Revisions to the Corporate Governance Code and an update to the Tokyo Stock Exchange's request have been published, signaling a shift in Japanese companies' capital allocation from policy to execution and review, as the market places greater emphasis on long-term corporate value creation.
This article examines the move by Japanese companies to redirect capital allocation toward long-term value creation in response to the revisions to the Corporate Governance Code and the Tokyo Stock Exchange's updated request. The request update in April 2026 emphasized growth strategies, the use of capital, optimization of asset holdings, and effective board discussions and oversight, indicating that capital should be reallocated after execution and review. The Corporate Governance Code revisions published in July 2026 emphasize the board's role in setting out a path to growth, investing with consideration for the cost of capital, reviewing the business portfolio, and assessing the use of management resources.
At the same time, based on surveys of institutional investors and market feedback, companies are being asked to demonstrate not only targets for the cost of capital, ROE and PBR, but also stronger links between growth strategies and capital allocation, together with more sophisticated mechanisms for reallocating management resources. Institutional investors with a long-term investment focus place importance on selecting investment opportunities that exceed the cost of capital, reviewing the results, and making improvements through dialogue. There is broad recognition that boards need to strengthen both the initiative of top management and their oversight function.
Against the backdrop of increased shareholder returns by listed companies, including higher dividends and share buybacks, the latest developments aim to shift the balance between growth investment and shareholder returns from static spending management to the allocation of resources that creates value. The accompanying charts indicate that CAPEX and R&D as a percentage of sales at Japanese companies remain below levels in the United States and Europe. Strengthening long-term growth investment and establishing review processes, including criteria for withdrawing from businesses, are identified as key challenges.
International comparisons show that shareholder returns in Japan are increasing, while growth investment has tended to remain flat. Companies are therefore expected to make capital allocation function as a cycle of policy, execution, review and reallocation, rather than as policy alone. Focusing on three decision criteria, namely where to allocate resources, where to withdraw them, and how to review performance and measure results, the article explains the board's role in improving the quality of management resource allocation and the importance of dialogue with investors.
Based on the explanations of Figures 3 and 4, companies are expected to establish systems for continuously reviewing the allocation of management resources within multi-year management plans and for applying criteria for withdrawal and decisions on additional investment flexibly.