Many see Japan as a value play. The real opportunity is its high number of quality companies (250+ with >40% gross margins) that were historically mismanaged. Ongoing governance reforms are now unlocking the potential of these high-margin franchises.

For 30 years, Japanese firms retained profits instead of returning capital, accumulating huge cash and asset piles on their balance sheets. Now, the Tokyo Stock Exchange is pushing for buybacks and dividends, creating a powerful catalyst for value realization that is independent of new earnings generation.

Analysis in Japan reveals a direct positive correlation between improved corporate governance metrics, such as board independence, and equity returns. This suggests that governance reforms across Asia are not just about compliance but are a tangible source of investment alpha for discerning investors.

After decades of stagnation, Japan is experiencing a bullish turn. PIMCO's CEO attributes this to two key factors: the first real inflation in years and a surge in corporate activism. Activist investors are breaking up conglomerates and improving business models, making Japanese equities newly attractive.

For years, Japan was a value trap: cheap companies with poor governance hoarded cash. The game changed when Prime Minister Shinzo Abe introduced stewardship and governance codes, creating a top-down, government-backed catalyst for companies to finally improve capital allocation and unlock shareholder value.

The Nikkei's strength is not primarily driven by expectations of broad fiscal stimulus. Instead, equity investors are betting on the success of PM Takaichi's targeted policies to boost sentiment and spending among middle and lower-income households. This potential consumption recovery is a key upside catalyst that the market has not fully priced in yet.

The median Japanese company holds seven years of net income in assets, compared to just one year for a US company. This massive, unproductive cash hoard represents huge untapped value. New corporate governance reforms are finally pressuring these firms to distribute this wealth to shareholders via buybacks and dividends.

Once dismissed for poor shareholder returns, Japan has implemented structural reforms forcing companies to improve ROE and capital allocation. This pressure to create shareholder value, combined with historically low valuations, has turned the market into a "hidden treasure" for savvy investors.

The Tokyo Stock Exchange has issued an ultimatum to companies: get your price above book value or be delisted. This is forcing an end to centuries-old practices of corporate cross-ownership and compelling companies to engage in buybacks and other shareholder-friendly actions, providing a powerful catalyst for the market.