Portfolio Manager Insights

Improved corporate governance makes Japan a more intriguing market

Corporate governance reform in Japan has resulted in shareholder-friendly behavior and enhanced the appeal of Japanese stocks, says Fidelity’s Kirk Neureiter.

By: Kirk Neureiter
Updated: 3/17/2025
  • Measures by the Japanese government and the Tokyo Stock Exchange to improve corporate governance and behavior in Japan have led to shareholder-friendly actions and meaningfully increased valuations for firms that have embraced the culture shift, according to Fidelity Portfolio Manager Kirk Neureiter.
  • "The introduction of this reform has produced significant change and resulted in compelling investment opportunities in the country that didn't exist a few years ago," says Neureiter, who manages Fidelity Advisor® Japan Fund. "Japanese companies have sold noncore assets and boosted payouts in the form of dividends and buybacks, as well as raised capital to invest for long-term growth in their most profitable segments."
  • In helming the concentrated Japanese equity strategy since 2014, Neureiter favors companies he believes have the potential to improve their return on equity over time. He aims to choose good businesses that are attractively priced relative to the market and that are benefiting from new market development, evolving capital structures, efficiency improvement, pricing power or a change in management incentives.
  • He explains that the reform measures sought to address the entrenched nature of corporate executives, excess retained earnings, too many noncore, low-return assets, and conservative decision-making.
  • The movement started roughly a decade ago, when former Prime Minister Shinzo Abe created stewardship and governance codes for listed corporations, and it has continued with the Tokyo Stock Exchange's 2023 restructuring of its listing categories to reward quality.
  • "Companies that cannot meet certain standards of operating performance, disclosure, improvement plans and, ultimately, valuation face the possibility of demotion to lower tiers," says Neureiter, referring to the exchange's new approach. "Change has not been mandated, but rather encouraged by rewarding the best."
  • Neureiter cites Hitachi as a beneficiary, giving him confidence to make the Japan-based conglomerate one of the fund's largest holdings as of February 28. The stock has meaningfully rerated due to improvement in the operating environment, as well as changes in how the company is managed, Neureiter says, adding that management reported an optimistic outlook for the upcoming fiscal year, with expectations to exceed targets for revenue and profit.
  • Hitachi also announced plans to enhance shareholder value through increased dividends and share buybacks, while maintaining a focus on sustainable growth and investment in generative AI and digital transformation initiatives, according to Neureiter.
  • Another reform beneficiary, says Neureiter, is Tokio Marine Holdings, a provider of property and casualty insurance and a core position in the fund at of the end of February. "Tokio has committed to unwinding the significant debt and cross-shareholdings on its balance sheet," he says. "The selling of these stakes may result in significant excess capital for the insurer, much of which likely will be returned to shareholders through dividends and buybacks."
  • He says that the trend in favor of enhancing shareholder value likely has a long way to run in Japan, and he is on the lookout for other investment opportunities.
  • "In recent quarters, the investment community has been actively engaging and making proposals at shareholder meetings, which is stimulating activity in the form of divestitures and even buyouts by managements and private-equity firms. I am hopeful these trends will continue," he concludes.
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Fidelity Advisor Japan Fund (FJPIX)

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