moves are critical. Value-destructive mergers and acquisitions, excessive cash hoarding, and reckless expansion can dilute returns. By contrast, returning cash to shareholders forces management to be disciplined, aligns the firm with investors, and supports long-term compounding.
How does this look in practice?
JX Advanced Metals is one of the opportunities that has sprung out of the reforms. In March, the company launched on the Tokyo Stock Exchange, priced attractively with its price-to-earnings (P/E) multiple in just the low teens. Parent company Eneos listed the subsidiary to sharpen its focus on return on invested capital and shareholder returns, and plans to use the initial public offering (IPO) proceeds to fund growth and capital distributions.
JX Advanced Metals operates an integrated production process for high-purity metals used in advanced chipmaking. It holds a 60% global market share in sputtering targets, which are critical components in AI-driven semiconductor production. And it leads in a few niche materials used in AI server applications.
Its IPO marked a strategic shift toward tech growth. JX is now investing ¥150 billion ($960 million) into a new plant – its first in 40 years – with plans to double chip material profits by 2040.
It’s a textbook example of what Japan’s reforms can do: unlock hidden value in world-class businesses.
Asahi Group is another example. Last year, the firm raised its dividend payout ratio ahead of schedule and is buying back shares, aiming for an 80% total payout ratio this year. Smart, flexible moves like these are exactly what investors want to see.
And then there’s Keyence, an automation giant with fantastic margins – and a mountain of cash. The firm’s finally moving to do more with that money: it’s just announced a 57% dividend bump. There’s more work to do, but it’s progress.
The point is: between its new political stability, sweeping reforms, and companies finally getting serious about shareholder returns, Japan’s investment landscape has been changing for the better.
A lot of world-class companies are still trading at bargain prices. And for investors who know how to spot quality stocks, the opportunities are real – and growing.
AloJapan.com