Japanese executives are sitting on a potential source of liquidity worth hundreds of billions of dollars, just as traditional financing channels are becoming tighter.
A study found that direct ownership of publicly traded companies averages about 4% marketwide, which would equate to a significant total capitalization of companies with a total capitalization of $6.3 trillion as of February 2025.
Nevertheless, these investments remain largely blocked, even as borrowing costs rise and export earnings weaken.
“We are seeing a fundamental reassessment of access to capital in Japan,” said Al Christy Jr., founder and CEO of EquitiesFirst, an alternative finance firm specializing in equity-backed financing. “The transitions from deflation to inflation, from negative to positive interest rates – they can force a complete reassessment of corporate financing strategies.”
The Bank of Japan’s policy normalization, coupled with increasing trade pressures, has created conditions under which alternative financing structures could become more important. EquitiesFirst offers equity-backed financing, a structure that could become more important as traditional lending tightens.
The end of free money
After decades of deflation and negative interest rates, Japan has entered an environment where borrowing comes with significant costs. The Bank of Japan exited negative territory in 2024 and raised its key interest rate to 0.5% earlier this year. Former central bank chief Eiji Maeda expects it to rise further to 0.75% by the end of the year or early 2026, with the rate possibly reaching 1% by the summer.
“Japan is moving from a zero-cost capital environment to one where money has a price again,” said Christy Jr. “That changes the calculations about leverage and when to borrow.”
Companies may be carrying increasingly significant debt burdens, which will result in higher costs to service and refinance. Bank loans are still available, but more conservative, particularly for small and medium-sized businesses.
Private credit markets have expanded to fill gaps, with Japan-based investors investing in alternatives over the five-year period to 2024, including private credit rising over 50%.
The export headwind is increasing financing pressure
The Japanese export sector is facing the most difficult environment in years, which is putting additional strain on corporate balance sheets. The 25% US tariffs on cars and auto parts imposed in April hit major manufacturers hard. Exports to the Americas, Japan’s biggest market, fell 10.1% year-on-year in July, although some companies offset costs by cutting prices.
A July trade deal reduced tariff rates to 15%, but the burden remains well above the baseline of 2.5% before 2025. Automakers such as Toyota and Nissan have seen margins fall as they must balance maintaining volume with profitability. Beyond cars,
At the same time, machinery and semiconductor equipment manufacturers are facing increasing competition from Korean and Chinese manufacturers.
Japan’s overall manufacturing activity contracted for six straight months through September, with the purchasing managers’ index hitting 48.4 – the lowest in half a year. Factory production fell, new orders fell to five-month lows and export orders weakened.
“The tariff situation has created a quandary,” said Christy Jr. “Companies need capital to adjust their supply chains and potentially shift production, but their ability to service debt has been impacted by margin compression.”
Banks have become more conservative in insurance sectors with direct tariff risk. This creates a gap that can be filled with alternative financing mechanisms, particularly for executives and families who control equity positions in affected companies.
For founding families prevalent in Japan’s industrial base, selling shares to raise cash results in unwanted dilution and can be a signal of distress.
Director involvement adds another dimension. The average 4% director ownership in a $6.3 trillion market would represent over $250 billion in potential equity value that could be leveraged through appropriate structures.
“Japanese business culture has always valued long-term relationships and stable ownership,” says Christy. “The challenge now is to maintain that stability while adapting to an environment where capital costs money and revenue growth faces headwinds. Equity-backed financing is a real game-changer.”
As monetary policy normalization continues and trade pressures continue, companies with significant equity holdings may increasingly turn to companies like EquitiesFirst as they view these assets as sources of funding flexibility.
