“New Form of Capitalism” is a concept proposed by former Prime Minister Fumio Kishida following his inauguration. It aims to tackle challenges in Japan’s traditional capitalism, such as the “Two Lost Decades” of economic stagnation since the 1990s, while striving to balance growth and wealth distribution. In its own way, I believe this initiative was groundbreaking.

I will not delve into the details here, but one of the key initiatives within this framework was the “Doubling Asset-based Income Plan,” adopted at the Council on the New Form of Capitalism in November 2022. The core principle of this plan is to redirect more than half of Japan’s household financial assets, currently held in cash and deposits, into investments and ensure that the benefits of sustained corporate value growth driven by these investments are reflected in expanded asset-based income for households, thereby creating a virtuous cycle of corporate growth and increased household asset-based income. In line with this principle, the government has implemented various initiatives, including the expansion and permanent establishment of the NISA system.

At the time, I shared my thoughts on the plan in this column. Revisiting it now, I can’t help but feel it was a rather insightful observation—if I may say so myself. For more on the “Doubling Asset-based Income Plan,” I encourage you to revisit that piece, as I now turn to the topic of this column.

Doubling—or halving—asset income? (April 2023)

Let me reiterate the core principle of the Doubling Asset-based Income Plan, as it holds great importance:

By redirecting more than half of Japan’s household financial assets, which are currently held in cash and deposits, into investments, the plan seeks to create a virtuous cycle of corporate growth and increased household asset-based income, where the benefits of sustained corporate value growth translate into expanded asset-based income for households.

Conversely, this implies that even if initiatives like the expansion of NISA successfully redirect household financial assets from cash and deposits into investments, households will not benefit in the form of increased asset-based income unless sustainable growth in corporate value, e.g., a rise in stock prices, is achieved. In light of this, I would like to focus this column not on the “Doubling Asset-based Income Plan” itself, but on the “sustainable corporate value growth” essential for its success.

The government has repeatedly issued guidelines and proposed measures aimed at guiding corporations toward achieving sustainable corporate value growth. Notable among these was the Tokyo Stock Exchange (TSE)’s guidelines, published in March 2023, calling on all listed companies to take action to implement management practices conscious of the cost of capital and stock price (“Action to Implement Management that is Conscious of Cost of Capital and Stock Price.”) In the guidelines, the TSE, based on an analysis of international data, highlighted that Japanese listed companies in general exhibit weak awareness of capital profitability, particularly in regard to the cost of capital, and lack proactive efforts to improve these metrics. Recognizing these issues as obstacles to achieving sustainable growth in corporate value, the TSE requested the management of listed companies to prioritize the cost of capital and reform their approach to stock price awareness, strengthen governance, and actively engage in investor communication and information disclosure. These requests are entirely reasonable, as Japanese listed companies significantly lag behind their Western counterparts in performance metrics such as return on equity (ROE) and price-to-book ratio (PBR). To address these challenges, the TSE encourages companies to accurately evaluate their capital cost and profitability, analyze these metrics along with market assessments during board of directors meetings, and, if necessary, develop and disclose improvement plans. Companies are also urged to sustain these efforts through ongoing dialogue with investors.

As mentioned earlier, without sustained growth in corporate value, the household financial assets gradually shifting into investments will fail to generate returns that can drive increased consumption or further investments. This underscores how the TSE’s guidelines are closely tied to the “Doubling Asset-based Income Plan” discussed above and form a critical pillar of the “New Form of Capitalism.” Sustainable growth in corporate value, e.g., a rise in stock prices, generates returns on investments. These returns can stimulate consumption or lead to further investments. Increased consumption drives growth in corporate earnings, which in turn leads to higher wages. Higher wages further fuel consumption and also contribute to increased tax revenues. Broadly speaking, this virtuous cycle, supported by appropriate fiscal and monetary policies, is what the US has consistently practiced over the years. Although Japan has been slow to adopt this approach, the government’s successive implementation of relevant policies indicates that the country is now striving to follow the same path.

The consistent messages and initiatives aimed at realizing the “New Form of Capitalism” are, of course, not limited to those mentioned above. For example, the Financial Services Agency (FSA) has advocated for the reduction of so-called strategic shareholdings—shares held for purposes other than pure investment—citing concerns over capital efficiency and corporate governance. In February 2024, the FSA requested a major non-life insurance company embroiled in a scandal to divest its strategic shareholdings. While ostensively framed as a measure to prevent misconduct, this action likely served as a broader message to major corporations, particularly financial institutions holding significant strategic shares. Further, the Ministry of Economy, Trade and Industry (METI) has established the “Roundtable on the Sustainable Improvement of Corporate Value” and issued a series of recommendations. The discussions identified five key issues: 1) the misalignment in the perception of corporate value between companies and investors; 2) the importance of adopting long-term management perspectives; 3) the reinforcement of management team structures; 4) the improvement in the effectiveness of board of directors; and 5) the revitalization of capital markets. Efforts to address these issues are expected to intensify going forward. METI also released the “Guidelines for Corporate Takeovers,” which urge boards of directors to carefully and earnestly evaluate acquisition proposals deemed reasonable. This is based on the idea that mergers and acquisitions that enhance corporate value and benefit shareholders should be actively pursued—a concept that closely aligns with the principles of the “New Form of Capitalism.”

As such, the Japanese government now resembles the domestic and international activists it once despised not so long ago. I believe this shift represents the future of capitalism that Japan should strive for. Personally, I support the government’s change in stance since the introduction of the “New Form of Capitalism.” To achieve the greatest happiness for the people by advancing liberalism and democracy, the pursuit of the “New Form of Capitalism” through promoting sustainable corporate growth appears to be the best course of action, at least for now. The results of several decades of efforts in the US to achieve sustainable corporate growth, as well as the resulting ever-widening economic gap between Japan and the US, make this abundantly clear.

Fortunately, Japan possesses an unparalleled amount of household financial assets on a global scale. The goal is to shift these assets from savings to investments while encouraging companies to fundamentally transform their management and governance approaches, focusing on sustainable value enhancement. By fostering the virtuous cycle generated through these efforts, the government reinforces its commitment to the “New Form of Capitalism,” aiming for sustainable economic growth. I fully support these government efforts and, as both a citizen and a corporate executive, I am committed to doing my part to contribute. These reflections conclude my thoughts on the “New Form of Capitalism.” In the next issue, I plan to discuss the shift in mindset required of top management at listed companies and the measures they need to implement, including how we, as a country, should respond to the full-scale transition to an inflationary society.

Hirotaka Shimizu
Chairman and CEO
Kamakura Shinsho, Ltd.