TOKYO -- Foreign investors are closely watching to see how Prime Minister Shinzo Abe on Thursday reshuffles his cabinet.
For that matter, so too are Japanese bureaucrats, lawmakers and businesses.
In late-July, Seth Fischer, founder and chief investment officer of Hong Kong-based hedge fund Oasis Management, discussed the prospects for corporate governance reform in Japan with a number of market participants in the country.
Abe has placed corporate governance reform among his economic policies. If the cabinet reshuffle does not boost Abe's approval rating, however, it could cast uncertainty over his governance reform drive.
Foreign investors are becoming increasingly anxious about the policy's prospects. Yet Fischer and other foreign investors seem to also understand that the mentality of Japanese investors and companies is changing and that governance reform will continue under any administration.
Gabriel Wilson-Otto, who conducts a survey of Asian companies at Goldman Sachs, says Japan's governance reform is promising and of great significance.
Wilson-Otto is looking to the stewardship code -- a code of conduct for institutional investors. The code, brought to Japan in 2014, has been adopted by seven countries and regions in three years. Some market watchers predict that countries such as China and India will also adopt it.
The Abe administration's efforts to include the code in its Japan Revitalization Strategy, formulated in June 2013, might have triggered governance reform in Asia. If this is the case, the prospects of the Abe administration and governance reform will also have important implications in other parts of Asia.
The International Corporate Governance Network, a private organization comprising more than 400 investors and companies across the globe, is formulating investment guidelines for Japan. The guidelines are likely to advocate the importance of dialogue with Japanese investors and companies.
Three years after the introduction of the Japanese version of the U.K. stewardship code, corporate reform is beginning to bear fruit. But at the same time, problems specific to Japan -- such as the use of cross-held shares, the negative effect of how corporate Japan uses advisers and lax capital regulations -- are also drawing market attention.
Japan cannot afford to stop its governance reform drive, given its position in Asia and the way the rest of the world is going.