A confluence of macro forces—from corporate governance reform and monetary policy to investments in strategic supply chains—is reshaping Japan’s investment landscape even as Tokyo takes on more of a leadership role in global affairs. Compared to previous cycles that often relied on a single narrative, such as a weaker yen, the catalysts underpinning today’s enthusiasm are much broader and likely more durable, says Hidehiro Imatsu, President of Goldman Sachs Japan.

First, Japan now has a more credible wage-price dynamic. Wage settlements have remained at historically high levels, which is significant in a country that lived with low inflation and stagnant wages for so long. Second, the Bank of Japan has moved policy rates into positive territory, which means capital is starting to be priced more normally again. Finally, the Tokyo Stock Exchange’s reforms have made capital efficiency and shareholder dialogue more central to how companies are being evaluated by investors.

The current administration’s policies also place a much greater emphasis on strategic investment, industrial competitiveness, resilience, and long-term capacity building. The result is that a self-reinforcing feedback loop of government policy, corporate reform, labor market change, and investor expectations is accelerating durable change in Japan. 

Meanwhile, Yu Itoki, managing director in Goldman Sachs Asset Management, says opportunities that would never have come to market are now surfacing. The reform process is making management teams more responsive, improving board accountability, and increasing the willingness to transact. These opportunities mean that Japan’s M&A and private equity markets feel more active than at any prior point in recent memory.

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