The president of the Tokyo Stock Exchange (TSE) admitted yesterday that Japan is culturally unprepared for the rigours of Western-style shareholder capitalism and that bold steps were needed to reverse Tokyo’s decline as a global financial centre.

Atsushi Saito’s surprisingly frank comments come as overseas investors are increasingly in despair at the Tokyo stock market - the only major world bourse on track to finish this year in negative territory.

Efforts by foreign funds to provoke a shift in attitudes towards shareholders have stalled, encountering what Mr Saito called “a very difficult cultural problem”.

In the course of 2007, corporate Japan has thrown up a series of virtually impenetrable barriers to foreign takeover bids, leaving the fledgling mergers and acquisitions market in tatters.

Activist fund managers, including the London-based Children’s Fund and Warren Lichtenstein’s Steel Partners have attempted to instil some Western-style regard for shareholders’ interests in Japanese board-rooms but to little avail.

Mr Saito said: “In Japan, there is the idea that corporations shouldn’t just chase maximisation of profits but should work for their employees or society as a whole. This view is much more accepted in our society, so it is hard to assert the idea that companies are owned by their shareholders.”

Also heavily criticised have been the low standards of governance displayed throughout the Japanese corporate scene. Financially sensitive information is routinely leaked, the shareholder registers of many supposedly independent companies include huge holdings by parent companies and few boards have any external directors.

The explanation, said Mr Saito, was simple: the TSE is technically a regulator and is keen to change the behaviour of these companies but in reality has no power.

Particularly troubling, he said, was the issue of cross-shareholdings. One high-profile user has been Nippon Steel, which, fearing the advances of a large player such as Arcelor Mittal, has established a latticework of shareholdings with customers and even sector rivals. Given the importance of Nippon Steel as a Japanese champion, Mr Saito said he would have to be “very brave” to attack the strategy of Akio Mimura, Nippon Steel’s president.

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