Japan sees private credit as a policy pillar despite overseas market turmoil

[TOKYO] Japan’s financial regulator sees private credit as a potential key pillar of its new strategy to meet rising corporate-funding demand driven by a surge in mergers and acquisitions (M&A) activity, a senior official told Reuters, despite turbulence in overseas private-credit markets.

The move reflects a shift in Japanese corporate behaviour, with rising inflation prompting companies to invest the cash piles they have been sitting on for too long.

It is a trend that analysts say could accelerate, as Japanese Prime Minister Sanae Takaichi prioritises investment-led growth.

Michinori Haba, the deputy director-general in charge of financial markets for the Financial Services Agency of Japan, said that in contrast with overseas private-credit markets, which are taking heavy redemption hits, Japan’s market “remains underdeveloped and needs cultivation”.

He added that the funding demand has strengthened further, as the Takaichi administration promotes investment alongside rising M&A activity – accelerating government debate over the need to diversify the providers of capital.

“Under the government’s new financial strategy, domestic private credit could form one of the key pillars,” he said, noting that the policy is premised on the close monitoring of governance and overseas developments.

The government plans to compile a new financial strategy in a few months, with the aim of revamping the financial ecosystem to spur growth in the world’s fourth-largest economy.

Japan’s private-credit market remains tiny as companies have long relied on readily available traditional bank lending, but the demand for higher-risk financing is expected to rise in the wake of an increase in the number and size of M&A deals.

M&A activity involving Japanese companies in 2025 more than doubled from the previous year to a record 51 trillion yen (S$407 billion), fuelled by multibillion-dollar take-private deals, said the London Stock Exchange Group.

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“Private credit can serve as a source of funding for leveraged buyout loans,” Haba said, adding that mezzanine financing – hybrid capital that sits between senior debt and equity – has been particularly thin in Japan.

Emerging signs indicate that Japanese financial giants are stepping into the fledgling domestic market.

Sumitomo Mitsui Financial Group, which owns 6 per cent of US alternative asset manager Ares Management, is in talks with Nippon Life Insurance to set up a private-credit fund to provide loans for leveraged buyouts, sources said.

Such moves are “one positive development”, Haba said. REUTERS