JPX supports markets growth via better dialogue between investors and companies
Recent corporate government reforms and bilingual disclosure requirements could help attract more foreigners to the Japanese equities market, said Hiromi Yamaji, CEO, Japan Exchange Group.
- Listed companies in Japan have responded well to Tokyo Stock Exchange’s call to improve corporate governance and raise shareholder value.
- Majority of large-cap companies have started making important disclosures in Japanese and English.
- The exchange will continue to seek changes to encourage more investor participation in Japanese stock markets.
In March 2023, the Tokyo Stock Exchange published a series of suggested reforms for listed companies to be more conscious of their cost of capital and share price in a bid to make Japanese corporations more attractive to both domestic and international investors. It called on company boards to analyze these performance metrics, form improvement plans, and cascade them to shareholders.
More than a year later, companies have responded well to these requests, said Hiromi Yamaji, President & CEO, Japan Exchange Group, which owns the Tokyo Stock Exchange. Yamaji hopes investors will engage in more dialogue with Japanese companies and further nudge them towards growth, capital efficiency, and increased shareholder value, he said at Nomura Investor Forum Asia 2024 in Singapore this month.
There is a notable push towards increasing the quality of disclosures, said Yunosuke Ikeda, Head of Macro Research, Japan, Nomura, who facilitated the discussion. This has not been lost on investors who helped push Japan’s Nikkei 225 equity index to an all-time high in February.
Earlier this year, the TSE gathered investor feedback identifying 29 companies that were good examples of disclosure quality. It is now mulling providing anonymized bad examples as well, said Yamaji. The aim is not to shame companies, but to align corporate and investor perspectives and for better dialogue between the two groups.
Bilingual disclosures
From April 2025, companies listed on Tokyo Stock Exchange’s Prime Market, the premier board that has the highest market capitalization requirements and is geared towards global and institutional investors, will have to publish financial and corporate action disclosures in Japanese and English simultaneously. Our surveys show that lack of documents in English leads to a discount in company valuations and them not being considered an investment target by foreign institutional investors, said Yamaji. So more needs to be done through expanding the scope and content of English disclosures and eliminating the lag between Japanese and English disclosures, he said.
Foreign investors are interested in English language disclosures for small and midcap companies too. It could help unearth hidden gems from among them, said Yamaji. The TSE would like to gradually make these disclosure requirements applicable for smaller companies too, but Yamaji also said some of them could be stimulated to act on their own if they see more interest from foreign investors.
Retail investors
In January, the government launched an initiative to encourage more retail investment from Japanese citizens by expanding tax exemptions for money entering the equities market. Although skeptics predicted most of the investments would go to US or overseas stocks, a high proportion flew into the domestic equity market. The Japan Exchange Group, in its turn, has also been supporting initiatives that are more retail investor friendly, such as requiring companies that have grown to be too expensive to split their stock to be more affordable for smaller investors, said Yamaji. The exchange itself is splitting its stock this September.
MBOs, delistings and M&A
The Tokyo Stock Exchange is not concerned about recent delistings of Japanese companies following corporate actions such as management buyouts (MBOs) or mergers and acquisitions, said Yamaji. Rather, he views it as a good sign that companies are more conscious of costs of capital and remaining public. Despite the delistings, the exchange welcomes around 100 new listings each year, so the number of listed companies in Japan continues to increase gradually.
Other initiatives
In collaboration with other market intermediaries including Nomura, the exchange created the TSE Asia Startup Hub this March, aiming to help Asian companies grow their Japan operations and encourage cross-border listings. Tokyo can be a viable venue to raise funds owing to its market size and liquidity, Yamaji said.
The TSE is also looking to support the 5-year startup development plans outlined by Prime Minister Fumio Kishida’s administration to nurture young companies in Japan.
The TSE’s goal is to pave the way and set the stage for investors and companies, and success would be indicated by a properly functioning disciplined market, said Yamaji.
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