The Quiet Revival of Corporate Japan
Japan has long been considered a land of untapped value in global investing—a market rich in cash-heavy conglomerates, technological prowess, and engineering excellence, yet historically hampered by sluggish growth, entrenched deflation, and outdated corporate governance. But that perception is rapidly shifting. In recent years, a wave of structural reforms, catalyzed by the Tokyo Stock Exchange (TSE) and championed by key global investors, is beginning to unlock long-dormant shareholder value. Corporate Japan, once seen as a black box of cross-holdings and opaque boards, is entering a new era of transparency, efficiency, and capital discipline.
The changes are not just cosmetic. They are reshaping investor sentiment, fueling record levels of foreign inflows, and helping Japanese equities outperform global peers in 2024–2025. More importantly, these shifts are sustainable, as they align with both domestic economic revitalization efforts and the strategic ambitions of a global economy seeking supply chain resilience and technological innovation beyond China. From governance reforms and capital restructuring to Warren Buffett’s bold yen bond strategy, and emerging leadership in robotics and semiconductors, Japan is writing a new playbook for investor returns.
TSE Reforms: From Legacy to Leadership
At the center of Japan’s market transformation is the Tokyo Stock Exchange’s recent push for improved governance and capital efficiency. The TSE’s restructuring, which officially took place in April 2022, consolidated its four previous sections into three new market segments: Prime, Standard, and Growth. This was more than a mere rebranding—it marked the beginning of a top-down campaign to force listed companies to take shareholder interests seriously.
A key element of this initiative is the TSE’s demand for listed companies, especially those on the Prime Market, to reduce chronically low price-to-book ratios. The exchange has publicly called on firms trading below book value to publish capital efficiency plans. This has sparked a wave of buybacks, dividend hikes, and efforts to unwind cross-shareholdings. For a country where shareholder activism was long frowned upon, this is a seismic cultural shift.
Companies like Mitsubishi Corp., Hitachi, and Sumitomo have responded positively. Institutional investors are rewarding those who act, and penalizing those who do not. The increased pressure has even emboldened activist funds—once seen as outsiders in Japan—to gain traction. Shareholder meetings have become more contentious and more consequential, pushing governance standards closer to global best practices.
Foreign investors have taken note. Inflows into Japanese equities reached multi-decade highs in 2024, driven not just by fundamentals but by confidence that Japan’s equity culture is finally shifting toward value creation. With a weak yen adding a competitive edge to exporters and attractive valuations compared to U.S. and European peers, the stage is set for durable performance.
Buffett’s Bold Yen Bet and Its Ripple Effects
Perhaps the most symbolic endorsement of Japan’s new investment case came from none other than Warren Buffett. In a move that stunned markets, Berkshire Hathaway began buying into Japan’s five major trading houses—Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo—in 2020 and has since increased those holdings. By 2023, Buffett revealed that Berkshire had issued yen-denominated bonds to fund further investments in Japan, a rare deviation from his home-market focus.
Buffett’s rationale was clear: undervalued companies with strong cash flow, global reach, and improving governance. The use of yen bonds—a strategic choice taking advantage of ultra-low Japanese interest rates—allowed Berkshire to cheaply fund investments in what Buffett views as a low-risk, high-reward proposition. His admiration for Japanese business culture, long-term orientation, and technological capability also played a role.
The “Buffett effect” has had profound ripple effects. Not only did it spark renewed interest in Japanese trading houses, but it also lent credibility to the broader reform narrative. Other global investors began reevaluating their Japan exposure. Japanese firms, in turn, took Buffett’s stamp of approval as motivation to improve investor communication, simplify ownership structures, and accelerate capital returns.
This convergence of local reforms and foreign validation has changed how Japan is perceived on the global stage. For years, global portfolios were underweight Japan due to poor ROE and stagnant earnings. Today, thanks in part to Berkshire’s bold move, Japan is increasingly viewed as an asymmetric opportunity—one where the downside is limited by strong balance sheets and the upside is driven by governance upgrades and global tailwinds.
Innovation Edge: Robotics and Semiconductors Lead the Way
Beyond reforms and macro sentiment, Japan’s core strength lies in its world-leading industries—especially robotics and semiconductors. These sectors are not just legacies of Japan’s industrial past; they are central to the next wave of global innovation, from automation and factory modernization to AI hardware and EV components.
Japan’s robotics sector is the undisputed leader globally. Companies like Fanuc, Yaskawa Electric, and Keyence are pivotal to the global automation revolution. As labor shortages become a demographic reality worldwide, demand for industrial and collaborative robots is surging. Japanese firms dominate key segments including motion control, factory sensors, and vision systems. Their technology powers not just Japanese factories but also those in Germany, the U.S., Korea, and increasingly Southeast Asia.
Meanwhile, Japan remains indispensable in the semiconductor value chain—not through leading-edge chip design like NVIDIA or TSMC, but through the machinery, materials, and components that make advanced manufacturing possible. Tokyo Electron, Advantest, and Shin-Etsu Chemical provide the lithography systems, testing equipment, and silicon wafers that underpin chip production worldwide.
With the global push to diversify semiconductor supply chains away from China, Japan is a strategic partner. The Japanese government has committed significant funding to support domestic chip production, including TSMC’s new plant in Kumamoto, and subsidies to bolster advanced material R&D. Japanese firms are also actively expanding into EV battery materials, rare earth processing, and AI compute infrastructure.
For investors, these sectors offer long-term growth anchored in competitive advantage. The Global X Japan Robotics & AI ETF (JROBO) and iShares MSCI Japan ETF (EWJ) provide diversified exposure, while individual stocks like Fanuc, Tokyo Electron, and Keyence are high-conviction picks for tech-focused portfolios. Importantly, these companies are now also embracing better capital allocation practices—buybacks, dividends, and investor transparency—which was not always the case in Japan’s past.
Why Japan Now Deserves a Core Allocation
Japan’s moment in the spotlight is not a flash in the pan. The convergence of three powerful forces—market-driven reforms, global reallocation of supply chains, and technology sector strength—makes it a compelling long-term story. While currency weakness has amplified returns for dollar-based investors, the underlying improvements in corporate behavior and strategic direction suggest a structural shift rather than a cyclical bounce.
Importantly, Japan today offers an increasingly rare combination in global equity markets: value and growth. Valuations remain compelling, especially when adjusted for improving ROE. The TSE’s push for governance reform is already bearing fruit, with hundreds of companies announcing shareholder return initiatives in the past year. Buffett’s involvement provides confidence, while robotics and semiconductors ensure relevance in a tech-dominated global economy.
Risks remain. Japan’s demographics remain a long-term headwind, and inflation dynamics—though rising—are still uncertain. The yen’s continued weakness could invite political intervention, and global macro shocks would still impact Japan as an export-heavy economy. But with thoughtful policy alignment and firm-level responsiveness, Japan appears better positioned than at any point in the past two decades to weather external volatility.
For global investors seeking diversification, high-quality industrials, and exposure to global manufacturing’s next phase, Japan is no longer just an afterthought—it is becoming a cornerstone.
