Japan's government wants corporates to invest for growth. Investors should be sceptical about what that means in practice.

Japan's corporate governance story is at risk of a policy-induced detour. The Tokyo Stock Exchange has spent two years pushing companies trading below book value to improve capital efficiency through buybacks, ROIC targets, and cross-shareholding reductions. The government's new messaging explicitly prioritises growth investment over those shareholder-value metrics, and the tension is real. Japan's average ROE sits at around 9%, roughly half the US rate, and Goldman Sachs describes the market as now entering a 'critical delivery phase' requiring concrete evidence of better returns. The risk is that boards interpret the growth-investment signal as political cover to deploy cash into low-return domestic projects, exactly the behaviour that kept Japanese equities undervalued for two decades. The distinction that matters for foreign investors is whether individual companies have genuine growth pipelines or are simply being nudged to spend. Separating those two groups is where the alpha sits in Japanese equities right now.