Japan Emerges from Deflation as Corporate Governance Reform Takes Hold

Japan's economy is experiencing a significant shift as it emerges from deflation. The country's corporate governance reform has been a key driver of this momentum, with investors taking notice and returning to the Japanese market.

The number of mergers and acquisitions (M&A), tender offers, share buybacks, and dividend increases has reached record highs, demonstrating companies' heightened awareness of capital efficiency. Buyers are actively seeking growth opportunities, while sellers are looking for the best owners for their inefficient assets.

Demographic shifts, such as an aging population, have led to increased investment in automation, digitalization, and other labor-saving technologies. The adoption of artificial intelligence (AI) technology is also accelerating, with it being viewed as a means to boost productivity rather than a threat of displacement.

The Japanese stock market has been setting record highs for the past two years, outperforming the US and other global markets. Foreign investors have returned to the country, with net purchases totaling 5.4 trillion yen last year and 10.5 trillion yen so far this year.