Japan's Governance Revolution: Rising Rates, Cheap Valuations and the Shareholder-Value Story
The Nikkei is near record highs, the Bank of Japan has lifted rates to a three-decade peak, and corporate governance reform is unlocking shareholder value. For Japan's listed companies and their owners, the financing landscape is changing fast.
Japan's equity market is having a defining moment. The Nikkei 225 has traded near all-time highs around the 69,000 level in 2026, supported by a wave of corporate governance reform and renewed global interest in Japanese equities.
At the same time, the macro backdrop has shifted decisively. The Bank of Japan has raised its policy rate to 0.75% — the highest since the mid-1990s — and 10-year government bond yields have climbed to levels not seen in decades. The era of effectively free money in Japan is over.
Still a value play
Even near record highs, Japanese equities look inexpensive by global standards. The Nikkei trades on a price-to-earnings ratio of roughly 18 times, well below the S&P 500's high-20s. Governance reforms — pushing companies to improve capital efficiency and unwind cross-shareholdings — continue to release value that had been locked up for years.
Financing growth as rates rise
Higher rates change the calculus for Japan's listed companies and their major shareholders. Traditional bank financing is no longer as cheap, and the cost of capital matters again. That is fuelling interest in alternative finance — private credit and asset-backed structures that sit outside conventional bank channels.
Squadron Capital works with significant shareholders of Asia-Pacific listed companies, including in Japan, deploying direct, non-recourse capital with no personal or corporate guarantees. As governance reform encourages founders and corporates to use their balance sheets more efficiently, the ability to raise flexible capital from concentrated equity positions becomes a genuine strategic tool.
The outlook
Japan's combination of cheap valuations, improving governance, and a normalising rate environment is reshaping how its companies fund growth. Alternative capital is set to play a larger role in that story.
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Frequently asked questions
Why are Japanese equities still considered cheap? The Nikkei trades around 18 times earnings versus the S&P 500's high-20s, while governance reform keeps unlocking value from improved capital efficiency.
How are rising rates affecting financing in Japan? With the Bank of Japan at 0.75%, bank financing is costlier, increasing interest in private credit and equity-backed structures.
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