Ashurst Perkins Coie monthly Japanese finance regulatory update – September 2026

Introduction

On July 21, 2026, the Financial Services Agency ("FSA") and Tokyo Stock Exchange ("TSE") published the revised Corporate Governance Code (the "CGC" or the "Code").  This is the third revision since the Code’s original publication in 2015 (prior revisions: 2018 and 2021).

Listed companies must submit updated Corporate Governance Reports reflecting the revised Code by July 31, 2027.

Key amendments

Executive perspective - how the governance debate has evolved

Why the 2026 revision matters

The significance of the revision is not merely the addition or deletion of individual requirements. The stated objective is to enhance the substantive effectiveness of the Code by returning to a principle-based framework and reducing the risk that detailed provisions encourage formulaic compliance. In that sense, the revision can be read as a transition from governance architecture to governance outcomes.

Key changes

1. Return to a principle-based approach: less box-ticking, greater accountability

The most important structural change is the simplification of the Code. All 47 Supplementary Principles have been abolished. The comply-or-explain framework now applies only to the Basic Principles (reduced from five to four) and Principles (reduced from 31 to 26).

Interpretive Guidelines. Detailed content has not simply disappeared. New Interpretive Guidelines set out the background, purpose and good practices relevant to each Principle. They are not themselves subject to comply-or-explain, but remain important reference material.

New Preface. The Preface clarifies the purpose of the Code and the intended operation of comply-or-explain. Importantly, companies are encouraged to provide a careful explanation of their rationale even where they comply with a Principle.

2. Capital allocation becomes a board-level outcome test

The revised Code expressly places growth investment and management-resource allocation within the board's core responsibilities. This is one of the clearest examples of the shift from structure to outcomes.

Principle 4-1 — growth pathway. The board should construct a "growth pathway" toward the company's goals and explain specifically how it will allocate management resources, including capital expenditure, R&D, human capital, IP and other intangible assets, and business portfolio reviews.

Principle 4-2(2) — continuous verification. The board should continuously verify whether management-resource allocation remains appropriate in light of the management strategy and plan formulated with a view to achieving growth.

Cash and other assets. The Interpretive Guidelines identify the effective use of cash, financial assets, real assets and other management resources as matters for verification. Holding cash is not treated as inherently negative where the company can explain the necessity and rationality of the level held.

METI also published its "Growth Investment Guidance" on July 21, 2026, introducing Economic Profit (EP) as a potential shared metric for companies and investors. The direction is clear: the board is expected to articulate how management resources will be allocated in pursuit of the company’s growth strategy and to continuously verify whether that allocation remains appropriate in light of the strategy and management plan.

3.  Board reform: from numerical independence to board effectiveness

As of July 2026, 98.8% of Prime Market listed companies had appointed independent outside directors comprising at least one-third of the board. With that quantitative benchmark now nearly universal, the revised Code places greater emphasis on the substance of independence and the quality of board contribution.

Principle 4-8 — role. Independent outside directors are expected to oversee management, monitor conflicts of interest, reflect minority shareholder views and provide advice from the perspective of medium- to long-term corporate value enhancement.

Principle 4-10 — number. Prime Market companies should appoint independent outside directors comprising at least one-third of the board; where there is a controlling shareholder, independent outside directors should constitute a majority.

Principle 4-11 — substantive independence. Boards should formulate independence criteria that ensure independence in substance, rather than relying solely on formal status.

Board secretariat / corporate secretary function
The Interpretive Guidelines for Principle 4-14 promote a stronger board secretariat function. Recommended practices include advance circulation of materials, annual scheduling and sufficient deliberation time. The secretariat is expected to take a proactive role in identifying appropriate board agenda items by reference to the board's roles and responsibilities. The Code uses "Corporate Secretary" as a reference expression, but does not mandate the establishment of a formal corporate secretary position comparable to that under UK company law.

4.  Pre-AGM disclosure and the quality of investor access

Principle 1-2 now expressly identifies filing the annual securities report before the AGM as an important measure to facilitate the exercise of shareholder rights. The Interpretive Guidelines state that filing three weeks or more before the AGM is "most desirable".

For companies with March fiscal year-ends, 88% filed before the AGM for the fiscal year ending March 2026. However, only 9% filed one week or more in advance, while 72.9% filed only one to four days before the meeting. Overseas investors have specifically pointed to Japan's historical practice of making annual securities reports available only after the AGM as an outlier among major markets.

5.  Corporate value in a broader stakeholder framework

The revised Code also reinforces the link between stakeholder relationships and sustainable growth. General Principle 2 expressly recognizes that the creation of corporate value over the mid- to long-term depends on the resources and contributions of a range of stakeholders, including employees, customers, business partners, creditors and local communities.

The Interpretive Guidance further identifies examples of appropriate cooperation with stakeholders, including:

• investment in human capital; 
• appropriate distribution; and 
• fair and reasonable transactions with suppliers, including fair price pass-through within a supply chain.

This is not a departure from the Code’s focus on corporate value. Rather, it reflects the premise that sustainable growth and the increase of corporate value over the mid- to long-term are supported by the company’s relationships with its stakeholders. Consistently with that premise, Principle 2.1 calls on companies to conduct their businesses so as to create value for all stakeholders while increasing corporate value over the mid- to long-term.

6.  The stewardship counterpart

In July 2026, the FSA separately addressed institutional investors that have accepted the Stewardship Code. The message is an important counterweight to any suggestion that the revised CGC simply strengthens shareholder demands.

The FSA describes the CGC and Stewardship Code as "two wheels of a cart" and calls for dialogue based on "trust under constructive tension". It cautions against short-term demands or unilateral rejection of a company's medium- to long-term growth strategy, asks investors to respect company-specific circumstances under comply-or-explain, and expressly welcomes careful explanations rather than mechanical demands for compliance.

This creates a framework for substantive governance: companies must give better, company-specific explanations and demonstrate outcomes, while investors are expected to engage with those explanations rather than reducing the Code to a rules-based checklist.

7.  Conclusion

Japan's 2026 CGC revision and the reform direction continues to receive support from investors, but the benchmark is rising. Formal compliance with board-composition or disclosure requirements is becoming the starting point rather than the endpoint.

Want to know more?

• The August edition covers the amended Tender Offer (TOB) system in the Financial Instruments and Exchange Act ("FIEA") which came into effect on May 1, 2026.

• Our July edition looks into the Large Shareholding Report (tairyou hoyu houkokusho) system.
• The June edition covers cross-border collection and payment agent services (shuno daiko). 

Authors: Chihiro Ashizawa, Partner; Chiharu Takatori, Associate.