Reforms press Japanese firms to put cash to use

Subject

Pension fund and corporate governance reform in Japan.

Significance

Corporate hoarding of cash and deposits rose to a record 233 trillion yen (2 trillion dollars) at the end of September 2014, the latest Bank of Japan data show. However, reform efforts are under way to promote risk-taking and increase returns from financial investment. They include changes to the portfolios of government pension funds, a new corporate governance code, a stewardship code for institutional investors and a new equity index to showcase the firms giving the best return on equity.

Impacts

• Public pension fund portfolio changes could shift tens of billions of dollars into foreign equities and bonds.
• The demands of an ageing population will add to pressure on pension funds to seek higher returns.
• Peer pressure could be a powerful motivator if a critical mass of companies can be persuaded to change.