It's not often you hear the phrase "blistering speech by the Japanese financial services minister," but these are unusual times. The AGM season is approaching, a tougher stewardship code for institutional investors is in place, Toshiba has reignited a visceral suspicion of Japanese governance standards, and the market faces a crisis of shareholder inactivism.
So while Nobuchika Mori's invective last Friday was for an elite audience of brokerage supremos, the message was intended for Japan as a whole-- a country so jaded with the investment industry, its households hoarded an additional $27 billion in cash at home over the last 12 months. And who can blame the stashes? As Mr. Mori growled, a feeble 1% of Japan's 5,206 publicly offered funds meet the requirements that would let them sit in the tax-efficient Nysa cumulative investment accounts the government has been at such pains to promote.
The FSA head reserved and even sharper tongue-lashing for Japan's drear ranks of portfolio managers, a class of investor plucked from salaryman stock and more concerned with reaching retirement unblemished than seeking to cause trouble. They are the reason, say analysts, that company CEOs receive such consistently high support rates when it comes to the AGM season, even if those managers sit on unjustifiably vast mounds of cash or fail to raise return on equity.
Japan's progress on stewardship and corporate governance reform has looked distinctly wobbly of late. The solid return on equity gains made by Topix 500 companies in the first 30 months of Abenomics have been in steady reversal since mid-2015. And the frustrating thing, according to new analysis by CLSA, is that trouble of the sort shunned by those non-confrontational portfolio managers seems to work so well in Japan. Among 14 Japanese companies where support rates for the CEO fell below 85% at last year's AGM, 10 substantially outperform the Topix over the 12 months that followed.
The freshly revised stewardship code will pressure institutions to declare how they voted at company AGMs and explain their support for persistently underperforming CEOs. When Mr. Mori condemns the inactivist fund managers at his speech to the securities analysts association of Japan next year, he will be able to name names.