Decoding Japan’s New Stewardship Code and 2025 FSA Action Programme

Japan’s stewardship and corporate governance journey entered a new phase with the release on 26 June 2025 of the Financial Services Agency’s (FSA) revised Stewardship Code (Version 3.0) ¹. The Stewardship Code, first introduced in 2014, sets forth principles for responsible institutional investors and has become a foundational component of Japan’s broader corporate governance reforms. The updated Code emphasizes moving from form to substance, improving transparency, promoting collective engagement, and simplifying guidance to further strengthen investor stewardship and drive sustainable corporate value across Japanese markets.

Stewardship Code 3.0: Principles over prescription

The latest version of the Code takes a more dynamic and flexible perspective, recognizing the limitations of a rules-based approach. As articulated by the FSA sustainable value creation "cannot be reduced to adopting a box ticking approach" ². Instead, reforms are grounded in principles-based frameworks, empowering institutional investors and asset managers to tailor their approach to each portfolio company’s unique challenges.

The FSA has consolidated and simplified the Stewardship Code, removing or merging sections that are already standard practice. This supports the implementation of a principles-based approach instead of detailed or prescriptive requirements, ensuring flexibility and adaptability to evolving stewardship practices.

Notably, the FSA has abandoned the previous three-year review cycle, stating that responsiveness is key. Changes and updates can now happen organically, in line with market conditions and global best practices, enabling Japan to keep pace with evolving expectations. This reflects the willingness to foster meaningful, timely engagement whilst the risk of over regulating is contained by their process of stakeholder consultation.

Key changes in Japan’s 2025 Stewardship Code revision are outlined below:

1. Transparency of beneficial shareholders 

Institutional investors should be prepared to disclose the number of shares they hold in each company, if requested, providing greater transparency about who ultimately has significant influence over listed firms. This is explicitly addressed in the newly revised Guidance 4-2, which requires investors to set out in a policy how they will respond to requests from investee companies regarding this information.

In response to our letter raising questions on this provision, the FSA wrote in Appendix 4, at item 33: In the implementation of Guidance 4-2 of the revised Code, it is up to each institutional investor to decide how to respond to inquiries from investee companies, as long as it is beneficial for the purpose of constructive dialogue with them. Institutional investors should disclose in advance a policy on how to respond to inquiries from investee companies, including the granularity of the responses. If there is a valid reason not to disclose the number of shares held, it is preferable to include the reason in the policy ³. 

This allows asset managers to respond to company requests for information in alignment with their investment strategies and capabilities—whether they are passive index investors or active engagement-led managers.

2. Support for collaborative engagement 

A welcome revision is Principle 4.5 of the Code which emphasises the significance of collaborative engagement. By encouraging joint action, the aim is to address governance or sustainability challenges more effectively and promote constructive dialogue between investors and companies.

We also note indicative best practice around the communication of issues for engagement, outlined at Appendix 3, Part III: In some cases, it is beneficial to send engagement letters to investee companies describing how investors understand and consider the issues, along with the background and reasons for these considerations ⁴. The FSA plans to convene a discussion forum for companies and investors to share successful engagement practices and update the “practices on stewardship activities” documentation, further supporting effective stewardship implementation.

To further support collaborative engagement, it will be helpful for investors to have clear safe-harbour rules to be able to collaborate with peers as that has long been an impediment to collaborative engagement in Japan. In several footnotes ⁵, the Principles reference FSA guidance from 2014 on legal matters related to large shareholding reporting obligations and tender offer regulations. The FSA has finalized updates to the regulatory framework under the 2024 amendments to the Financial Instruments and Exchange Act (FIEA), effective 1 May 2026, which supersede aspects of the 2014 guidance note. This finalized version is available only in Japanese for now ⁶.

These amendments aim to promote constructive dialogue between companies and investors by clarifying the scope of “joint holders” and “acts of material proposal” for aggregating ownership ratios under the large shareholding reporting rules, among other transparency enhancements. The finalized version of the amendments should be available in both English and Japanese ⁷ and should help to support investor engagement in collaborative dialogue.

3. Encourage service providers to develop capacity and local expertise

For this system to function effectively, Japan needs a robust local stewardship and proxy advisory ecosystem. The FSA encourages bolstering this talent pipeline in Principle 8.2, asking proxy advisors to develop appropriate resources on a country level to effectively communicate with all stakeholders, including companies. Developing in-country expertise is key to moving beyond "check box" interactions and supports a culture of proactive, purposeful engagement with information shared across the ecosystem. 

FSA’s Action Programme 2025: A broader push for corporate renewal 

In parallel, Japan’s Action Programme for Corporate Governance Reform 2025 serves as a cornerstone for strengthening accountability, transparency, and stakeholder value creation. The programme spans multiple dimensions—from board independence to sustainability metrics—and targets the practical barriers companies and investors face. 

Below is a curated synthesis of the 2025 programme based on the “Overview of the Action Programme 2025” document, outlining the FSA’s focus areas alongside our recent commentary and advocacy proposals. 

Conclusion 

As 2025 unfolds, we remain optimistic that Japanese regulators are setting an example of how to evolve governance through principles, rather than implementing a hard rules-based approach, leveraging market engagement over enforcement. Japan’s combined policy initiatives are not simply reforming corporate governance for compliance's sake but aim to revitalise its competitive spirit through the lens of long-term growth and value creation.

As a result of these governance changes, Japan is driving Asia's M&A rebound in 2025 with a record $232 billion worth of deals in the first half, and bankers expect the trend to sustain fuelled by multi-billion dollar take-private arrangements, outbound investments and private equity activity ⁹. 

However, in parallel, stewards of corporate governance are witnessing the spectacle of a contentious privatisation deal from the Toyota group, as described in our recent blog, a failed result in the takeover bid for Seven & I, and the threatened use of poison pills by Makino and Fuji Media in the last two months alone. It now remains for Japanese corporates and investors to implement the spirit of the revised Code and other governance initiatives. 

The stewardship journey may not be linear, but it should be genuine. 

Footnotes:

1. https://www.fsa.go.jp/en/refer/councils/stewardship/20250626/01.pdf
2. https://www.fsa.go.jp/en/refer/councils/follow-up/statements_8.pdf
3. https://www.fsa.go.jp/news/r6/singi/20250626/04.pdf
4. https://www.fsa.go.jp/en/refer/councils/stewardship/20250626/03.pdf
5. https://www.fsa.go.jp/en/refer/councils/stewardship/20140226.pdf (See footnotes 1 and 14)
6. https://www.fsa.go.jp/news/r7/shouken/20250704/20250704.html
7. It will be uploaded by FSA in same link as footnote 1 and 14 -https://www.fsa.go.jp/en/refer/councils/stewardship/index.html
8. As the Action Programme notes, “By the end of 2024, 98% of companies listed on the Prime Market had appointed independent outside directors to at least one-third of their boards. This suggests that the structure of the boards of Japanese listed companies has improved. On the other hand, there are instances where directors are repeatedly appointed from another company with which there is a longstanding capital relationships, and these directors are reported as independent directors.” The FSA further encourages companies to consider whether independent directors’ ties genuinely mitigates the potential for conflicting interests with minority shareholders. Source: FSA Action Programme 2025, page 6.
9. https://www.usnews.com/news/top-news/articles/2025-06-26/japan-hits-m-a-record-of-232-billion-driving-asia-deals-rebound