In the early 2010s when Abenomics began, skepticism about "governance reform" was widespread in Japan's business community. Awareness of the need to enhance shareholder value was weak, and it was not even clear what to change and how. But as of 2026, more than a decade later, value-up has become a basic premise of management for Japanese corporations, not a choice.
Sparx Asset Management witnessed this dramatic change on the front lines. Founded in 1989 by Chair Abe Shuhei, Sparx is one of Japan's first-generation independent asset managers and has stayed the course on "value investing" through the bursting of the bubble and a long slump. Abe, still the chief executive officer (CEO) and an active fund manager, continues to work the market.
Sparx's stature is more than just a manager with strong returns. Abe Shuhei served as an economic brain for the Abe Shinzo Cabinet and was the behind-the-scenes driver of Japan's adoption of the Corporate Governance Code. A private asset manager sat shoulder to shoulder with the government's capital market architects to drive a fundamental overhaul of the market's structure.
Its investment judgment is also distinctive. Long before Warren Buffett, the chair of Berkshire Hathaway, snapped up shares of Japan's general trading companies and sparked a "Japan rally," Sparx predicted that the vast cash held by Japanese corporations would ultimately become the key engine for value-up. Combining value investing with shareholder activism and pressing to awaken the "sleeping cash," their strategy hit the mark. As a result, among pension funds in Japan and global institutional investors, there is even a saying that "to truly understand Japanese stocks, you must go through Sparx."
Sparx has one investment philosophy: focus on individual corporations over the macroeconomy. It uses three core criteria: ▲ a growing market ▲ a competitive business model ▲ leadership by management. In particular, it prioritizes capital efficiency and revenue structure over corporate size. The principle is to value quality over heft.
The nature of funds flowing into the Japanese stock market has changed, and CEOs' awareness is shifting. We spoke with Tetsuya Hirano, head of research at Sparx Asset Management, about changes in Japanese corporations observed on the ground. The following is a Q&A with Hirano.
— Even in the early days of Abenomics, Japanese corporations were skeptical about governance reform. When was the turning point when corporations began to move in earnest?
"The biggest turning point was the Tokyo Stock Exchange (TSE) restructuring in 2018. By reorganizing the existing market structure into Prime, Standard and Growth, whether a company could remain in the Prime market became a key indicator for listed firms. In Japan, where listing status is paramount, being dropped from Prime posed a real threat to large corporations.
On top of that came an acute labor shortage. Since 2013, Japan has suffered from a structural labor crunch. The view spread that to secure good talent, a company had to maintain Prime-listed status. Furthermore, activist funds targeted corporations with a price-to-book ratio below 1, amplifying the value-up trend. The exchange overhaul, labor market changes and the spread of activism operated simultaneously."
— Are there differences in the pace of value-up by corporate size or industry?
"It is easier to understand along two axes. One is large caps versus small and mid-caps, and the other is global corporations versus domestic-demand corporations. Large global corporations accepted value-up the fastest. Because they are directly compared with U.S. and European corporations, they understand shareholder value standards and governance demands well.
By contrast, large domestic-demand corporations and some small and mid-cap global corporations—especially utilities like railroads and electric power and family-owned corporations—are slower to react. For them, while shareholders are important, local communities and public interest are even more important stakeholders. In such structures, pressure for value-up is inevitably weaker."
— Do you sense qualitative changes in Japanese corporate management compared with the past?
"The definition of a 'good corporation' has completely changed. In the past, a company with large sales and many employees—literally a big company—was considered a good corporation. Now it is different. An efficient corporation that earns high profits with little capital is a good corporation.
CEOs' perceptions have also changed greatly. The view has spread that a company belongs to shareholders and investors, not to management. The environment is shifting to one that respects corporations with high return on equity (ROE)."
— Has value-up changed Sparx's investment judgments?
"First, we have put much more focus on net cash and non-core assets. In the past, because the net cash or held assets of Japanese corporations were unlikely to be returned to shareholders, we did not place great importance on net cash and non-core assets in valuing corporate value.
But recently, as awareness of the cost of capital and ROE has spread, more corporations are considering returning capital to shareholders through cash use or asset sales. When such changes are confirmed in management decisions and policies, Sparx regards cash on hand and non-core assets as potential shareholder value and reflects that in valuation.
Second, we view human capital as far more important than before. Japan faces an absolute shortage of labor. When we meet corporations, we start by asking the turnover rate. If it is around 10%, we see it as within the normal range, but if it exceeds 20%, we interpret it as a signal that there are problems in the work environment or organizational operations.
We do not immediately reflect human capital as a discount factor for corporate value. However, we use it as a key indicator for judging a corporation's sustainability."
— Has there been a change in the funds flowing into the Japanese stock market?
"We see three major changes. First is long-term global money from sovereign wealth funds and U.S. family offices. In the past, Japan was shunned to the point people said 'Japan is a zero position,' but as corporate change becomes visible, long-term money is coming back.
Second is retail money. In an inflationary phase, staying in deposits has become disadvantageous, and retail money is moving from banks into the stock market. The government's new NISA program is accelerating this trend.
Third is activist and private equity money. We assess that activist funds from the United States, Europe and Asia are flowing in, expecting to benefit from Japan's value-up."
— How do you communicate with conservative and closed corporations?
"We have three principles. First, make clear that we are long-term investors. Second, thorough research. It is important that management feel we understand the corporation better than anyone in the market. Third is a uniquely Japanese approach. Through formal meetings and polite letters, we express interest and respect. This approach ultimately builds trust."
— Some critics say shareholder returns can hurt long-term growth.
"Japanese corporations still hold high levels of cash, and their equity ratio is about 45%, higher than in major global economies. We are not yet at the stage where 'too much return is hurting growth.'
More important than the size of dividends is capital allocation. We do not ask companies to 'give back cash because you have a lot.' Instead, we ask how much they spend on research and development, how much is needed for capital expenditures, and why they made those decisions. It is fine not to return capital. But they must be able to explain the logic of that capital allocation to shareholders."
— What remains to be done for Japan's value-up?
"Diversity. It is still hard to find female directors and executives. Despite high levels of education, a lack of work environments and social support has kept the number of female leaders from growing sufficiently. Another issue is immigration. Japan still has a strong monocultural mindset. I believe diversity and openness will make Japanese corporations stronger."
— What is the missing piece in Korea's value-up policy?
"Governance transparency. After meeting Korean corporations directly, we find that the holding company–parent–subsidiary structures are so complex that outside investors struggle to understand governance. It is an environment in which conflicts of interest between controlling shareholders and minority shareholders can structurally arise.
In Japan, duplicate listings of parents and subsidiaries are seen as damaging to governance and are strongly discouraged at the exchange level. It seems important for Korea to improve such structural opacity as well."