The best rally in a decade for Japanese stocks is being amplified by a surge in buyouts from company executives.

The volume of management buyouts (MBOs) has increased to the highest on record this year, spurring expectations that removing weaker companies from the market may help improve valuations of listed ones. That brings into focus the Tokyo Stock Exchange’s campaign to improve corporate governance, which is underpinning bullish calls on the nation’s stocks.

"If the MBOs result in industry reshuffles, it will have a great positive impact on the market as accumulated inefficiencies in Japan are getting fixed,” said Sho Nakazawa, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.