2. Policy, industrial super-cycle and geopolitics are driving investment
Global and regional shifts are reinforcing Japan’s resurgence.
Asia’s industrial super-cycle, with capex reaching an annual run rate of $16 trillion annual run rate by 2030, strongly benefits Japan. Structural demand for AI, energy security and defense capabilities is driving both domestic capex and export demand.
Rising geopolitical tensions, especially between the U.S. and China, are forcing companies to rethink where they invest and produce. Japan is emerging as a preferred alternative for sensitive supply chains.
At the same time, Japan is investing in technology, energy, infrastructure and industrial capacity – strategic areas where economic security now matters as much as efficiency did historically. Domestic investment aligns with recent FDI inflows, focused on semiconductors, advanced manufacturing and broader tech infrastructure. Strategic fiscal impulse amounts to $50 billon, or 1% of GDP, while private capex continues to drive real growth. Japan is becoming a strategic industrial hub in a more fragmented global economy.
3. Corporate Japan is changing faster than expected
Macro change and governance reform are now clearly visible at the company level. Japanese firms are focusing on returns, growth and capital efficiency, laying the foundation for a sustained equity market re-rating and opportunities across public and private markets.
We’re already seeing this play out. Japan Inc. has made serious progress in balance sheet restructuring and simpler ownership structures. Japanese institutions are increasing domestic and overseas investment, using their stronger balance sheets to diversify and expand.
Local M&A volumes have boomed over the last five years, reaching a new high of $385 billion in 2025. Shareholder activism, reforms, a weak yen and investments in productivity and technology are all powering this surge.
In public markets, return on equity is expected to rise toward ~12%, a meaningful shift from the past. The value of dividends and buybacks has more than doubled since 2020. In 2025, we’ve also seen record highs in the unwinding of cross-shareholdings and in shareholders’ returns.
4. Domestic capital is finally moving
One of the most powerful changes is happening inside Japan. For decades, households held most of their wealth in cash, with roughly 50% or $7 trillion currently held in bank deposits, vs. 14% allocated to equities. Should the retail equity allocation match Europe’s at 25%, equity purchases in Japan could reach JPY270 trillion ($1.7 trillion) over time. This equates to 20% of the TSE Prime companies’ market cap.
Equity allocations are starting to shift, thanks to market reforms and tax-efficient Nippon Individual Savings Accounts (NISA). Retail flows into equities have already surpassed original government targets, reaching JPY63 trillion ($406 billion) vs. the JPY56 trillion earmarked for 2027.
NISA flows continue to support domestic (and global) equities and financial products and should increase market liquidity over time.
5. Financial markets are entering a new phase
Putting it all together, Japan’s financial system starts to look different. Public equities benefit from earnings growth, higher returns and new inflows. Private markets expand as corporate restructuring accelerates, with notable take-privates. Wealth and asset management become major growth sectors monetizing the investment shift.
This is creating opportunities across private assets, credit and financial services. To this point, the financial industry has been the largest recipient of inward FDI. Japan’s financial sector, which has historically been a capital exporter and allocator in the global system, is now becoming a destination for foreign capital alongside domestic allocation shifts.
