Japan - Market Insights

In Japan’s merger control regime, one issue that has remained unchanged over time but still important is how to deal with consolidation among domestic companies seeking to survive in a shrinking domestic market, while at the same time enhancing their competitiveness in order to expand into overseas markets.

Structural pressures on the Japanese economy and the case for domestic consolidation

The Japanese economy today faces a rapid decline in its labor force due to the accelerating pace of population aging and declining birthrates, as well as a sharp contraction in domestic demand — both of which are long term and unavoidable challenges. In addition, as an urgent and immediate problem, exports from China of products manufactured using newly established excessive production capacity, in addition to its traditional overseas exports, have increased rapidly, resulting in a significant impact on Japan. Amid growing uncertainty in global politics and economies, securing natural and human resources has also become increasingly difficult.

Under these circumstances, achieving rationalization and efficiency through the restructuring of domestic industries and allocating limited human resources more efficiently has become an inevitable policy direction. Many of Japan’s manufacturing plants are those built during the high-growth period of 1955–1973, and production has continued to date by renovating these plants. It is necessary to improve efficiency through the consolidation of these older plants. Moreover, given that contraction in domestic demand is largely unavoidable, Japanese companies are compelled to seek growth opportunities overseas. Outbound mergers and acquisitions by Japanese companies have been increasing, as exemplified by Nippon Steel Corporation’s acquisition of U.S. Steel (2025).

At the same time, particularly in mature industries, there are many cases in which companies exhausted by excessive competition in the domestic market seek consolidation as a means of survival and of strengthening their competitiveness to enter or protect overseas markets. Recent examples of such consolidation include the integration of the polyolefin businesses of Prime Polymer and Sumitomo Chemical, which was finally unconditionally cleared in April 2026 after a Phase II review at the Japan Fair Trade Commission (JFTC), and the merger between Hino Motors and Mitsubishi Fuso, which received conditional clearance in February 2026.

The JFTC’s enduring skepticism toward “Japanese champions”

Nevertheless, the JFTC has not dispelled its wariness toward the emergence of Japanese “champion” companies that can genuinely compete in global markets. As noted above, during a period of transformation in economic structures and technologies, there are numerous cases in industries facing shrinking domestic demand where companies seek consolidation in order to survive and enhance global competitiveness. However, in such cases, aggregate market shares in the domestic market inevitably become high, and many transactions encounter difficulties early on at the stage of pre-filing consultation with the JFTC, resulting in prolonged reviews.

In these industries, multiple long‑established domestic companies often coexist, and competition within Japan is intense. As a result, even where there are no substantial differences in product quality and no particularly high barriers to entry, actual import volumes often remain limited. The Japanese market requires detailed and customized responses to customer needs, and Japanese companies have historically fulfilled these requirements. Consequently, Japanese customers tend to find it most convenient to purchase from domestic suppliers and are generally reluctant to purchase imported products. While imports of general-purpose-grade goods have been increasing recently, Japanese companies may no longer survive where their strength is only in specialties and custom-made goods, which are limited in quantities.

Tension between traditional competition theory and global competitiveness

Because the JFTC remains faithful to traditional competition law principles, it tends in such cases to hesitate to approve mergers out of concern over price increases in the domestic market. Even when companies argue that a merger is intended to improve efficiencies and to enhance international competitiveness, they had been criticized for “sacrificing domestic consumers in order to expand overseas” — a situation that has persisted for a long time. While global markets are often defined in certain sectors, such as semiconductors and digital‑related industries, domestic markets are still frequently defined in many manufacturing and service industries, making it difficult to identify workable solutions when the aggregated market share of the parties is significantly high in the domestic market.

Looking back, there have been numerous transactions that struggled with this issue; while many such cases managed to seek some form of justification and devise remedies, there have also been many others — often not publicly disclosed — where reviews became protracted or where the parties ultimately abandoned the integration in practice.

Comparative developments in Europe and the United Kingdom

Turning to Europe, amid concerns arising from the war in Ukraine and growing uncertainty surrounding global trade, there are signs of a shift from its previous stance. In September 2024, former European Central Bank President Mario Draghi published the so‑called “Draghi Report,” which examined European competition policy from the perspective of strengthening the competitiveness of European industry. Since then, merger control policy has become a subject of debate not only in Europe but worldwide. In particular, cross‑border integrations intended to create large European companies capable of competing with global leaders from the United States, China, and elsewhere have been viewed positively as a means of fostering so‑called “European champions” and strengthening the resilience of the European economy.

In the United Kingdom as well, partly reflecting government policy, there has been a clear shift away from a previously aggressive approach to merger review toward a more flexible stance that permits mergers.

Emerging policy signals in Japan: Green policy and economic security

In Japan, as an attempt to articulate a new direction, the “Guidelines on the Application of the Antimonopoly Act to Activities of Businesses, etc. toward the Realization of a Green Society” (“Green Guidelines”, published in March 2023 and revised in April 2024) were issued to support initiatives aimed at achieving a green society. These guidelines suggest that mergers contributing to the realization of a green society may receive a certain degree of consideration.

In November 2025, the JFTC also published a “Casebook on Economic Security and the Antimonopoly Act,” which, in a mergers context, presents past cases involving the integration of oligopolistic domestic operators or consolidation of businesses in shrinking markets. However, this document merely compiles existing precedents and does not introduce anything fundamentally new. The concept of economic security is aimed at protecting domestic supply chains and preventing technology leakage from a national security perspective and is driven primarily by political imperatives; as such, it differs from the competition theory underpinning the Antimonopoly Act. How this concept should actually be applied in merger review therefore remains unclear and uncertain.

Beyond these issues, there are various policy challenges, yet the JFTC has not articulated any comprehensive view on how merger review should be conducted in a manner that integrates these considerations.

The growing debate over the need for Japanese global champions

That said, similar to the direction indicated in the Draghi Report emphasizing the need for European champions, there is a growing sense in Japan that “Japanese champions” capable of competing in global markets may also be necessary. Without such players, there is a prevailing concern that the erosion of Japan’s economic foundations will accelerate. Protecting consumers in a shrinking domestic market could, paradoxically, entrench inefficiencies among Japanese companies and ultimately fail to serve the interests of the public. Merger control, therefore, should not merely adhere rigidly to traditional competition theory, but should also play a role in strengthening the Japanese economy.

The gradual move: new trends for more flexible approach

Based on recently published review decisions, however, there has been at least no explicit departure from the traditional competition analysis centered on market shares. That said, some recent cases have been approved through behavioral remedies without imposing the structural remedies that are ordinarily required, even where market shares are high. Examples include the integration of ductile iron pipe businesses by Kubota (2025), a horizontal merger between competitors aimed at strengthening the supply structure for environmentally friendly products, which was approved subject to behavioral remedies such as firewalls for sensitive information and the establishment of audit mechanisms, based on the existence of competitive pressure from adjacent markets and efficiency gains related to CO₂ reduction. Another example is the integration of truck businesses between Hino Motors and Mitsubishi Fuso (2026), where the authorities adopted behavioral remedies — including support for competitor firms to create an independent competitive entity and information‑sharing restrictions — rather than requiring divestitures. This trend may accelerate going forward.

Furthermore, in the aforementioned 2026 polyolefin case, while acknowledging that it would be difficult to substitute imported products for special grade and custom-made products for some customers, the JFTC granted unconditional clearance in light of the overall increase in imports and the shrinking domestic markets.

In this way, slight signs of change can be observed in Japan’s approach to merger review, reflecting shifts in economic structure within society with a declining population and changes in the international environment. The competition authority is now at a stage where it must decide what priorities it should place at the forefront going forward.