Financial Transparency in Japan: Key Legal Requirements

Published on October 31, 2025 and written by Cyril Jarnias

In a world where economic trust holds crucial importance, Japan stands out for its rigorous approach to financial transparency. This article explores how the country, through a series of strict laws and regulations, strives to preserve integrity and clarity in its economic practices. Faced with challenges such as global market fluctuations and domestic pressures, Japanese companies are required to comply with high standards of financial disclosure, thereby ensuring accurate and accessible information for investors and the public. These measures reflect a firm commitment to accountability and transparency, values that are at the heart of the Japanese financial system.

Legal Reporting Requirements in Japan

Key Laws and Regulations

1. Financial Instruments and Exchange Act (FIEA)
   This law requires listed companies and certain unlisted companies to prepare and submit securities reports containing financial information. Securities reports include annual and quarterly financial statements, aiming to enhance transparency for investors and support appropriate decision-making.
2. Companies Act
   The Companies Act requires corporations established in Japan to prepare financial statements and obtain their approval at the general shareholders’ meeting. This includes the balance sheet, income statement, etc.
3. Generally Accepted Accounting Principles (Japan GAAP)
   Japanese companies must prepare their financial information according to defined standards such as Japanese Standards or International Financial Reporting Standards (IFRS). This increases international comparability and helps strengthen foreign investor confidence.
4. Corporate Governance Code
   Established by the Tokyo Stock Exchange, this code is positioned as an effort to ensure proper information disclosure and increased transparency, and many Japanese companies are required to comply with it.

Submission Requirements

• Annual: Listed companies must annually submit a securities report to the Financial Services Agency with comprehensive data on their economic and financial situation.
• Quarterly: Quarterly performance reports must also be published.
• Extraordinary: Under certain conditions, an obligation for an extraordinary report may arise, where rapid and accurate provision of information to the market is important.

External Audit Requirement

Large joint-stock companies or those under specific conditions are required to undergo an external audit by a certified public accountant or audit firm, and the results must also be disclosed. This external audit system helps reduce fraud risks and improve data reliability.

Relevant Organizations

• Financial Services Agency (FSA): It is responsible for monitoring compliance with related laws such as the Financial Instruments and Exchange Act, as well as management and guidance. It also contributes to the operational environment of markets, including through the review of securities reports.
• Tokyo Stock Exchange (TSE): It plays an important role in promoting corporate governance reform and developing policies aimed at strengthening communication between market participants.

Significance for Attracting International Investment and Building Trust

Efforts to improve transparency and achieve sound management in compliance with these systems have a promotional effect on foreign direct investment (FDI) across the entire Japanese market and result in strengthened overall competitiveness. The number of cases where clear systems capable of responding in a timely manner have been established is increasing.

Financial Transparency and Anti-Corruption

Legislation and Regulations to Strengthen Budget Transparency in Japan

A set of legal frameworks has been established in Japan to improve budget transparency.

• Bill on Improving the Transparency of National Budget Management
  This bill aims to make budget and fiscal year-end information easily accessible to citizens and fulfill accountability obligations. Specifically, it requires providing details on budget revisions and changes by category.
• Special Account Reforms
  Under the Administrative Reform Promotion Law, special accounts must be disclosed according to corporate accounting practices, including assets and liabilities, and each ministry must prepare its own financial documents. This allows for uniform and transparent management of financial information nationwide.
• Regulations for Local Governments
  Similarly, measures such as the list of key financial indicators have been introduced for local governments, enabling citizens to compare the financial situation and health of local communities.

Additionally, Article 3, Paragraph 2 of the Bank of Japan Law also requires the Bank to report and ensure transparency of its monetary policy to the public.

Corruption Prevention and Monitoring Mechanisms

Japanese authorities implement the following measures as corruption prevention and monitoring mechanisms:

• Role of the Financial Services Agency (FSA)
  By strengthening supervision of financial institutions, regulations related to detecting illicit fund movements (AML/CFT) are strictly enforced, and the suspicious transaction reporting (STR) system is used to collect and analyze suspicious transaction data. Specialized units have also been established to help prevent the flow of illicit funds.
• Corruption Prevention Measures
  Under the Unfair Competition Prevention Act, there is a system of sanctions against corruption involving foreign public officials. This measure is linked to the OECD Convention on Combating Bribery of Foreign Public Officials and can be applied both in Japan and abroad. However, challenges remain in its enforcement.

Promoting Corporate Accountability Through Government Initiatives

Initiatives to strengthen corporate compliance are also promoted under government direction:

• Internal reporting system: establishment of a mechanism allowing employees to anonymously report abuses.
• Regular anti-corruption training: enrichment of training programs for employees.

These initiatives may include support from external organizations like PwC Japan.

Recent Examples of Reforms and Collaboration with Civil Society and International Organizations

Recently, as shown by the results of the Open Budget Survey, improvement efforts to address challenges such as lack of citizen participation and absence of mid-term review documents continue. At the same time, new international standards, influenced by IMF/OECD/FATF recommendations, are being considered. Furthermore, the importance of cooperation with citizen NGOs in forming fair and effective governance is increasing.

Accounting Standards in Japan

The Accounting Standards Board of Japan (ASBJ) is a private Japanese organization operating under the auspices of the Financial Accounting Standards Foundation (FASF). This organization is responsible for developing and revising Japanese accounting standards while considering international trends. The ASBJ was established in 2001, succeeding the accounting standards development work previously conducted by Japan’s Financial Services Agency. It also places significant emphasis on international collaboration, working with the International Accounting Standards Board (IASB) and other national standard-setting bodies.

Current Main Standards and Convergence with IFRS

Currently, four main standards are applicable in Japan:

• Local Japanese standards (JGAAP)
• Japan’s Modified International Standards (JMIS)
• IFRS
• US GAAP

JGAAP is the traditional local standard widely used in Japan, but in recent years, convergence efforts with IFRS have been undertaken to respond to globalization. In this process, treatment similar to IFRS has been introduced in certain areas, such as the new revenue recognition standard. Conversely, Japan-specific elements, such as the concept of net income, are sometimes modified or removed to maintain a certain uniqueness.

Efforts to Improve Transparency

The ASBJ and associated organizations have published numerous reform proposals and guidelines to strengthen the transparency and comparability of the financial statement preparation process. For example, improvements to the financial reporting system for SMEs and extension of audit requirements for large listed companies. Furthermore, as evidenced by the increasing number of Japanese companies voluntarily adopting Japanese IFRS after 2023, efforts to adopt high-quality standards and global benchmarks continue.

Concrete Example: Sector-Specific Regulations

In the manufacturing sector, strict guidelines exist regarding fixed asset management and depreciation calculation methods. In the real estate sector, there are special regulations such as strengthening asset valuation through fair value measurement. These detailed rule sets contribute not only to investor protection but also to establishing uniform reporting practices across the entire industry.

Impact and Improvement of Investor Confidence

Through these new methods of setting and implementing standards, many Japanese and foreign companies have transitioned to providing clearer and more consistent financial data. As a result, there is also an observed effect of promoting trust among market participants. Moreover, the sharing of understanding and acceptance of contextual explanations including support for building an advanced analysis environment and policy changes cannot be overlooked as examples of success.