Japan: Asia’s private equity powerhouse

December 2025  |  FEATURE | PRIVATE EQUITY

Financier Worldwide Magazine

December 2025 Issue

Macroeconomic and geopolitical uncertainties have undoubtedly affected the Asia-Pacific market over the past five years. Nevertheless, the region’s private equity (PE) sector – particularly in Japan – has shown strong signs of recovery.

The broader Asia-Pacific region remains attractive to investors, offering compelling returns. Constructing a balanced portfolio in this environment requires a nuanced approach, regional diversification, local expertise and, crucially, access to the right opportunities.

Japan’s PE market maintained strong momentum throughout 2025, building on a record-breaking 2024. According to S&P Global, PE and venture capital-backed investment in Japan rose by 40.8 percent year-on-year in 2024 to $17.9bn, increasing Japan’s share of Asia-Pacific PE deals from 10.6 percent in 2023 to 15.6 percent. This growth was driven by large-cap take-privates, corporate carve-outs and succession-driven mid-market deals. Foreign funds have become increasingly active, drawn by Japan’s low interest rates, fragmented corporate landscape and improving governance. Exits rebounded to ¥1.9 trillion, matching 2021 levels.

PitchBook data shows that in Q1 2025 alone, Japan recorded $21.4bn in PE deal value across 55 transactions – nearly matching the total for all of 2024. This surge was largely fuelled by six mega-deals, five of which involved foreign investors. Compared to the post-pandemic slowdown of 2022-23, 2025 reflects a maturing market characterised by rising competition, high entry valuations and a growing emphasis on environmental, social and governance issues and technological innovation. Japan is now regarded as one of the most attractive PE destinations globally.

According to Bain & Company’s Japan Private Equity Report, 2024 marked the fourth consecutive year in which Japan exceeded ¥3 trillion in PE deal value, reaching ¥3.1 trillion. This was largely due to large-cap transactions exceeding ¥100bn and a growing number of deals surpassing ¥300bn. Carve-outs and take-privates continued to dominate. The first quarter of 2025 maintained this momentum, recording the second-highest quarterly deal value in Japan’s PE history. Exits also rebounded sharply to ¥1.9 trillion, although portfolio ageing remains a concern.

“We see significant headroom for growth of PE and M&A activity in Japan,” observed Jim Verbeeten, a partner at Bain & Company. “The market is offering a large universe of PE targets, driven by a corporate landscape that is more fragmented than in other markets. Also, government and regulators’ continued focus on improving Japan’s competitiveness through corporate governance and the recent M&A code encourage activist activity and support delistings.”

“However, in the near term, uncertainty from the tariff situation could dampen deal activity,” added Sebastien Lamy, co-head of the Asia Pacific private equity practice at Bain & Company. “Changes in supply-demand dynamics, currency volatility and redirections of trade flows make it harder for PE to properly underwrite value. As we witnessed in past periods of volatility, some measure of delay or slowdown in deal-making is likely.”

Both domestic and international general partners (GPs) have continued to grow fund sizes. Global funds, in particular, have increased their share of Asian capital deployed in Japan between 2020 and 2024, compared to the previous five-year period. More international investors are also establishing a local presence.

In this increasingly competitive environment, Bain advises firms to maintain a disciplined focus on value creation. This includes rigorous due diligence to assess the full potential of targets and determine how much of that value can be underwritten. In the pre-close phase, firms should seek early operational engagement. Post-acquisition, an agile stewardship approach is essential to accelerate value capture and address a broader range of value levers than those initially identified. From an exit perspective, GPs are encouraged to adopt a forward-looking strategy, planning exits 18 to 24 months in advance and aligning strategic and management initiatives to maximise value realisation.

A proactive approach is particularly important given the macroeconomic headwinds facing both the global and Japanese PE markets. Monetary tightening, yen volatility, demographic decline, sluggish growth and geopolitical uncertainty are all likely to influence deal activity. Regulatory and governance developments may also increase deal complexity. For example, the Tokyo Stock Exchange’s revised Code of Corporate Conduct, introduced in July 2025, imposes enhanced disclosure and procedural safeguards for management buyouts and controlling shareholder transactions, with the aim of protecting minority shareholders.

Despite these challenges, Japan remains an attractive destination for investment, particularly for limited partners, due to its consistent delivery of high global returns.

Japan’s broader economic outlook is cautiously optimistic. The country’s stock market reached an all-time high in August 2025, and Japanese companies are setting ambitious international growth targets, particularly through M&A. This optimism contrasts with the International Monetary Fund’s forecasts, which project GDP growth of 0.7 percent in 2025 and 0.6 percent in 2026. Nonetheless, the Bank of Japan remains confident, citing rising corporate profitability and easing inflationary pressures.

With inbound M&A reaching record levels and outbound M&A accelerating in 2025, there is every reason to believe that Japan’s PE market will continue to strengthen. As Japanese firms pursue divestments and restructuring, and as the trend for take-privates persists, Japan appears set to remain a focal point of PE activity in the Asia-Pacific region.

© Financier Worldwide

BY

Richard Summerfield