A London-based manager with a Japan focus says European investors are well placed to push Japanese boards on governance, cash and returns. It argues that bosses, staff and shareholders are all gaining from the change.

(Updates with Asset Management One International comment.)

It might not seem the usual word to use about corporate boardrooms, but one asset management firm with a noted Japan focus says the C-suite is having much more “fun” these days. The old shackles on how companies are run are coming off.

As this publication has noted in recent years, corporate governance reforms in Japan have made it easier to restructure conglomerates along more coherent business lines, and large cash surpluses on balance sheets are increasingly going back to shareholders. It has been part of a narrative about a country pulling itself out of a long period of sluggish growth.

David Mitchinson, a fund manager at UK-based Zennor Asset Management, thinks Japanese corporate bosses are more comfortable with European money managers asking hard questions about unlocking value than they are with US counterparts. European asset managers are used to dealing with cross-shareholdings in their own corporate world, in markets such as Germany, and can be easier for Japanese bosses to deal with. 

“They [Japanese corporates] understand that this is more than a one- or two-year story and it is perhaps easier for European investors to understand that,” Mitchinson told journalists at a recent media briefing in London.

Mitchinson explained the role that Zennor and like-minded firms play in using extraordinary general meetings to get boards to confront problems linked to governance, returns and the need to focus on core strengths.

While this process might seem to make life tougher for Japan’s business managers, Mitchinson said that running companies is ultimately more rewarding for managers and staff, and not just financially, as shares have risen.

“People can see that management is having so much more fun,” he said. Employees’ pay has risen and there is “more equal pay for equal work.”

Some approaches remain. When Japanese corporates decide to boost return on equity, they prefer to combine the flexibility of share buybacks alongside higher dividends, even though both routes end up having the same result, he said.

Japanese firms’ cash balances remain relatively high and the valuation potential is considerable. In a September update on its new fund, Zennor said that about 27 per cent of Japan’s top 500 stocks had net cash of more than 20 per cent of shareholders’ equity this year, down from as much as 32 per cent around 2018. Roughly 31 per cent of Japanese companies had a price-to-book ratio below one in August this year, compared with a figure in the low single digits in the US and about 14 per cent in Europe. (A low ratio means that investors value a company’s shares at not much more than, or even less than, the net assets on its balance sheet.)

For all the valuation potential still to be had, the gains so far explain why Zennor is upbeat. From the start of 2021 to 9 October 2026, the Nikkei 225 Net Total Return Index, which reinvests dividends after withholding tax, rose 174.9 per cent, or 19.1 per cent per annum. Excluding dividends, the index rose about 152 per cent.

By comparison, the MSCI World Index, with gross dividends reinvested, returned about 103.5 per cent in US dollar terms from the start of 2021 to 30 September 2026, an annualised return of roughly 13.2 per cent.

It appears attitudes towards Japan continue to be upbeat. According to Asset Management One International, the  EMEA business of Asset Management One, the Japanese asset management group, the country's companies are now receiving 10 analyst upgrades for every downgrade compared to less than five analyst upgrades for every upgrade during the same period of 2025.

“What our analysts are seeing is that Japanese companies are passing higher input costs on to customers. This stronger pricing power marks a meaningful departure from past deflationary behaviour and has helped to protect profit margins despite a higher?cost environment," Oleg Kapinos, head of global distribution strategy at Asset Management One International, said in a note today. 

Active management
Of course, these are broad indices that can be tracked by an ETF. What Zennor brings to the table is an active, stock-picking approach. In June, it launched the Zennor Japan Himawari Fund, which aims to deliver strong long-term capital growth by investing mainly in Japan’s 350 largest listed companies. The fund is not constrained by benchmarks; the managers pick between 25 and 55 companies showing clear signs of undervaluation across three categories: overlooked assets, mispriced cash flows and underearners.

The fund’s top 10 holdings include Keyence, which makes factory automation equipment and accounts for 6.9 per cent of the portfolio. It is followed by the carmaker Toyota (5.9 per cent) and Yokohama Financial Group (4.9 per cent).

Mitchinson runs the fund alongside portfolio manager Nicolò Vezzoso, who joined Zennor in late 2025 from the Italian fund group Anima. Spring Capital Partners, meanwhile, helps bring Zennor’s investments to the attention of fund buyers and asset allocators in the UK and Europe. Citibank in Luxembourg is the custodian and administrator, and the fund offers daily dealing. Zennor is regulated in the UK.

Rising tide
Other investment firms appear to like Japan. In a note on the fourth quarter, LGT Capital Partners, for example, said that “the case for an earnings revival may be even stronger in Japan, where companies have just beaten forecasts by a wide margin despite the pressure of soaring oil prices.”

“Here too, higher profitability is not just due to a rise in revenues in AI-adjacent sectors but also to gradual and lasting improvements in operating margins across industries,” it said, echoing the points Zennor made.

“From a macro perspective, the investment push is part of a major regime shift. After its ‘Lost Decades’, Japan is finally finding a way out of that deflationary mindset. Nominal economic growth and wages are rising, while companies are deploying more capital again. Firmer real growth and rising inflation have already been a boon for the equity market, with Japan posting the best performance among major developed markets in recent months,” it added.

Greg Hirt, chief investment officer for multi-asset at Allianz Global Investors, said recently that his firm is overweight equities, with the “strongest conviction in emerging markets, then Japan, US equities and Europe.”