Sources told Reuters that the government of Japan is set to introduce guidelines for institutional investors that are meant to bolster returns and improve transparency as well as corporate governance. The recommendations, dubbed as the "Japanese Stewardship code," will call on investors to reveal how they vote at shareholder meetings. The recommendations will also urge them to participate more actively with companies to help the firms in increasing investment returns for the medium to long-term periods, the report said.

Both non-Japanese and domestic institutions will be covered by the recommendations. Life insurance firms and the Government Pension Investment Fund, the country's national pension fund, are classified as domestic institutions and as such, the guidelines will apply to them as well, the sources said. The GPIF controls assets worth $1.2 trillion. The sources spoke on the condition of anonymity since there were not authorized to talk about the matter publicly.

The report disclosed that the Japanese Stewardship Code was inspired by the UK Stewardship Code, which was introduced in 2010 in Britain. Japan's version was drafted by a panel of experts set up as part of the drive by Prime Minister Shinzo Abe to encourage the country's economic growth.

The report said the UK Stewardship Code was envisaged during the 2008 global financial crisis. At that time, a lot of institutional investors were criticized for not closely tracking how the companies in their portfolio were managed, the report revealed.

According to a report by Glass Lewis & Co on September 4, the Japanese Stewardship Code may promote foreign investments once it is established.

The governance analysis and proxy voting firm said in the report, "The Japanese market is traditionally filled with cross-shareholding relationships between business partners, and these shareholders automatically support the management's decision by essentially giving a blank check. In order to attract overseas investments to such a market, it is necessary to enhance fairness and transparency in corporate governance practices. One way to do this would be by strengthening the shareholder's presence through investors' active contributions to promote the mid- to long-term growth of companies. The clarification of the responsibility of institutional investors is expected to be the first step to bringing in foreign exchange."