The portfolio managers of the $1.3bn Usonian Japan Value Strategy argue that corporate governance pressure from Japanese policymakers will soon become a "disproportionate tailwind" for small caps. "The Tokyo Stock Exchange (TSE) efforts have lately focused on pressuring small caps to improve," they said in a recent note, pointing to the latest policies on price-to-book ratios (P/B) and improving return on equity (ROE). "The recent directive for companies to disclose plans to raise P/B ratios and ROE were directed especially at those companies with P/B ratios of less than 1x and ROEs of less than 8%, which are overwhelmingly represented by small and mid-caps." They said that Japanese small caps are likely to follow the prevailing corporate governance winds, but with a lag. "There is an undeniable trend in corporate Japan for smaller companies to wait for larger companies to set new precedent before the small caps follow," they explained.