Abenomics' Third Arrow: how governance became growth policy

TL;DR - Shinzo Abe returned as Prime Minister on 26 December 2012 and immediately built two new Cabinet-level bodies — the Headquarters for Japan's Economic Revitalization and the Industrial Competitiveness Council — to push structural reform. - The third of Abenomics' "three arrows" — the growth strategy — was published as the Japan Revitalization Strategy on 14 June 2013. For the first time in Japanese policy history it treated corporate governance as a macroeconomic growth lever. - That single document directed the FSA to produce the Stewardship Code by end-2013 and authorised the Companies Act amendment, the Ito Review, and the 2015 Corporate Governance Code. Every subsequent reform inherits its political authority from these pages.

The political context, December 2012

The December 2012 general election returned the Liberal Democratic Party to power with a supermajority and made Shinzo Abe Prime Minister for the second time. He had three advantages his predecessors lacked: a parliamentary majority, a Bank of Japan willing to commit to aggressive monetary easing (Haruhiko Kuroda was appointed Governor in March 2013), and a clear narrative that previous administrations' incrementalism had failed.

The narrative had a name. Abenomics — coined by analysts but adopted by the Kantei (Prime Minister's Office) — was framed as three arrows after a Japanese folk saying about strength in bundling.

timeline
    title Abenomics — political authorisation timeline, 2012–2015
    Dec 2012 : LDP victory; Abe returns as PM (26 Dec)
              : Headquarters for Japan's Economic Revitalization stood up
              : Industrial Competitiveness Council established
    Mar 2013 : Haruhiko Kuroda appointed BoJ Governor (1st arrow operational)
              : 2% inflation target adopted
    Jun 2013 : Japan Revitalization Strategy — "Japan is Back" published (14 Jun)
              : Growth strategy = 3rd arrow
              : Stewardship Code mandated by year-end
              : Companies Act amendment mandated
    Aug 2013 : FSA Council of Experts on the Stewardship Code convened
              : Chair Hiroyuki Kansaku (Univ. of Tokyo Law)
    Feb 2014 : Japan's Stewardship Code finalised (26 Feb)
    May 2014 : GPIF accepts the Stewardship Code (30 May)
    Aug 2014 : Ito Review final report published (6 Aug)
              : 8% minimum ROE benchmark introduced
    Jun 2015 : Corporate Governance Code applied (1 Jun)
              : Two-code architecture complete

The three arrows, as the Kantei published them on its own portal in 2013, were:

The first two arrows were demand-side. The third was supply-side — and within the third, corporate governance had not previously been listed as a macroeconomic policy lever in any Japanese government document of comparable status.

The Japan Revitalization Strategy, 14 June 2013

The growth strategy was published as the Japan Revitalization Strategy — Japan is Back on 14 June 2013. The published document set ran to 94 pages of strategy plus a 48-page roadmap with explicit KPIs and timelines. It was the Sangyō Kyōsōryoku Kaigi (Industrial Competitiveness Council) — chaired by the Prime Minister, with private-sector members alongside Cabinet ministers — that drafted the substance, then formally adopted by the Cabinet.

Four governance-related decisions inside that document built the architecture of the next decade:

1. "A Japanese version of the Stewardship Code" was to be drafted "by the end of [2013]" — a six-month timeline from publication. The FSA was named as the responsible body.
2. The Companies Act would be amended to require listed companies that did not appoint outside directors to "explain the reason" — Japan's first statutory comply-or-explain obligation.
3. An "Ito Review"-style project would diagnose the corporate-investor relationship and recommend benchmarks. METI was named as the responsible body.
4. The FSA, TSE and METI would develop a Corporate Governance Code — though the precise sequencing was specified later, in the 2014 revision of the Strategy.

For context, the Strategy borrowed visibly from the UK reform sequence. The 2012 Kay Review in Britain had recommended that institutional investors take more responsibility for long-term value creation; the 2010 UK Stewardship Code from the Financial Reporting Council had operationalised that recommendation; the broader debate about long-termism in London during 2012–2013 supplied the conceptual scaffolding the Kantei needed.

"Principles … for institutional investors to fulfill their fiduciary responsibilities, e.g. by promoting medium- to long-term growth of companies through engagements." — Stewardship Code preamble (citing the Japan Revitalization Strategy)

Why "growth" mattered as a frame

To treat corporate governance as a growth policy was, in 2013 Tokyo, a non-obvious move. Governance had historically been the domain of the Ministry of Justice (which administers the Companies Act) and the FSA (which administers the Financial Instruments and Exchange Act). Treating governance as a macroeconomic lever — as the third leg of a stool whose other two legs were monetary policy and fiscal policy — required METI and the Cabinet Office to assert standing.

Two arguments did the work.

Argument 1: capital efficiency moves output. If Japanese listed companies retained ¥X of equity at a ROE 5 points below their peers, the foregone output was calculable and large. McKinsey's number — Japanese ROIC of ~8% versus 21% US, 15% Europe — supplied the rhetorical magnitude. The implication was that improving governance and capital allocation would raise aggregate output, the very definition of structural reform.

Argument 2: stewardship moves discipline. Without engaged institutional investors, capital efficiency would not improve regardless of what laws were passed. The UK Stewardship Code had shown how to formalise institutional engagement with a comply-or-explain mechanism. Importing that framework converted a domestic-policy gap (no engaged shareholders) into an importable solution (a stewardship code).

The two arguments together produced the framing the Strategy needed: governance was not a legal-technical topic but a productivity topic; the productivity topic was the country's most important problem; therefore governance was a Prime-Minister-level concern.

Sidebar — Why the Industrial Competitiveness Council, not the Council on Economic and Fiscal Policy? Postwar Japanese policy had two senior Cabinet-level councils: the Keizai Zaisei Shimon Kaigi (Council on Economic and Fiscal Policy) and, periodically, an industrial-policy council. Abe deliberately reactivated and elevated the latter — the Sangyō Kyōsōryoku Kaigi, Industrial Competitiveness Council — to host private-sector reformers (including future Stewardship Code architects) alongside ministers. By housing governance reform inside the industrial-competitiveness frame rather than the financial-regulation frame, the administration insulated it from MoF/FSA turf wars and gave it a higher political ceiling.

The six-to-eighteen-month sprint

The strategy's deadlines were unusually tight by Japanese policy standards. The execution sequence on corporate governance ran as follows:

• August 2013 — FSA convenes the Council of Experts Concerning the Japanese Version of the Stewardship Code, chaired by Hiroyuki Kansaku (Faculty of Law, University of Tokyo), with 17 members from asset managers, asset owners, ISS, the Pension Fund Association, the Ministry of Justice, the Cabinet Secretariat, METI and the TSE.
• August 2013–February 2014 — Six council meetings; public consultation drew 26 Japanese-language and 19 English-language responses.
• 26 February 2014 — Stewardship Code finalised. Formal release 7 April 2014.
• 30 May 2014 — GPIF accepts the Code, signalling that the world's largest pension fund will be bound by it.
• June 2014 — Companies Act amendment passed by the Diet, requiring listed companies to explain why they have no outside director.
• 6 August 2014 — METI publishes the Ito Review with the 8% ROE benchmark.
• 24 June 2014 — Cabinet adopts the revised Japan Revitalization Strategy, which mandates the Corporate Governance Code on a comply-or-explain basis.
• March 2015 — FSA/TSE Council of Experts on the CG Code publishes the final Code.
• 1 June 2015 — The Corporate Governance Code comes into effect, applying to all TSE-listed companies.

In eighteen months Japan moved from no stewardship code, no corporate governance code, and no statutory comply-or-explain obligation to having all three. That speed is historically anomalous in Japanese governance reform — the 2001 kansayaku reform and the 2002 "company with committees" option each took multiple years of consultation — and is a direct consequence of the political authorisation granted by the Revitalization Strategy.

What the Strategy did not do

It is as important to note what the third arrow did not require, because every limitation foreshadows a later reform.

• It did not require independent directors. It required outside directors and required companies without them to explain. The push toward independence as a stricter category came in the 2015 Code and tightened in the 2018 and 2021 revisions.
• It did not require a tradable-share ratio. Listing-segment reform on capital-efficiency grounds had to wait for the 2022 Prime/Standard/Growth restructuring (Theme 3).
• It did not require cost-of-capital disclosure. The Ito Review recommended it; the 2018 Code revision embedded it; the TSE's March 2023 request operationalised it (Theme 4).
• It did not require English disclosure. That waited until the April 2025 Prime-Market obligation (Theme 5.1).
• It did not require sustainability disclosure. The Stewardship Code's 2020 ESG amendment and the SSBJ-led IFRS-aligned framework came later (Themes 1.4 and 5.5).

Each of these later steps inherits its political legitimacy from the 14 June 2013 Strategy. When the FSA Action Programme cites the "continuation of the comprehensive reform initiated in 2013," that is the document being cited.

The legacy in one sentence

The Japan Revitalization Strategy of June 2013 did not write any code, did not impose any benchmark, and did not amend the Companies Act on its own. What it did was authorise — in the strongest political language available to a Cabinet — that Japan's productivity problem was a governance problem, that the FSA, TSE and METI were responsible for solving it, and that the work was to be done on a one-year timetable.

Every paragraph of every code and guideline this curriculum will subsequently parse rests on those three sentences of authorisation.

What this means for IR

1. Cite the Revitalization Strategy when explaining "why now" to overseas audiences. Foreign investors often ask why Japan's reform wave started in 2014 rather than 1995. The one-document answer is 14 June 2013.
2. Treat the three-arrows frame as still load-bearing. A decade later, the FSA still describes the reform programme as the "continuation" of the third arrow. If your messaging frames governance as a discretionary improvement rather than a national growth lever, you are out of step with the official narrative.
3. Know the institutional architecture. Stewardship Code → FSA. Corporate Governance Code → FSA + TSE. Ito Review and capital-efficiency guidance → METI. Companies Act → MoJ. Listing rules → JPX/TSE. SSBJ → sustainability disclosure. Mis-attributing a policy to the wrong ministry is a credibility hit on a CEO briefing.
4. Locate your company's reform timeline against the master timeline. When did your board first appoint an independent director? When did you start disclosing cost of capital? When did you adopt the Stewardship Code if you are an asset owner? Those dates anchor your engagement narrative.
5. Expect the next wave of structural reform to inherit the same architecture. The Cabinet-level New Capitalism strategy from 2022 onward, and the FSA's annual Action Programme, follow the same playbook as 2013–2015: high-level authorisation, then code/guideline articulation, then disclosure enforcement.

Sources & further reading

• Cabinet (Kantei), Japan Revitalization Strategy — Japan is Back (14 Jun 2013, document set): https://japan.kantei.go.jp/96_abe/documents/2013/1200485_7321.html
• Cabinet (Kantei), The Three Arrows of Abenomics (overview PDF): https://japan.kantei.go.jp/letters/message/abenomics/TheThreeArrowsOfAbenomics_EN.pdf
• Government of Japan, Abenomics portal: https://www.japan.go.jp/abenomics/
• Cabinet Office, Council on Economic and Fiscal Policy reform working group: https://www5.cao.go.jp/keizai-shimon/kaigi/special/reform/wg1/index.html
• FSA, Expert Panel on the Stewardship Code (council index): https://www.fsa.go.jp/en/refer/councils/stewardship/index.html
• FSA, Japan's Stewardship Code final 2014 text: https://www.fsa.go.jp/en/refer/councils/stewardship/20140407/01.pdf
• METI, Ito Review of Competitiveness and Incentives for Sustainable Growth — Final Report (Aug 2014): https://www.meti.go.jp/policy/economy/keiei_innovation/kigyoukaikei/ito_review__released_august2014_en.pdf

Previous in this theme: 1.2 From Main Bank to Mizuno: Japan's pre-reform governance architecture

Next in this theme: 1.4 The Two Wheels of the Cart: Japan's Stewardship Code (2014, 2017, 2020, 2025)

Related posts in other themes: - 2.1 The 2015 Corporate Governance Code: a comply-or-explain primer - 2.5 Code vs Guideline: when METI's CGS, GGS, Fair-M&A and Takeover Guidelines override the Code - 5.8 The Working Groups That Are Writing Japan's Next Governance Rules