Japan’s corporate reform story has taken a more cautious turn. After years of encouraging investors to challenge underperforming boards, the ruling Liberal Democratic Party is now raising concerns about whether some activist funds and private equity firms are secretly collaborating to benefit from take-private deals.
In draft policy proposals reported on July 17, the LDP’s corporate governance team suggested that such cooperation could “raise concerns regarding both improving corporate value and legal fairness.” The document did not name any specific activist, buyout firm, company, or completed transaction to support this idea of collusion.
Japan’s Activist Boom Changed the Balance of Power
Japan has become a leading market for activism outside the United States. Activists have pressured companies to sell noncore assets, reduce cross-shareholdings, improve capital allocation, and return excess cash. These demands garnered support from the Tokyo Stock Exchange, which since 2023 has urged Prime and Standard Market companies to manage their cost of capital and stock price more effectively.
That policy is still in place. In April 2026, the exchange updated its request for capital efficiency and encouraged investors to maintain “constructive dialogue” with listed companies to boost corporate value over the medium and long term.
Activists have responded vigorously. Japanese companies faced a record 139 activist shareholder proposals as of June 3, according to Mitsubishi UFJ Trust Bank data reported by Reuters. Nineteen of these proposals aimed to oppose management-backed directors or nominate alternatives, up from seven in 2024.
Private equity has also expanded alongside activism. Last year, the value of Japanese private equity deals surged by 47.8 percent to $42 billion, according to Dealogic figures. Governance pressure can reveal undervalued businesses, while a buyout fund provides the capital needed to take a company private.
This process is not inherently wrong. It can reflect how a healthy market regulates ineffective management.
The Alleged Arrangement Goes Beyond Ordinary Activism
The LDP’s concern focuses on instances where activists may have worked quietly with buyout firms and reinvested part of their sale proceeds into vehicles created by buyers. The draft indicated suspicions that some investors were “securing unfair gains.”
Such arrangements could lead to clear conflicts. An activist who claims to seek the best price for all shareholders might privately benefit from opportunities that ordinary investors cannot access. This could affect which bidder the activist supports, whether they push for a sale, and how aggressively they negotiate the final price.
An activist selling shares and later investing in a private company does not necessarily indicate collusion. Investors often build relationships and take part in deals. The issue arises when significant financial incentives go undisclosed while the activist claims to represent all minority shareholders.
Toyota and Kakaku.com Show What Is at Stake
Toyota’s move to privatize Toyota Industries became a key test for protections for minority shareholders. Elliott Investment Management opposed earlier offers, claiming they were too low. Toyota ultimately increased its bid twice, from 16,300 yen a share to 20,600 yen, a 26 percent rise. Elliott accepted the final offer and described it as an “improved outcome” for minority shareholders.
This case illustrates the value activists can provide. A determined investor challenged a related-party transaction and helped secure a higher price. Limiting activism too broadly could undermine the market pressure Japan has worked hard to encourage.
Kakaku.com highlights another aspect of this growth. LY Corp and Bain Capital raised their bid for Kakaku.com to about $4.1 billion, competing against Sweden’s EQT. Kakaku.com changed its stance on EQT’s offer to neutral while continuing talks with both bidders.
Competitive pressure can drive up prices. Under-the-table arrangements can distort those dynamics.
Regulation Could Protect Fairness or Management
The LDP proposals reportedly suggest stricter standards for calling special shareholder meetings, limits on proposals involving management execution, and possible restrictions on appraisal claims by investors who purchase shares after a deal is announced. Appraisal rights enable dissenting shareholders to seek a court-determined fair value.
Some changes may prevent abusive arbitrage, while others could make it tougher to challenge entrenched boards or undervalued deals.
Japan’s Ministry of Economy, Trade and Industry is already revising its takeover framework. Its 2023 Guidelines for Corporate Takeovers emphasized corporate value, shareholder interests, and transparency. Draft interpretations released in June 2026 aim to clarify how the guidelines should be applied and what qualifies as a genuine acquisition proposal.
Japan should mandate disclosure of side agreements, rollover investments, and financial relationships between activists and bidders. Activism itself should not be seen as suspect.
The country’s credibility in reform hinges on this distinction. Rules that expose hidden incentives would strengthen Japan’s markets. Conversely, rules that aim to silence demanding investors would signal to global capital that reform is welcome only until it threatens to change control of Japanese companies.