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The Japanese government and the Tokyo Stock Exchange It also has plans underway to increase the independence of corporate boards and the representation of women.
“It’s not just the Tokyo Stock Exchange, but the entire Japanese government is trying to improve corporate governance right now,” said Toru Yoshikawa, a business professor at Waseda University in Tokyo.
The Tokyo Stock Exchange is entering its second year of corporate governance reforms, which began in March last year, by guiding listed companies whose shares trade below a price-to-book ratio of one – an indicator that they may not be using their capital efficiently. – “To comply or explain.”
This is just one part of Prime Minister Fumio Kishida’s broader pledge to transform Japanese companies into an attractive investment proposition for foreigners and Japanese investors.
In a bold move aimed at encouraging its citizens to redirect their savings towards investment, Japan has reformed the Nippon Individual Savings Account (NISA) to make all investments under this program tax-free for the investor’s lifetime as of this month.
With this move, the onus also falls on the Japanese government to ensure stable and reliable returns from Japanese companies.
These measures also have implications for Japan’s broader economic agenda, such as corporate wage-setting behavior and efforts to revive the world’s third-largest economy, which has been mired in recession for much of the past three decades.
With a rapidly aging population, the country is also keen for its listed companies to offer attractive returns to shareholders to ensure that its people have more to live on than just their regular pensions when they retire.
“It is a very critical issue in the future for Japan. Many people do not have enough income to live on after retirement,” Yoshikawa said. “The government also wants to attract more foreign investment to create more highly skilled jobs.”
The prospect of tangible change revived interest in Japanese stocks last year, with the benchmark Nikkei 225 index rising to its highest levels in more than three decades – with many foreign investors taking the lead of legendary investor Warren Buffett and his bullish calls on Japanese stocks.
Monday’s disclosures will be based on information as of December and releases will be monthly.
In its last update in October, the TSE said that only 31% of 1,235 “major” listings — the most liquid stocks with the largest market capitalization — and just 14% of 887 “standard” listings responded to its reporting request. Their discussions on specific measures and timelines to improve the way they manage their capital.
“Delisting, any penalty or any enforcement is very unlikely, but the good news in Japan is that there is a peer pressure factor,” Yunosuke Ikeda, chief equity strategist at Nomura, told CNBC in June. “If competing companies make significant improvements in corporate governance, other companies will tend to follow.”
Toyota Motor Company, the world’s largest automaker, is one example of this.
It, along with two other subsidiaries, announced in late November that it would reduce its stake in auto parts maker Denso to fund further investment in electric vehicles. Toyota also announced in late July that it would reduce its stake in telecom company KDDI.
“Our expectations are that the Tokyo Stock Exchange’s continued pressure on companies to respond to its requests will lead to a further acceleration in corporate governance-related activity among listed Japanese companies in 2024,” Japanese equity strategists at Goldman Sachs said in their 2024 forecasts.
“In particular, we believe investors view company announcements regarding the spin-off of mutual shareholders as an important indicator of improved corporate governance, and since share prices often react strongly as a result, we believe this topic deserves continued attention in 2024.” He added.
Other moves are aimed at helping Japanese companies inject more diversity and independence into their boards, while making Japanese companies more responsive to shareholders.
As part of rules that the Japanese government plans to introduce into its listing regulations, the largest listed companies will have to have at least one woman on their boards by 2025.
By 2030, Japan aims for women to make up at least 30% of managers at major companies, according to draft plans released by Japan’s Gender Equality Office in June that broadly aim to increase and empower women’s participation in the economy.
In its 2021 revision of the country’s corporate governance code, Japan’s Financial Services Agency mandated that at least a third of the boards of listed companies be independent directors from outside their companies.
“We believe it is no coincidence that there will be a wave of extensive capital redeployment this year,” Japanese equity strategists at Bank of America Securities said in a note last month.
“Stronger disciplinary action is being taken against companies, and there are signs that what being listed on a stock exchange means is beginning to change for companies,” they wrote.