Diversifying your Asia exposure: Japan private equity

Introduction

Many investors who have dabbled in Japan’s private equity market may have found the experience perplexing. As one of the world’s largest and most sophisticated economies, Japan’s PE market might have been expected to be as accessible and active as America’s or Britain’s. But lumpy deal flow, limited accessibility for international capital, and a sluggish macroeconomic environment have stifled its growth.

In the last decade, however, Japan PE has experienced a resurgence, flipping this narrative on its head. Heightened attention on Japan PE has also been fueled by capital flight from China to alternate investment destinations. In this report, we examine these recent developments, which we believe make Japan worthy of (re)consideration by investors looking to diversify their exposure to Asia PE.

Changing perceptions

Japanese business communities historically regarded PE as a form of vulture capitalism that benefited foreign investors at the expense of local workers and business owners. This perception, however, has changed over the last 15 years; PE has gradually gained broader acceptance as an exit channel for small business owners and conglomerates to divest non-core assets. At the same time, domestic institutions (e.g., pension funds, endowments, insurance companies and banks) have shown greater interest in PE as a way to improve portfolio performance. As a result, deal volume and the number of market participants have significantly grown.

Between 2010 and 2023, PE investments grew from 50 to 167, and the median capital invested per deal increased from $65M to $148M.¹ From 2022 to 2024, Japan stood out as the only major APAC PE market to grow transaction volume. Our coverage of private equity GPs in Japan has more than quadrupled over the last decade.²

Despite these positive developments, Japan’s PE market remains underpenetrated (Figure 1) and, therefore, inefficient.

Pricing 

As seen in Figure 2, entry multiples in Japan have consistently remained below those of other major markets, positioning it as a potential value play. After bottoming out during the Global Financial Crisis, Japanese multiples steadily recovered, peaking at 9.8x in 2020. Following a brief, pandemic-driven dip, they rebounded, reflecting heightened competition and deal activity.

Exits

Japanese PE has been consistent in delivering strong liquidity, and investors should be encouraged by recent data. The aggregate value of PE exits in Japan grew at a 53% CAGR from 2022 to 2024. Japan-focused PE funds have also performed well on a DPI basis (Figure 3).

¹ PitchBook, as of February 2025.

² SPI by StepStone.

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1,000 words or less: Introduction to private equity