A new revision to Japan’s corporate governance code may free up some of the $840 billion in cash held by listed companies and drive another wave of Japanese stock market buying.
The Financial Services Agency will present to an expert panel Thursday draft rules that would require firms to verify that they are using cash effectively, with the aim of rolling out the change this year. While the code isn’t legally binding, it has a substantial impact on corporate behavior.
Despite significant improvement in corporate governance in recent years, mountains of unused cash have been piling up on Japanese company balance sheets. Diverting this to higher-yielding returns may make the nation’s stocks more attractive to investors.
“The revision will make it easier to expect increased investment allocation to growth areas and more consistent increases in share buybacks and dividends,” which in turn could “lead to capital inflows from overseas investors,” said Sho Nakazawa, an equity strategist at Morgan Stanley MUFG Securities.
Cash and deposits at roughly 1,215 Topix companies, excluding financials, increased 84% over the past decade to ¥130 trillion ($840 billion) as of the end of 2025, compiled data showed. The most cash-rich industries are information technology and services.
Nakazawa estimates that return on equity (ROE) for Topix 500 firms, not including financials, could rise to 12.1% over the next few years if they allocate half of their cash holdings to business investment and shareholder returns, from 9.3% as of the end of the latest fiscal year. That’s nearing a level of 12.5% for the STOXX Europe 600.
Analysts have long viewed excessive cash holdings at Japanese firms to be one of the factors holding back ROE, a metric closely watched by stock investors, which has kept the indicator lagging behind Western peers.
The reduction of corporate cash also has long been a theme advocated by Prime Minister Sanae Takaichi. In her 2021 book, she proposed the idea of “taxing corporate cash and deposits” and putting them to better use. In November, she called on companies not to hoard excessive capital and channel it into increasing wages.
The Takaichi administration’s growth strategy, along with governance reform, may represent “a turning point that leads not only to improved capital efficiency but also to a sustainable expansion in Japanese corporate profitability,” Nakazawa said.
In a further vote of confidence, the Tokyo Stock Exchange said it would promote more effective use of corporate management resources in tandem with the code revision in materials released last week.
Still, some have voiced concerns that cutting cash won’t necessarily lead to growth.
“From a company’s perspective, it may sound like they are simply being told to reduce cash,” said Richard Kaye, co-head…