Japan’s corporate governance reform: Key changes in 2026

The starting point of corporate governance in Japan is the Companies Act, which is the principal statute governing corporate organisation and management. For listed companies, however, the regulatory framework also extends to the Financial Instruments and Exchange Act and various rules of the stock exchanges, in particular the Corporate Governance Code formulated by the Tokyo Stock Exchange (TSE).

Although this code is a form of soft law, and not legally binding, it has become a highly influential benchmark for shaping corporate governance of listed companies in Japan.

This is implemented by a so-called “comply or explain” framework under which listed companies are required either to implement each principle of the code or, where they do not, explain any departure from the code.

The Corporate Governance Code was introduced in 2015, and subsequently revised in 2018 and 2021. On 21 July 2026, the Financial Services Agency and TSE finalised and published the latest revised version of the Corporate Governance Code, marking its first update in five years.

This article examines recent developments in Japanese corporate governance, with particular attention to key changes in the 2026 revision of the Corporate Governance Code.

TSE pushes cost of capital

In 2023 the TSE published its “Action to Implement Management that is Conscious of Cost of Capital and Stock Price”, calling on listed companies to analyse their business performance from the perspective of the cost of capital, capital profitability and market valuation. Based on that analysis, companies were encouraged to provide clear disclosure and engage in dialogue with investors.

Earlier this year, on 28 April, the TSE published an update regarding “management that is conscious of cost of capital and stock price”. It emphasises that listed companies should explain their policies about how they allocate management resources to stakeholders and engage in dialogue with the market.

These initiatives reflect longstanding concerns about Japanese companies, including the accumulation of retained earnings, preservation of low-profit businesses, low capital efficiency, and insufficient investment in intangible assets.

Increasing awareness of the price-to-book ratio (PBR) and return on equity (ROE) has contributed to measurable improvements. A comparison between July 2022 and March 2026 shows the PBR and ROE of listed companies on an upward trend. Nevertheless, although capital efficiency and market valuation have improved overall, they continue lagging companies in other countries.

Against this background, the 2026 revision of the Corporate Governance Code expressly requires boards of directors to accurately understand their company’s cost of capital, while formulating and disclosing business strategies and business plans.

The revised code further requires companies to disclose how they appropriately allocate capital and other management resources. This includes explaining growth investments and reviews of business portfolios. The purpose of these disclosures is to show how companies propose to achieve their earnings plans, basic capital policy and targets relating to profitability and capital efficiency set out in such strategies and plans.

In addition, the board of directors is expected to continually review whether management resources are being allocated in a manner that constitutes appropriate risk taking, and that contributes to sustainable growth and medium to long-term enhancement of corporate value.

This includes whether financial assets – such as cash and deposits, together with tangible assets and other management resources – are being effectively utilised for growth investments.

Overall, the 2026 revision establishes a governance framework under which the board itself is expected to explain the balance between medium to long-term growth investment and shareholder returns. In doing so, it responds to longstanding expectations of overseas investors for an integrated explanation of capital efficiency and growth strategy.

Outside directors’ role further strengthened

The 2026 revision of the Corporate Governance Code further strengthens the role of independent outside directors, with a particular focus on enhancing their effectiveness. It emphasises the roles and responsibilities that such directors should fulfill, the importance of maintaining both the quality and number of such directors, and the importance of maintaining the directors’ independence.

It also encourages companies to strengthen the functions of the corporate secretariat, recognising its important role in supporting the board of directors. In addition, for companies listed on the Prime Market (the top market segment of the TSE) that have a controlling shareholder, the revision requires that at least a majority of the board of directors comprises independent outside directors who are independent from the controlling shareholder.

This requirement may be viewed as an effort to align Japan’s corporate governance framework more closely with the corporate governance framework of major overseas markets, strengthening the protection of minority shareholders.

Annual reports before shareholder meetings

Under Japanese law, listed companies must file an annual securities report within three months after the end of each fiscal year. The report is a statutory disclosure document required under the Financial Instruments and Exchange Act. It includes information such as an overview of the company’s principal business, financial performance, risk factors, officers, major shareholders, corporate governance and audited financial statements.

In Japan, annual general shareholders’ meetings are heavily concentrated in June, particularly those companies with fiscal years ending in March. This distinctive market practice has made it difficult for companies to provide disclosure in a timely manner to shareholders, with the consequence that many companies traditionally file their annual securities reports after their annual general meetings.

However, in March 2025, the Minister of State for Financial Services requested listed companies to consider filing their annual securities reports several days before – or at least by the day before – their shareholders’ meetings.

As a result, 57.7% of companies with fiscal years ending in March 2025 disclosed their annual securities reports before their shareholders’ meetings. This was a significant increase from 1.5% for companies with fiscal years ending in March 2024.

Despite this progress, many of those companies with fiscal years ending in March 2025 only filed their annual securities reports just in time, on the day immediately before the shareholders’ meeting. This raised questions about whether such last-minute disclosure is truly useful for shareholders and investors.

The 2026 revision of the Corporate Governance Code now establishes the disclosure of annual securities reports before shareholders’ meetings as a general principle. This change forms a part of a broader effort to create an environment in which shareholders can exercise their rights more effectively at shareholders’ meetings. The revised code also notes that companies should consider making their disclosure at least three weeks before the date of the shareholders’ meeting.

By clearly positioning pre-meeting disclosure as a general principle under the code, and referring to a specific timeframe as a matter for consideration, the revision is expected to encourage companies not merely to make formal disclosures immediately before the shareholders’ meeting, but to disclose their annual securities reports in time that allows shareholders to substantively review their contents.

Whistleblowing strengthens corporate risk management

In recent years, whistleblowing systems in Japan have played an increasingly important role as an early risk detection mechanism for identifying violations of law and misconduct.

As a result, whistleblowing systems are no longer viewed merely as compliance measures. Instead, they are regarded as an integral part of a company’s internal control and risk management framework, which should be overseen by the board of directors.

Under the Whistleblower Protection Act, businesses of a certain size are required to establish whistleblowing systems.

In addition, an amendment to the act scheduled to come into force on 1 December 2026 will place even greater emphasis on ensuring the effectiveness of such systems. Among other changes, the amendments empower the relevant administrative authority to issue an order where a business with more than 300 employees fails to comply with a recommendation concerning its obligation to designate personnel responsible for handling whistleblowing reports. Violation of such an order may result in a criminal fine.

The Corporate Governance Code also requires listed companies to establish appropriate systems for whistleblowing and requires boards of directors to supervise the operation of such systems. Although the current revision does not substantially change the code’s approach to whistleblowing systems, it reorganises matters that were previously set out in supplementary principles into the main principles and guidelines.

As a result, the code adopts a more principles-based structure. These revisions suggest that companies are expected to not only establish formal systems but also ensure the effective operation of whistleblowing systems in light of their own circumstances.