The Great Reallocation
Hiromi Yamaji and the exchange that asked Japanese companies to use their capital
Japan has never suffered from a shortage of capital. For decades, the opposite was closer to the truth. Japanese households accumulated vast savings, corporations built formidable cash reserves and some of the country’s largest businesses developed balance sheets capable of absorbing almost any shock.
Yet resilience came with a cost. Capital that protects a company from uncertainty is not necessarily capital that creates new value. That distinction is now moving to the centre of Japan’s economic transformation.
“The shift from savings to investment”
Hiromi Yamaji, Group CEO, Japan Exchange Group
Yamaji used those words at the beginning of 2026 to describe a change he believed was finally gathering momentum. It is an unusually concise description of what Japan is attempting: not simply to attract more money into its markets, but to alter what households, investors and corporations believe capital is for.
That makes Yamaji an unusual but revealing first figure in The New Architecture of Asian Capital. He does not control a sovereign wealth fund, a global bank or an industrial conglomerate. He runs part of the institutional plumbing of capitalism itself: Japan Exchange Group, the market infrastructure through which companies access investors and investors price companies. Yet under Yamaji, that infrastructure has increasingly become something more active — an institution attempting to reshape the incentives behind corporate behaviour.
When safety became inertia
The origins of Japan’s capital problem lie deep in the economic history that followed the collapse of the asset bubble in the early 1990s.
Deflation rewarded caution. Companies that had experienced financial trauma accumulated liquidity, reduced leverage and placed extraordinary value on balance-sheet resilience. Stable corporate relationships, including extensive cross-shareholdings, insulated management from some of the pressures that would otherwise have forced capital to move. Continuity, employment and organisational survival often carried more weight than restructuring or aggressive pursuit of return on equity.
For a long time, much of that behaviour was rational. Interest rates were effectively zero, financial distress remained deeply embedded in corporate memory and holding cash imposed few obvious institutional consequences. But what protects a company during a crisis can become a constraint once the environment changes.
By 2026, Japanese corporations were sitting on an estimated $1.8 trillion in cash, while regulators and investors were increasingly pressing management teams to explain whether that capital should remain on the balance sheet, be invested in growth, used for acquisitions or returned to shareholders. The Financial Services Agency’s latest governance reforms put strategic capital allocation increasingly at the centre of that discussion.
Capital is no longer just financing technology. It is financing the systems technology depends on.
Japan’s problem, in other words, was never simply that companies lacked investment capacity. It was that too much capital had become detached from a sufficiently demanding theory of what it should accomplish.
The exchange becomes an architect
The Tokyo Stock Exchange began challenging that logic directly in March 2023, when it asked companies on its Prime and Standard markets to implement management that was explicitly conscious of cost of capital and stock price.
The initiative is sometimes presented as an attempt to push companies trading below book value above a price-to-book ratio of one. That captures only part of what TSE was trying to do. Its request applied across the markets and focused more fundamentally on whether management understood its cost of capital, assessed the profitability of its businesses and explained how resources would be allocated to create sustainable corporate value.
By April 2026, TSE had sharpened the initiative further, with an explicit focus on the appropriate allocation of management resources. And in August, it published a survey of domestic and international institutional investors identifying companies that were demonstrating meaningful progress rather than merely producing compliant disclosures. That is a remarkable evolution in the role of an exchange.
Stock exchanges traditionally provide infrastructure: listing rules, trading venues, liquidity and price discovery. Tokyo has increasingly used that position to ask something more intrusive of the corporations on its market. Why do you own the businesses you own? Why do you retain the cash you retain? What return does each major use of capital produce? And why should investors continue allowing that capital to remain where management has placed it?
The exchange is not allocating the money itself. It is forcing companies to make the case for their own allocation. That challenge reaches beyond corporate cash.
Capital trapped in relationships
One of the distinctive features of Japanese capitalism has long been the web of strategic shareholdings linking companies, banks, insurers, suppliers and customers. These relationships helped create stability and reinforced long-term commercial ties, but they also reduced the amount of corporate ownership exposed to genuine market discipline.
Cross-shareholdings therefore matter because they represent more than securities sitting on a balance sheet. They embody an older architecture of Japanese capitalism in which ownership could serve relationships as much as returns. That architecture is now being dismantled more deliberately.
In a capital-intensive economy, financial architecture becomes part of industrial architecture.
The pressure is particularly visible in the non-life insurance sector. Following problems in the commercial insurance market, Japan’s Financial Services Agency revised its supervisory guidelines in 2025 to require reductions in cross-shareholdings, explicitly linking such holdings to impaired competition.
This is not the same reform as TSE’s cost-of-capital initiative. The FSA is a regulator; the exchange is shaping expectations within listed markets. But they are pushing in a similar direction.
Capital that once sat inside stable institutional relationships increasingly has to justify why it is there. And when those holdings are sold, another question immediately appears: what should replace them?
The proceeds can strengthen the balance sheet, fund investment, support acquisitions or be returned to shareholders. Unwinding an old capital structure therefore does not complete the reallocation. It begins it. That distinction matters because companies can learn to satisfy almost any governance reform on paper.
From disclosure to behaviour
A presentation can mention return on equity. A board can announce a buyback. Management can introduce a cost-of-capital target into its investor materials without materially changing how investment decisions are made.
Tokyo appears increasingly conscious of that risk. Its 2026 investor survey did not simply ask which companies had complied with the programme. It asked investors to identify those demonstrating meaningful progress and to explain what they regarded as evidence of genuine improvement. TSE intends to continue the process in subsequent years. This moves the reform from disclosure towards behaviour.
A company can improve its share price temporarily by returning cash without becoming better at allocating capital. It can increase capital expenditure without investing wisely. It can sell an asset without becoming strategically more coherent.
The harder questions remain: which businesses deserve additional investment, which should be restructured, how much liquidity is genuinely necessary, when should excess capital be returned and what return should justify a new investment? These are ordinary questions in finance.
What is unusual is that Japan’s market infrastructure is attempting to embed them across an entire corporate system. The reallocation is also taking place on the other side of the market.
From household savings to investment
Japanese households have historically held an unusually large share of their financial assets in cash and deposits, a pattern that made considerable sense during decades of deflation and negligible nominal returns. The expanded NISA tax-advantaged investment framework was designed to make longer-term participation in securities markets more attractive.
The next phase of AI will be constrained as much by power and capital as by computing.
Yamaji has repeatedly connected that development to the shift from savings towards investment. In his January 2026 message, he argued that the movement had begun to gather real momentum, aided by the new NISA and by changing attitudes towards Japanese corporate reform. This creates an important connection between household finance and corporate governance.
Encouraging households to move more wealth towards markets is only half a reform. The companies receiving that capital must also become better custodians of it.
The exchange sits between those two transformations: attempting to increase the circulation of household capital while simultaneously improving the quality of the corporations into which that capital can flow.
Japan is therefore not simply trying to create more investors. It is trying to improve the entire investment chain.
Then capital acquired a price again
For much of this transformation, one extraordinary feature of the Japanese economy remained in place: money was almost free. That era is ending. On September 18, 2026, the Bank of Japan raised its policy rate to 1.25%, its highest level in 31 years, continuing Japan’s retreat from the ultra-loose monetary policy that defined much of the previous generation.
The significance for corporate allocation is subtler than saying cash suddenly becomes expensive to hold. Positive rates can also allow cash to earn a return. What changes more fundamentally is that capital once again acquires a clearer price throughout the system.
Debt-funded acquisitions face higher financing costs. Investments have to clear more visible hurdle rates. Companies deciding between retaining cash, investing it, acquiring another business or returning it to shareholders operate in an environment where those alternatives are no longer priced against a near-zero benchmark. That changes corporate behaviour at the margin.
For decades, Japan’s zero-rate environment softened some of the financial consequences of weak allocation. It did not cause corporate passivity on its own, but it made the distinction between active and inactive balance sheets less demanding.
The real question is no longer whether capital exists, but whether it can be structured for what needs to be built.
A world of positive rates does not solve Japan’s capital problem. It makes the choices harder to avoid. Those choices increasingly extend to the boundaries of the corporation itself.
M&A becomes a form of reallocation
Japan’s companies have historically been reluctant to divest businesses, particularly where doing so might reduce the size of a corporate group, disturb longstanding relationships or be interpreted as an admission of failure. As a result, capital could remain trapped for years in subsidiaries or divisions generating returns too low to justify further investment. That too is beginning to change.
The Japanese government is considering tax incentives that would make it easier for companies to sell non-core businesses and reinvest the proceeds into strategic activities. The proposal follows estimates that around 65% of Japanese corporate capital remains tied to low-return operations, even as dealmaking and corporate restructuring accelerate. But the shift has another, distinctly Japanese dimension: demographics.
Across the country, ageing business owners and succession problems are making ownership itself an allocation question. More than half of Japan’s small and medium-sized business owners remain over 60, while government policy increasingly treats business succession and M&A as tools for preserving productive assets, employment and supply chains rather than allowing viable firms to disappear when an owner retires.
This creates a different M&A dynamic from the classic Wall Street image of hostile takeovers and financial engineering.
Consolidation can become a mechanism for succession. Carve-outs can move viable operations into companies better able to invest in them. Acquisitions can preserve capabilities that would otherwise disappear. Corporate restructuring, in this context, becomes not merely a shareholder-value exercise but part of the response to demographic scarcity.
Reallocation is not automatically progress
Capital and ownership move together. That makes The Great Reallocation much broader than a story about stock prices. There is, however, an obvious danger in treating every movement of capital as an improvement.
Japanese companies accumulated cash and cultivated stable ownership structures for reasons. The country remains exposed to demographic decline, geopolitical uncertainty, volatile energy markets and increasingly fragile global supply chains. For manufacturers operating complex international production systems, resilience itself has economic value.
Nor does pressure from markets necessarily produce superior long-term decisions. A company can improve its return on equity by weakening its balance sheet. An activist investor can demand a distribution that looks rational over three years but leaves a business less capable of investing over twenty. A divestment can raise capital efficiency while destroying an industrial relationship that was difficult to measure financially.
The purpose of Japan’s reform therefore cannot simply be to replace conservative management with aggressive capital markets. The more interesting objective is to make capital intentional.
Cash can remain on the balance sheet, but management should be able to explain why. Cross-shareholdings can only survive where their strategic value outweighs their financial cost. Investment should compete against alternatives. Businesses should remain inside a conglomerate because ownership creates value, not because history placed them there.
The shift is from preservation without explanation towards allocation with justification.
The great reallocation
Hiromi Yamaji is an unusual protagonist for a story about Asian financial power. Before joining JPX, he spent decades at Nomura, including senior roles in global investment banking and leadership positions in Europe and the United States. He later ran the Osaka Exchange and the Tokyo Stock Exchange before becoming Group CEO of Japan Exchange Group in 2023.
Yet the importance of his current position lies precisely in the fact that he does not decide where hundreds of billions of yen should be invested. His influence is architectural.
The institution he leads shapes the market through which thousands of those decisions are judged. Rather than choosing the semiconductor factory, acquisition, research programme or dividend, JPX is trying to change the incentives under which corporate Japan makes those choices in the first place.
That is a fundamentally different form of capital power from the one represented by Morgan Stanley in the United States.
Ted Pick operates in a system confronted by an extraordinary requirement for new capital structures: AI infrastructure, energy systems and data centres need financing on a scale that even some of America’s richest companies cannot simply fund from current cash flows. Yamaji confronts almost the reverse problem.
Japan already possesses extraordinary pools of capital. What its institutions are trying to do is release them from inertia — from excess cash, legacy ownership structures, low-return businesses and a financial culture shaped by decades in which preserving capital often mattered more than redeploying it. That is why The Great Reallocation reaches beyond governance reform.
It describes a household moving savings into an investment account, an insurer unwinding an old strategic shareholding, a conglomerate selling a non-core division, an ageing founder transferring a business to a new owner and a listed company being asked to explain why every major part of its balance sheet still deserves capital.
Japan does not need to discover where the money is. It needs to decide where the money should go. And if that transformation continues, one of the world’s wealthiest economies may demonstrate something larger about the new architecture of Asian capital: the decisive question is not always how capital is raised, but how institutions persuade capital that has stopped moving to move again.
This article is part of The New Architecture of Asian Capital, an Altair Media Asia series examining how markets, states and industrial powers shape where capital moves — and what ultimately gets built.
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Illustration: Altair Media / OpenAI
Caption
Hiromi Yamaji, Group CEO of Japan Exchange Group. As Japan moves from savings towards investment, the Tokyo Stock Exchange is pushing companies to rethink how cash, ownership and corporate assets are allocated across the economy.
