Introduction
In recent years, Japan’s capital markets and market for corporate control have undergone significant transformation. Against the backdrop of initiatives such as the Tokyo Stock Exchange’s March 31, 2023 request that companies listed on the Prime Market or Standard Market “take action to implement management that is conscious of the cost of capital and stock price,” as well as broader corporate governance reforms, investment activity and shareholder proposals by both domestic and foreign activist investors have increased. In addition, since the Ministry of Economy, Trade and Industry (“METI”) published the Guidelines for Corporate Takeovers: Enhancing Corporate Value and Securing Shareholders’ Interests (the “Guidelines”) on August 31, 2023, there has been an increase in transactions to take listed companies private and in unsolicited acquisition proposals for listed companies. As a result, Japan’s market for corporate control has entered a new stage of development.
In response to these changes, discussions have intensified in recent years regarding the development and appropriate design of the rules governing Japan’s capital markets and market for corporate control. This newsletter highlights three major recent developments in these areas: (i) the reform of the tender offer and large shareholding reporting regimes, (ii) the publication of the “Key Points” and Q&A relating to the Guidelines, and (iii) recent policy and regulatory developments concerning shareholder activism.
Reform of the Tender Offer and Large Shareholding Reporting Regimes
In light of the increasing number of unsolicited acquisitions conducted through on-market transactions and the growing diversity of acquisition techniques involving listed companies, the Financial Instruments and Exchange Act (“FIEA”) was amended in 2024 to enhance transparency and fairness in the capital markets. The amendments relating to the tender offer regime and large shareholding reporting regime came into effect on May 1, 2026.
While the amendments cover a broad range of matters, some of the key changes to the tender offer regime and the large shareholding reporting regime are outlined below.
(i) Tender Offer Regime
Under the FIEA, certain acquisitions meeting specified requirements must be conducted through a tender offer (the “Mandatory Tender Offer Rule”). Prior to the 2024 amendments, ordinary on-market purchases were exempt from the Mandatory Tender Offer Rule, while off-market acquisitions and certain other acquisition methods were subject to the rule if the purchaser’s post-acquisition shareholding ratio exceeded one-third.
However, concerns had been raised that an acquirer could rapidly accumulate shares of a listed company through ordinary on-market transactions and thereby obtain one-third or more of the voting rights, enabling the acquirer to exert significant influence over corporate control. It was also recognized that, in practice, ownership of approximately 30% of the voting rights may be sufficient to materially influence control of a company.
In light of these concerns, the amendments expanded the scope of the Mandatory Tender Offer Rule to include ordinary on-market transactions and lowered the relevant ownership threshold from one-third to 30%.
(ii) Large Shareholding Reporting Regime
Under the FIEA, where holders of shares or other securities are connected through certain objectively identifiable relationships, such as capital relationships (so-called “deemed joint holders”), or where there is an agreement among holders concerning the acquisition or disposal of such securities or the exercise of voting rights or other rights (so-called “substantive joint holders”), such holders are treated as “joint holders,” and their respective holdings are aggregated for purposes of determining whether a large shareholding report must be filed.
However, concerns had been raised that the effectiveness of the large shareholding reporting regime was being undermined by cases in which multiple investors were suspected of engaging in coordinated acquisitions of shares through tacit understandings (so-called “wolf-pack tactics”), exploiting the evidentiary difficulties associated with proving the existence of an agreement necessary to establish substantive joint holder status.
To address these concerns and the practical difficulties associated with establishing the existence of substantive joint holders, the amendments expanded the scope of deemed joint holders. In particular, in addition to categories that were already treated as deemed joint holders prior to the amendments, such as parent-subsidiary relationships and sister-company relationships, the amended regime now covers, among others, (a) a company and its representative, and (b) companies sharing the same representative.
It should also be noted that, under the current FIEA, the administrative monetary penalty imposed for failing to file a large shareholding report or amendment report, or for making false statements therein, is calculated at one hundred-thousandth (1/100,000) of the market capitalization of the issuer of the relevant securities. Pursuant to amendments to the FIEA promulgated on July 23, 2026, this amount is scheduled to increase to seven ten-thousandths (7/10,000) of the issuer’s market capitalization, representing a substantial increase in the sanctions amount for violations of the large shareholding reporting regime.※1
Publication of the Key Points and Q&A Relating to the Guidelines
The Guidelines, published by METI in August 2023, set forth principles and best practices intended to be shared broadly throughout Japanese society as a means of establishing fair rules for M&A transactions. The Guidelines focus primarily on the conduct of parties involved in acquisitions of control of listed companies (the “Control Transactions”).
Since their publication, it has become standard practice for parties involved in Control Transactions to consider the Guidelines when assessing their conduct. Moreover, as the number of M&A transactions involving Japanese companies has increased, public and market attention to the Guidelines has grown.
Against this backdrop, concerns were raised that the intent and spirit of the Guidelines might not be fully understood by participants in Control Transactions. Accordingly, on July 30, 2026, METI published the Key Points of the Guidelines for Corporate Takeovers (the “Key Points”) and the Q&A on the Guidelines for Corporate Takeovers (the “Q&A”) to clarify and promote a better understanding of the Guidelines.
Neither the Key Points nor the Q&A alters the substantive content of the Guidelines published in August 2023. Rather, they organize and explain important issues and difficult questions concerning the conduct expected of parties involved in Control Transactions. A deeper understanding of the Guidelines is expected to further facilitate “desirable acquisitions” and ultimately contribute to the growth of the Japanese economy.
For example, the Key Points and Q&A clarify that, although acquisitions that “secure or enhance corporate value and the common interests of shareholders” constitute “desirable acquisitions,” a proposal is not automatically regarded as desirable merely because it offers a high acquisition price. In response to the perceived misconception that “a board cannot reject a proposal that offers a high price,” the materials emphasize the importance of carefully examining whether the proposal contributes to enhancing corporate value.
Recent Policy and Regulatory Developments Concerning Shareholder Activism
As noted above, investment activities and shareholder proposals by domestic and foreign activists have increased significantly in recent years. Japan is now widely recognized as one of the leading activist markets in the world, second only to the United States.
Although these developments are often viewed positively as promoting capital efficiency and corporate governance reform, concerns have also been expressed that certain activist campaigns focused solely on short-term gains may hinder the medium- to long-term growth of companies.
In response to these concerns, Japan’s ruling Liberal Democratic Party established the Growth-Oriented Corporate Governance Reform Project Team (the “LDP Project Team”) in June 2026. The LDP Project Team began discussing the appropriate design of legal frameworks governing capital markets, including the Companies Act, with the objective of creating an environment that encourages growth-oriented management while ensuring that shareholder oversight, including oversight by activist shareholders, contributes to the medium- to long-term growth of companies. Based on the outcome of these discussions, the LDP Project Team submitted recommendations to the Japanese government on July 29, 2026.
The recommendations call upon the Ministry of Justice, the Financial Services Agency, and METI to promote, in an integrated manner:
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the enhancement of corporate management capabilities;
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the establishment of a market environment equivalent to those in major foreign jurisdictions; and
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stronger enforcement to ensure fair capital markets.
In particular, with respect to the establishment of a market environment comparable to those in other jurisdictions, the recommendations propose revisions to the Companies Act aimed at addressing shareholder activism, including:
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eliminating the alternative requirement that a shareholder holds at least 300 voting rights in order to exercise shareholder proposal rights, while retaining the requirement to hold at least 1% of the total voting rights; and
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increasing the ownership threshold required to request the convocation of an extraordinary shareholders’ meeting from 3% to 5%.
Conclusion
Overseas investors should continue monitoring developments pertaining to corporate-control framework reforms in Japan. In addition to changes in market practice arising from the 2024 amendments to the FIEA and the publication of the Key Points and Q&A, the recommendations issued by the LDP Project Team, together with any future discussions regarding amendments to the Companies Act, may significantly affect investment strategies and shareholder engagement activities in the Japanese market.
Endnotes
*1
The relevant amendments will come into effect on a date to be specified by Cabinet Order, which must be within one year from the date of promulgation.
