Japan

What you need to know

• Fewer but larger deals: Japanese outbound H1 M&A deals have fallen in number but held up by value. The trend is towards larger and more control-oriented deals.
• Energy security focus: Energy security is driving the largest outbound transactions, with energy and resources transactions accounting for 37% of all disclosed outbound deal value in the first half of 2026, and target destinations being primarily countries with strong bilateral ties to Japan.
• Governance pressure drives control deals: Governance reforms, shareholder activism and Tokyo Stock Exchange capital-efficiency mandates are pressuring Japanese boards to deploy surplus capital and secure immediate growth. This is driving investors towards control transactions in profitable operating platforms (as opposed to single-asset investments) in their outbound strategic acquisitions.
• Take-private wave continues: Domestically, the wave of private equity-led take-private transactions continues, driven by increasing costs of compliance with corporate governance requirements. Japanese companies are enjoying healthy corporate profits, with AI a major factor in growth.
• Tempered pace, strong fundamentals: Currency uncertainty and a focus on integrating recent overseas acquisitions are tempering the pace of new outbound deals, but other key structural drivers (including demographic decline, a weak yen and governance reform) remain firmly in place.

The M&A state of play

Japan's M&A market maintained strong momentum in the first half of 2026, building on the record-breaking performance of 2025, dominated by strategic, global acquisitions in the outbound market, and large, private equity take-private deals in the inbound / domestic market.

The defining trend has been fewer deals, at much larger size, with more of them taking control positions.

• Deal volume has fallen, from 274 announced transactions in the first half of 2025 to 223 in the first half of 2026, the lowest half-year of recent years.
• Disclosed value has remained consistent: US$39.0 billion in the first half of 2026, level with the US$39.1 billion of the first half of 2025 and well ahead of the US$34.4 billion of the first half of 2024. The total for 2025 was US$126.2 billion, which is an increase on US$71.8 billion in 2024.
• Minority and growth investments have fallen since the first half of 2024, while control transactions rose during the same period.

Structural drivers for outbound M&A

Key structural drivers for outbound M&A in 2026 remain the same as in recent years: population decline slowly leading to decreased domestic demand, a weak yen making overseas earnings more valuable on repatriation; Tokyo Stock Exchange capital-efficiency mandates pressuring companies to deploy surplus capital; and governance reforms forcing portfolio optimisation.

Corporate governance reforms since 2023 have changed how Japanese listed companies allocate capital. The Tokyo Stock Exchange asks companies to disclose capital efficiency improvement plans; a revised draft Corporate Governance Code released in April 2026 would require boards to show that financial assets are being deployed for growth; and METI’s takeover guidelines have made underperformance contestable. Short term return on equity now sits at the centre of board agendas, and corporates are putting accumulated cash into higher-return, less capital-intensive businesses, with a particular focus on acquisitions in higher-growth economies outside Japan.

At the same time, shareholder activism has increased markedly, with Japan now ranked as the second most active activist market globally. Activists are pressuring Japanese boards to deploy surplus capital through strategic acquisitions, encouraging more M&A activity.

Despite the above structural drivers, some factors are tempering the pace of outbound activity in 2026.

First, the unclear direction of the yen is prompting some buyers to pause, and higher yen-denominated acquisition costs are making overseas targets more expensive to acquire. However, the largest acquirers are less exposed as they typically fund acquisitions in dollars from existing overseas earnings and are making long-term strategic investments in overseas growth, rather than timing acquisitions to exploit short-term currency movements.

Second, many Japanese corporates that completed significant overseas acquisitions in recent years are now focused on integrating those businesses before committing to further large-scale cross-border transactions. This pattern can be seen among active acquirers in Australia, the US and Europe.

Outbound destinations and sectors

1. Target destinations

Much of the Japanese capital is flowing to geopolitically aligned markets with strong bilateral ties to Japan.

Since the start of 2024 the leading target destinations by deal count have been the United States, by a wide margin, followed by the United Kingdom, Australia, India and Singapore, with Germany, Vietnam, South Korea and Thailand behind them. The same names lead the first half of 2026: the United States again well clear, then the United Kingdom, Australia and India, followed by Singapore, South Korea and Vietnam.

North America accounts for the largest share of disclosed value. It has accounted for between 27% and 31% of the number of Japanese outbound deals in every half-year since the start of 2024, but for a far larger share of the value: 55% in 2025 and 57% in the first half of 2026, of which the United States alone accounts for 51%. The Sumitomo-led consortium’s US$27.5 billion purchase of Air Lease Corporation and Mitsubishi Corporation’s US$7.5 billion acquisition of the Aethon natural gas platform are the two largest examples.

Several other corridors continue to draw capital. India continues to attract investment, predominantly in financial services, as MUFG, SMBC and their peers take large minority positions in Indian lenders. Australia remains a trusted destination, led by mining and energy resources, infrastructure, real estate, construction and engineering: Japanese developers have been particularly active in residential development projects, build-to-rent and co-living ventures, among them Sumitomo Forestry, NTT Urban Development, Mitsubishi Estate, Mitsui Fudosan, Daiwa House, and Kanden Realty & Development. South East Asia remains one of the largest corridors by deal count, with ENEOS’ agreed US$2.2 billion purchase of Chevron’s Singapore and regional downstream business the corridor’s marquee transaction of 2026, and the United Kingdom and Ireland have grown from 6% of deals to 9%, and to 16% of first-half 2026 disclosed value.

Other regions have seen declining activity. Continental Europe accounted for 13% to 16% of deals through 2024 and fell to 8% in the first half of 2026, and to 5% of the half’s value. Africa, the Middle East and Latin America together accounted for less than 6% of deals.

2. Target sectors

The top target sectors by deal count in the first half of 2026 were Industrials (including industrial machinery and equipment, steel and metal products, construction and homebuilding), followed by Technology, Energy & Resources, Consumer & Retail and Healthcare.

Industrials was the busiest sector in the first half of 2026, with 38 deals, and Technology was close behind with 35. The value went elsewhere: Energy & Resources accounted for US$14.5 billion, 37% of all disclosed value in the period, across 32 deals. Technology accounted for only 10% of disclosed value, and Industrials and Healthcare for about 15% each. The largest strategic acquisition of the period was in Energy & Resources.

Supported by government policy, Japanese companies continue to make larger investments in overseas Energy & Resources assets. Instability in the Middle East continues to highlight vulnerabilities in Japan’s energy security.

In the second half of 2025, JERA acquired upstream gas assets in Louisiana’s Haynesville Shale for US$1.5 billion. In the first half of 2026, Mitsubishi Corporation announced its US$7.5 billion acquisition of Aethon United, and Idemitsu Kosan committed US$500 million to MidOcean Energy as part of a US$1.29 billion equity raise.

This reflects a continued push for supply chain resilience across hydrocarbons, critical minerals and renewable assets. Energy security has moved from a procurement concern to a matter of national strategic priority, and capital is moving accordingly.

Inbound / domestic key trend – private equity dominance

The first half of 2026 has been dominated by global private equity-led take-private transactions targeting Japanese listed companies.

Corporate profits in both the large corporations and SMEs in Japan have been healthy, with significant boosts to productivity driven by AI. Foreign investors have been attracted by a structural valuation gap: a significant proportion of Japanese companies continue to trade at or below book value despite robust underlying cash flows and substantial asset bases. Stricter governance obligations on listed companies add to the attraction, since the cost of maintaining a listing is increasingly hard to justify for companies that have no real need of one other than the prestige of being listed.

A persistently weak yen has further fuelled this activity. For foreign-currency-denominated PE funds, Japanese assets are effectively available at a discount, making take-private economics more attractive.

The result has been a steady pipeline of large-cap take-private transactions across each half-year period. In H1 2025, Bain Capital acquired York Holdings for US$5.5 billion and KKR led the Topcon take-private at US$2.8 billion. H2 2025 saw Blackstone’s US$3.4 billion take-private of TechnoPro Holdings and EQT’s US$2.7 billion acquisition of Fujitec. By H1 2026, competing proposals for Kakaku.com reached about US$3.8 billion and Bain Capital took MCJ private for US$1.3 billion. Each take-private recycles more capital toward strategic uses offshore.

Japan’s policy settings support these transactions overall: the government’s growth strategy encourages capital to be put to higher-return uses, and the governance reform agenda, which presses boards to address undervaluation, has created a more receptive backdrop for take-private approaches. Foreign investment screening has nonetheless become more rigorous. Amendments to the Foreign Exchange and Foreign Trade Act promulgated in June 2026 extend national security review to indirect acquisitions made through offshore holding companies, add a formal risk mitigation framework and allow the authorities to revisit completed transactions. Foreign sponsors should expect a longer and more structured review.