Japan’s Capital Markets — Where Next? | 5 Jun 2026

Nuggets

Japan’s Capital Markets — Where Next? | 5 Jun 2026 | Asia Society · Nuggets

00:28:35 Panelist Introduction - Andrew McDermott: McDermott, founder of Mission Value Partners, has led over 90 corporate activist campaigns inside and outside Japan over 20+ years. He highlighted a growing geopolitical divide: Western financial elites want Japanese markets to look more American, while defense and security departments want American industrial markets to mimic Japanese long-term alignment.
00:31:03 Validation of Corporate Changes: McDermott confirmed major corporate upgrades, pointing to recent transactions like Fujitsu acquiring BrainPad, a cyber-security firm acquiring an education tech player, and Sony's chemical spin-off Dexerials absorbing an optical semiconductor firm while placing the target's CEO in charge. He noted that corporate disclosure in English is now superior to standard sell-side research.
00:32:46 The Paradox of Foreign Capital: While foreign capital controls 34% of the market, Japan’s overall asset allocation weight within consolidated global portfolios has shrunk significantly over the last 30 years. The global institutional investor base has consolidated heavily, with the top 100 asset managers controlling 50% of global capital and tracking passive benchmarks. Consequently, foreign capital remains structurally detached from domestic fundamentals, with primary financial interests tied to the US or China.
00:36:58 Industrial Excellence Case Study (Mitsubishi Heavy Industries): To demonstrate corporate resilience independent of Western governance trends, McDermott cited a 2010 quote from Mitsubishi Heavy Industries tracking its dismal 1.1% ROE. Rather than relying on financial engineering or activist pressure, the engineers restructured internally. They merged power systems with Hitachi and acquired ABB’s electrical grid business when Western activists forced ABB to divest it due to low short-term ROE.
00:38:57 Devaluing Public Core Engineering: McDermott strongly critiqued the structural push toward "venturization." He argued that while the US solves problems by creating speculative venture funds and charging 2-and-20 fees, Japanese legacy firms focus on production line efficiency. For example, CEO Seiji Izumisawa cut turbine manufacturing timelines by 30%.
00:40:57 Defense & Production Disparities: McDermott illustrated this industrial edge with a defense sector comparison: the US navy spent 10 years and $8 billion USD to construct a single Zumwalt-class destroyer that spent three years in repair shops. By contrast, Mitsubishi Heavy engineered and delivered 12 fully operational frigates at just $500 million USD per unit.

00:59:02 Tax Disincentives for Founders: Asumi Ota flagged recent tax reforms that increase capital gains taxes to 35% on startup exits exceeding 340 million yen. A recent industry survey shows that this policy has driven a substantial portion of top-tier founders to plan to move their subsequent corporate entities offshore.
01:00:26 Question from Glenn Fukushima: Fukushima questioned the real-world impact of the government's highly criticized 2022 Five-Year Startup Plan. Ota responded that while the plan's goal of generating hundreds of unicorns seems unrealistic, its primary value is signaling to global allocators that the state backs entrepreneurship. Conversely, Matsumoto argued that the state should simply "go away," call out the bureaucracy as a poor manager of risk capital, and focus strictly on deregulation.
01:03:51 Human Capital Constraints: McDermott highlighted a severe decline in human capital links: Japanese student enrollment in elite US academic institutions has dropped to an all-time low of 13,000 (compared to 280,000 from China). At institutions like Vanderbilt, zero Japanese researchers occupy post-doctoral engineering fellowships. Furthermore, at the University of Tokyo’s PhD neuroscience program, investor Yohi Yamada is the sole domestic student because state funding structures heavily favor foreign applicants over domestic tech talent.
01:08:19 METI Working Group Concerns: Audience member Takuya Fujii (BlackRock, former Ministry of Finance) raised concerns from METI's working group that strict corporate governance compliance might trigger short-termism, forcing executives to deplete cash reserves via share buybacks and dividends at the expense of long-term R&D.
01:09:24 Corporate Pricing Leverage: McDermott responded that Japanese companies are globally under-leveraged, and the root problem is not shareholder returns but a historical inability to price products correctly. Companies like Hitachi and Mitsubishi Heavy must expand margins by commanding premium prices for their world-class engineering rather than relying on financial engineering. Matsumoto concluded that if bad actors make short-term demands, corporate managers should simply say "no" rather than asking METI or the FSA to rewrite governance codes.

Japan’s Capital Markets — Where Next? | 5 Jun 2026 | Asia Society

Introduction & Macroeconomic Foundation

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Introduction & Macroeconomic Foundation

References

More nuggets

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Dipan Patel on Permira’s ‘Artisanal’ Approach to Private Equity | 4 Sept 2026 | Exchanges | Goldman Sachs

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00:02:31 Structural Shift: Insider to Outsider Capitalism

00:04:01 Corporate Performance & Market Efficiencies

00:08:48 The Generational Shift & Corporate Engagement

00:16:49 Venture Capital, M&A Exit Dynamics & Cultural Headwinds

00:28:27 The Value Investor Perspective & Critiques of Western Models

00:41:46 Private Equity Exploitation & Fiduciary Gaps

00:46:04 The Policy Debate: TSE Price-to-Book Directive vs. Free Market Asset Management

00:58:50 Taxation Reforms, Brain Drains & Audience Q&A

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