(May 25): Japan’s financial regulator is urging the country’s listed companies to spend more of their cash piles on long-term business investment instead of rewarding shareholders with buybacks and higher dividends.
In addition to cash, executives should consider utilising cross-shareholdings and real estate property for growth, Tatsufumi Shibata, a senior official at the Financial Services Agency (FSA), said in an interview. Japanese companies tend to prioritise payouts to shareholders regardless of where they stand in the growth curve, he said.
“I don’t think investors demand that from companies that are in a rapid growth phase,” he said in an interview.
Shifting more of the country’s wealth held by businesses and households to fund future expansion is one of the key pillars of Prime Minister Sanae Takaichi’s efforts to revitalise the Japanese economy. She has long been critical of cash piles sitting on companies’ balance sheets.
Cash and deposits at roughly 1,215 Topix companies, excluding financial firms, increased 84% over the past decade to ¥130 trillion (US$818 billion or $1.04 trillion) as of the end of 2025, according to data compiled by Bloomberg. The most cash-rich industries are IT and services.
The FSA is preparing its first revision in five years to the Corporate Governance Code, which has guided efforts to make listed companies more valuable. Japan’s decade-old corporate governance reform has been credited with driving foreign investment by increasing firms’ responsiveness to shareholders’ demands.
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Shibata said the reform efforts have produced tangible results such as higher market capitalisations and more outside board directors. “But we cannot necessarily say companies are genuinely increasing their own medium- to long-term value,” he said.
The revised governance code, which had been available for public comments until earlier this month, has disappointed some investors, who had expected firms would be required to demonstrate effective use of cash. Companies are not explicitly required to do so.
The governance code is designed to promote holistic dialogue between companies and institutional investors, Shibata said. Falling into narrow and formulaic discussion over companies’ cash position is not the kind of action he hopes to see, he said.
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“I think the revision is more challenging for those who think they should just follow the letter of the code,” he said. “The hidden message is please think through [very] carefully.”
Institutional investors also have a role to play in getting companies to use cash for growth, according to Shibata. The regulator revised the Stewardship Code, a guideline for institutional investors, last year and it discloses a list of those that have accepted it.
“If there are those who do not engage in activities consistent with the code, one possible measure to consider is to remove them from the list of signatories,” he said.
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