Could corporate Japan soon shake its reputation for inefficient balance sheets that hurt productivity and trip up investors? It may be hard to believe, but there’s reason for optimism.

The government of Prime Minister Shinzo Abe—re-elected with a new mandate last month—is increasingly driving corporate efficiency by focusing on the metric that counts most: return on equity (ROE), or how much profit companies generate on shareholders’ capital. In Japan the nail that sticks up gets hammered down, and with ROE Mr. Abe has picked...