This chapter discusses the changes in the relationships between government and universities, and between presidents and faculty members, since the incorporation of Japanese national universities in 2004. The paper focuses on the changing nature of the two-level governance system, which is reinforced by the expansion of competitive initiative funding systems in Japanese higher education. Four types of data are analyzed, including official government reports and institutional data from two surveys conducted by the Center for National University Finance and Management. In addition, a case study investigates governance practices, in depth, at an incorporated research university, based on document analysis and interviews with a principal member of the university’s Research Planning Committee and other faculty members. The paper argues that the influence of Ministry of Education, Culture, Sports, Science, and Technology on national universities (both presidents and faculty members) has grown as result of its control over the universities’ “Midterm Targets and Plan” documents and its “carrot-and-stick funding” approach.