TSE Cash Markets

The start of the new market segments of the TSE and expectations for the future

Yuri Okina

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July 24, 2022 4 min read
The start of the new market segments of the TSE and expectations for the future

By Yuri Okina, Chairperson, The Japan Research Institute, Limited

The transition to the new market segments takes place in April 2022. I would like to take this opportunity to express my expectations for future development of listed companies and the capital market.

The Japanese economy has been hit hard by the COVID-19 pandemic, but Japan has been facing a long period of slow growth since the early 1990s. Looking toward the post-COVID world, it is projected that Japan’s growth rate will remain lower than those of advanced economies in Europe and the US as well as China, and Japanese companies will face increased competition with peers in the rest of the world in terms of digital transformation (DX) and green investments. Top managers of listed companies are expected to see the start of the new market segments in the midst of the COVID-19 situation as an opportunity for transformation, and accelerate their DX initiatives to transform their business models toward the post-COVID world. At the same time, they are expected to proactively make investments in intangible assets, including human investments, enhance their earnings power, and sustainably increase corporate value.

All top managers of listed companies have selected their new market segment in consideration of their long-term corporate strategies. From now on, they are required to make adequate information disclosures as expected in the market they selected, and to have constructive, in-depth dialogue with investors. Furthermore, we have a great hope in market entry and growth of new start-ups which will lead Japan in the future. While the Growth Market has been newly created, continuous work on institutional reform necessary for dynamic growth of start-ups is required.

Looking at the global trend, from the viewpoint of stakeholder capitalism, top managers of listed companies are expected to achieve especially sustainable growth, while addressing social issues. Challenges facing the top managers are not limited to achieving a return on capital that exceeds their cost of capital: they need to chart a path to sustainable growth and realize the growth through business management with corporate governance where “E” and “S” factors in ESG, including the global environment, future generations, employees, and local communities, are fully considered. Especially, I’d like to see long-term investors in Japan to commit to responsible investment for supporting the growth of such companies that address various social challenges, and effectively engage with them.

In order to transform to a capital market that helps companies, which realize a sustainable increase in corporate value while addressing social challenges, through helping them attract excellent human resources and funds to achieve further growth, there still remain many issues in terms of the market infrastructure. It is anticipated that the TSE will promptly consider such issues as how to make easy-to-understand disclosures regarding the relationship between investments in intangible assets (including those in human resources and intellectual properties) and corporate value, as well as how to expand a base of investors who take proactive approach to responsible investment, and further improve the environment.