I. Introduction
Japan is undergoing a major corporate governance overhaul in 2025. The Financial Services Agency (FSA) has updated its stewardship and disclosure requirements, while the Tokyo Stock Exchange (TSE) has raised the bar for governance practices. At the same time, the revised Corporate Governance Code mandates stronger board independence, enhanced ESG disclosures, and stricter oversight on cross-shareholdings.
These changes present a double-edged sword for foreign investors—greater transparency and engagement rights but also more compliance layers and legal scrutiny.
Key regulatory shifts include:
- Mandatory disclosure of strategic shareholdings under Article 271-25 of the Companies Act
- New guidelines under the Stewardship Code (2025 revision), requiring institutional investors to disclose engagement strategies
- Enhanced board diversity targets are in line with Japan’s push to meet international ESG benchmarks like ISSB and TCFD
- FSA’s directive for public companies to publish annual governance reports in English, improving global investor access
These reforms are aimed at unlocking shareholder value, preventing governance failures, and attracting long-term capital. But navigating the nuances of Japanese corporate law, investor rights, and disclosure regimes requires more than just surface-level knowledge.
At KNM, we offer tailored Corporate Advisory Services to help Indian and international businesses interpret, comply with, and benefit from Japan’s evolving regulatory landscape.
Our multidisciplinary team provides actionable insights on governance structures, investment risks, shareholder engagement, and due diligence, ensuring your investments in Japan are compliant, secure, and strategically sound.
- Understanding the Revised FSA & Corporate Governance Code
Japan’s push toward global investment competitiveness is backed by a wave of regulatory upgrades in 2025. The Financial Services Agency (FSA) and the Tokyo Stock Exchange have introduced key revisions that reshape how companies operate and report to stakeholders. For foreign investors, understanding these legal shifts is critical, not just to enter the market but to mitigate compliance risks.
Key Revisions by the FSA
- Board Independence Mandates –The FSA now requires Prime Market-listed companies to ensure at least one-third of their board members are independent directors. Stricter independence thresholds apply for firms with poor price-to-book ratios or low market capitalization. This aligns with Article 327-2 of the Companies Act, which promotes board accountability and impartial oversight.
- Stricter ESG Disclosure Requirements – Listed entities must now comply with mandatory ESG reporting under the FSA’s revised disclosure framework. These disclosures must follow the TCFD (Task Force on Climate-related Financial Disclosures) and ISSB (International Sustainability Standards Board) standards. Investors can now assess governance risk using consistent, comparable data.
- Executive Compensation Transparency – Companies are obligated to disclose individual compensation packages of executives earning over JPY 100 million, as per Article 435 of the Companies Act. The format has been standardized for international clarity, supporting investor decision-making.
Updates to the Corporate Governance Code
- Gender Diversity Targets – New guidelines recommend at least 30% female representation on boards by 2030. This aligns with Japan’s Cabinet Office strategy for economic revitalization and global competitiveness.
2.Audit and Nomination Committee –The Code calls for the establishment of independent audit and nomination committees with clear mandates. These bodies must review executive performance, succession planning, and risk controls.
- Cross-Shareholding Reforms – Companies are now required to justify and disclose the rationale for cross-shareholdings annually, discouraging anti-takeover practices and aligning with investor interests.
Together, these reforms strengthen transparency, accountability, and governance standards—paving the way for responsible and profitable foreign investment.
III. Implications for Multinational Companies
Japan’s regulatory reforms in 2025 are more than cosmetic—they represent a structural shift designed to attract high-quality, long-term global investment. For multinational companies (MNCs), this evolving governance landscape brings both compliance duties and strategic advantages. Understanding the legal implications is key to leveraging these changes effectively.
Increased Transparency
Revised FSA guidelines require timely, detailed financial disclosures aligned with IFRS and ISSB standards. Companies listed on the Prime Market must now publish English-language governance reports per the Tokyo Stock Exchange’s 2025 directive. This transparency improves financial clarity for Foreign investors conducting due diligence or considering market entry.
Lower Risk Exposure
Mandated board independence and clearer internal controls enhance risk oversight. Article 362 of Japan’s Companies Act now emphasizes board accountability in risk management and corporate performance. Independent committees—particularly audit and nomination—are legally tasked with monitoring executive decisions. These mechanisms help reduce fraud, conflict of interest, and regulatory penalties.
Higher Investor Confidence
With ESG compliance integrated into statutory disclosure norms, companies now adhere to TCFD-aligned climate reporting and gender diversity guidelines. For institutional investors seeking ESG-aligned portfolios, this boosts credibility. The Stewardship Code (revised 2025) also obligates asset managers to explain how governance factors into their investment strategies, creating a more investor-friendly environment.
Strategic Entry Points:
Firms looking at mergers, acquisitions, or JVs in Japan now benefit from a governance structure that supports minority shareholder rights. Under Article 847-3, shareholders with more than 3% equity can initiate legal actions or propose resolutions, offering foreign investors more strategic leverage.
Greater Board Access and Influence
Shareholder rights reforms now give institutional investors the ability to nominate board candidates, request governance disclosures, and challenge underperformance. These rights are enforceable under Japan’s Corporate Governance Code and can be strategically used during proxy seasons. With the right legal advice, MNCs can convert these changes into long-term, compliant investment strategies—and KNM’s Corporate Advisory Services ensure they do.
- How Investors Can Engage in Governance Reforms
Japan’s corporate governance reforms in 2025 not only raise the standards for listed companies but also empower investors to take a more active role. With revised legal frameworks now in place, investors—especially foreign institutional stakeholders—have the tools to influence corporate behavior and hold boards accountable.
Shareholder Activism
Japan has made strategic changes to shareholder rights. Under Article 298 of the Companies Act, investors holding as little as 1% of voting shares (or 300 units) can submit proposals at shareholder meetings. The 2025 reforms to proxy voting systems also allow for electronic submissions, cross-border voting, and disclosure of vote outcomes, increasing transparency and accessibility.
Investors are also using ESG performance metrics as leverage in shareholder engagement. Companies are now legally required to publish climate risk data under TCFD and disclose gender diversity and governance goals, enabling ESG-focused engagement.
Board Communication
Revised governance guidelines promote direct engagement between shareholders and independent directors. Investors can now request discussions on strategic issues, succession planning, or capital allocation. The Corporate Governance Code encourages companies to disclose board evaluation outcomes and future governance strategies.
Performance Monitoring
Investors are increasingly reviewing sustainability reports and aligning them with KPIs disclosed under executive compensation rules (Article 435 of the Companies Act). These reports offer critical insights into a company’s long-term strategy and governance integrity.
KNM’s Role
At KNM, our Corporate Advisory Services help investors:
- Assess governance risks
- Design customized board engagement plans
- Evaluate corporate ESG alignment
- Support activist strategies in compliance with Japanese law
This approach ensures that investors don’t just observe reform but drive it.
- Regulatory Coordination with Indian Laws
For Indian investors and multinational firms looking to tap into Japan’s evolving corporate landscape, alignment between Japanese and Indian regulatory regimes is critical. Navigating compliance across borders requires a clear understanding of how corporate governance, tax, and financial reporting frameworks in both countries interact. KNM’s dual jurisdictional expertise ensures your investments stay legally sound in Japan without compromising Indian obligations.
MCA & ICAI Standards
The Ministry of Corporate Affairs (MCA) in India mandates a robust board structure under the Companies Act, 2013. Provisions such as Section 149 (Independent Directors) and Section 177 (Audit Committee) are conceptually aligned with Japan’s Corporate Governance Code, especially post-2025 reforms.
Additionally, financial disclosures under Indian Accounting Standards (Ind AS)—which are converged with IFRS—allow smoother integration with Japan’s FSA-mandated financial reporting. The Institute of Chartered Accountants of India (ICAI) continues to update guidance notes in line with global trends, ensuring consistency with Japan’s adoption of the ISSB and TCFD frameworks.
FEMA & RBI
The Foreign Exchange Management Act (FEMA) and the RBI’s ODI regulations govern outbound investments by Indian entities. With Japan tightening its FDI disclosure norms under FSA reforms, Indian firms must comply with both RBI’s UIN requirements and Japan’s prior notification clauses under the Foreign Exchange and Foreign Trade Act.
CBDT & Taxation
Cross-border structuring must comply with CBDT’s GAAR rules, transfer pricing, and DTAA provisions with Japan. Japan’s tax governance now includes mandatory disclosure of related-party transactions, aligning with India’s tax transparency push.
KNM’s Dual Expertise
KNM bridges regulatory expectations across both jurisdictions by:
- Mapping FSA and MCA compliance points
- Structuring investments within the RBI and Japan FDI rules
- Advising on tax-efficient cross-border strategies
- Coordinating with Japanese legal counsel while preserving Indian statutory obligations
With KNM, Indian investors gain the confidence to operate in Japan without compliance gaps.
- How KNM’s Corporate Advisory Services Support Investors
Japan’s 2025 governance reforms demand precision, foresight, and legal clarity from every foreign investor. For Indian and multinational entities, this means understanding more than just market dynamics—it requires compliance with evolving Japanese laws while staying aligned with Indian regulatory expectations. This is where KNM’s Corporate Advisory Services play a decisive role.
- Governance Risk Assessments
Our team conducts detailed reviews of Japanese entities using metrics based on Japan’s Corporate Governance Code and FSA guidelines. We assess board composition, ESG disclosure readiness, and related-party transactions to flag governance vulnerabilities before investment.
- Legal and Secretarial Due Diligence
We perform due diligence compliant with both Japan’s Companies Act and India’s Companies Act, 2013. This includes verifying the company’s compliance history, minutes of board meetings, executive remuneration disclosures, and statutory filings. KNM ensures all critical governance documents are reviewed for legal and secretarial soundness.
- Shareholder Strategy Planning
With Japan now expanding proxy access rights and shareholder proposal thresholds, KNM helps investors develop strategies for voting, board nominations, and activist engagement. We support clients in navigating Article 298 shareholder rights and aligning proposals with the target company’s governance roadmap.
- Entity Structuring
Whether entering via a subsidiary, joint venture, or acquisition, we ensure the structure adheres to Japan’s revised foreign investment norms and India’s FEMA and RBI regulations.
- Post-Investment Governance Advisory
We offer continuous advice on compliance with evolving Japanese disclosure laws, ESG reporting, and shareholder communication protocols, ensuring sustained legal alignment throughout the investment lifecycle.
KNM’s dual expertise makes cross-border governance actionable, strategic, and fully compliant.
VII. Key Takeaways for Investors
Japan’s 2025 corporate governance reforms are more than regulatory updates—they represent a structural opening of one of the world’s most insular markets. For foreign investors, especially Indian companies, this shift unlocks new avenues of participation but with conditions that demand legal clarity and cultural understanding. KNM’s Corporate Advisory Services provide a tailored legal approach to capitalize on these opportunities while staying compliant across borders.
Transparency and Shareholder Rights
The revised Corporate Governance Code and FSA guidelines prioritize transparency and empower shareholders. Investors now benefit from reforms that:
- Mandate greater board independence (with at least one-third of directors being independent)
- Require detailed ESG disclosures aligned with TCFD and ISSB
- Protect shareholder rights through expanded proxy voting mechanisms and lowered thresholds for shareholder proposals (under Article 303 of the Companies Act)
These changes legally protect activist strategies and ensure institutional investors can influence governance.
Strategic Planning Before Entry
Entering the Japanese market—whether via M&A, JV, or FDI—now requires detailed governance due diligence. Companies must assess partner compliance with cross-shareholding reforms and nomination committee rules, which are now enforced by the Tokyo Stock Exchange’s Prime Market listing criteria.
Need for Cross-Jurisdictional Guidance
Cultural governance norms in Japan differ sharply from India. KNM helps bridge this gap while ensuring:
- Compliance with Indian laws like FEMA, Companies Act, and CBDT transfer pricing
- Structuring that satisfies Japanese FDI and tax codes
- Long-term monitoring for governance risks
Investing in Japan is now more accessible, but only with the right legal strategy—and KNM delivers just that.
VIII. Conclusion
Japan’s corporate governance reforms in 2025 are not symbolic—they are enforceable, trackable, and aligned with global standards. The Financial Services Agency (FSA) and the revised Corporate Governance Code now legally mandate greater board independence, ESG accountability, and shareholder inclusivity. These changes reflect Japan’s clear intent to welcome committed and informed global investors.
For multinational and Indian companies, this is a pivotal moment. Entering the Japanese market or expanding existing investments now requires strict adherence to both local regulatory expectations and international compliance benchmarks like ISSB, TCFD, and OECD corporate governance principles.
KNM’s Corporate Advisory Services offer end-to-end legal, strategic, and compliance support. From entity structuring and governance assessments to shareholder engagement strategies, we help you enter Japan’s reformed corporate environment with confidence and control. Japan is ready for serious investors. KNM ensures you are legally prepared to be one of them.
Partner with KNM for expert Corporate Advisory Services across Japan and India.
We help you:
- Decode revised governance and FSA norms
- Align with cross-border legal frameworks
- Build compliant, future-ready investment structures
Speak to Our Advisory Team Today to invest with clarity and confidence.
Contact KNM India today!
- Email us: –
India: services@knmindia.com
Japan: japandesk@knmindia.com
- Phone: India: +91 124 4295170, +91- 9910095170
- Japan: +81-3-6869-0850, +81-3-6821-9455
- website: https://knmindia.com/
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