TSE Cash Markets

Tokyo Stock Exchange and its market reform: necessary perspectives

Hiroto Koda

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July 24, 2022 3 min read
Tokyo Stock Exchange and its market reform: necessary perspectives

By Hiroto Koda, Representative Director, Innovation Intelligence Research Institute Inc.


The Tokyo Stock Exchange (“TSE”) will enter a new stage in April 2022. This market reform (restructuring and renaming of market segments and changes in listing criteria)is an inevitable consequence of the integration of the TSE and the Osaka Securities Exchange in 2013, and was needed to address such issues as convenience for investors, incentives provided by market segments, and the selection of constituents of TOPIX (the Tokyo Stock Price Index).

Entering the year 2022, we are still at the mercy of COVID-19, which has highlighted the vulnerability of the existing infrastructures that support governments, society, and economy across the globe. COVID-19 has been a wake-up call on the vulnerability of the existing social infrastructures. With respect to Japan’s stock market that supports the socio-economic infrastructure, it is questioned whether the market offers a mechanism that allows listed companies to focus on increasing corporate value, which they should aim at, and whether the market serves as a foundation for increasing corporate value over the mid to long term. Looking ahead to a post-COVID-19 world, this market reform is indispensable and takes place just in time. Many companies are still sticking to the 20th-century concept of increasing corporate value, but traditional efforts are not sufficient. What is expected for increasing corporate value in the 21st century is that, aside from the efforts of companies themselves, it is important to have in place an “ecosystem” which is supported by various stakeholders and brushed up with cyclical continuity. Companies need to offer their services and products taking into account global social issues such as carbon neutrality, DX and population problems, and utilizing new technologies. It could be said that Japan’s stock market is now at the new starting line to further evolve as the foundation that provides sustainable growth of corporate value with investors’ understanding.

In the midst of such a significant change in the environment, considering the administration of the new market, I’d like to offer two perspectives regarding a direction of further development.

First, with respect to an increase in corporate value of Japanese companies, it is important to have a proactive perspective in operating the market. From such a perspective, the TSE should proactively get publicity for initiatives of the Prime Market-listed companies for increasing their long-term corporate value. Furthermore, the TSE needs to support the Growth Market-listed companies to evolve from unique startup ventures to enterprises to be listed on the Prime Market in the future. The TSE should further enhance its information dissemination on the connection between corporate value growth and social issues in Japan and the world. I hope the TSE will support the listed companies to proactively communicate with and provide information to investors, take a positive approach to the market’s “metabolism” where unqualified companies exit the market and qualified new companies join the market, and fully exercise the market function on a global level.

Secondly, it is necessary to secure the linkage between the huge amount of household financial assets of 2,000 trillion yen (as of end-September 2021) and the money flow that supports this market reform. If the connection between companies that offer solutions for social issues and retail investors is strengthened through continuous long-term investment from household financial assets as well as the money flow into growth investment, the restructuring of companies will be accelerated. With the awareness of the role of the ecosystem that connects household financial assets with growth capital, the importance of improving the financial literacy becomes clearer. I hope that the TSE will take advantage of this market reform to make further steady efforts for improving the financial literacy.

To ensure that the TSE’s market reform in April 2022 contributes to significant progress in the efforts for increasing corporate value in Japan, concerned parties are expected to make comprehensive efforts.