Japan wants higher returns for investors — here’s what it’s doing

Japan is stepping up efforts to ensure its listed companies become more efficient with capital allocation and increase shareholder returns this year.

The operator of Tokyo’s stock exchange will release Monday, its first monthly list of public companies that have shared their plans for optimizing capital management to enhance returns for their investors.

The Japanese government and the TSE also have plans in the works for increasing corporate board independence and female representation.

“It’s not just the Tokyo stock exchange, but the entire Japan government is pushing for better corporate governance right now,” said Toru Yoshikawa, a business professor at Waseda University in Tokyo.

The Tokyo Stock Exchange is entering into its second year of corporate governance reforms, kickstarted in March last year, by directing listed companies whose shares are trading below a price-to-book ratio of one — an indication it may not be using its capital efficiently — to “comply or explain.”

That’s just one part of Prime Minister Fumio Kishida’s broader pledge to transform Japan Inc into an attractive investment proposition for foreigners and Japanese investors.

In a bold move aimed at encouraging its citizens to redirect their savings towards investment, Japan overhauled its Nippon Individual Savings Account (NISA) to make all investments under this program tax exempt for the lifetime of the investor effective this month.

With this move, the onus also falls on Japan’s government to ensure steady and reliable returns from Japan’s companies.

These measures also have implications for Japan’s broader economic agenda such as firms’ wage-setting behavior and the effort to reflate the world’s third-largest economy, which has been mired in deflation for much of the last three decades.

With a rapidly ageing population, the country is also keen on its listed companies offering attractive shareholder returns to…