By Taku Mukoyama / Yomiuri Shimbun Staff Writer

Japan's Economy, Trade and Industry Ministry is calling on companies to expand investment for growth by shifting away from an excessive focus on capital efficiency metrics, such as return on equity $(ROE)$, in its new guidelines for companies and investors released Wednesday.

In the guidelines, called "Growth Investment Guidance," the ministry is also calling on the government to encourage business restructuring through tax incentives and other measures to enhance competitiveness. Through this, the ministry aims to bolster the Japanese economy.

Shareholder returns surge

Corporate guidelines in Japan were previously based on a report released by the ministry in 2014. The "Ito Report" was named after Kunio Ito, then a professor at a graduate school of Hitotsubashi University, who played the leading role in its compilation. It called on companies to aim for an ROE of 8% or higher.

Since ROE increases when equity capital is reduced, companies increased share buybacks using their capital. From fiscal 2013 to 2024, the value of shareholder returns, including share buybacks, increased 250% in Japan, while those in the United States grew only 10%, according to ministry data.

The ministry is particularly concerned about the number of companies with low profits but high growth potential that are diverting their earnings toward shareholder returns rather than reinvesting them. Among companies in this category, 60% paid out shareholder dividends in Japan, while only 22% did so in the United States.

The new guidelines state that prioritizing shareholder returns over investment will damage corporate value in the medium to long term, and instead call for "shareholder returns commensurate with each company's stage of growth and performance."

Falling short of U.S., Europe

As a result of prioritizing shareholder returns, Japanese companies have been falling short of their U.S. and European counterparts in terms of growth investment. In fiscal 2023, the ratio of growth investment to sales revenue was 29.4% in the United States and 27.2% in Europe, while that in Japan was significantly lower at 17.7%.

The guidelines underlined the need to "expand bold growth investments" in such areas as capital spending, research and development and human resources development. They also emphasized the importance of strengthening profitability by securing specialized talent through wage increases and enhancing the added value of products and services through investment.

Regarding investors' tendency to base their voting decisions on whether ROE is 8% or higher, the guidelines stressed that "judgments merely based on a single indicator should be avoided."

Meanwhile, the guidelines stipulate that the government will consider tax incentives and financial support to facilitate smooth corporate restructuring. They also outlined a policy of creating a framework for public-private investment in strategic sectors to help preserve predictability for companies.

"We aim for the three stakeholders -- companies, investors and the government -- to collaborate and work toward expanding value creation through expanded growth investments," said Yojiro Hatakeyama, director general of the Economic and Industrial Policy Bureau at the ministry, during an expert panel meeting on the day.

----

This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

YDN-M0000205385-1

(END) Dow Jones Newswires

May 28, 2026 07:26 ET (11:26 GMT)

Copyright (c) 2026 The Yomiuri Shimbun