Make three out of five.

According to this motto, the Tokyo Stock Exchange (Tokyo Stock Exchange, TSE) will rearrange the listed share certificates from Monday.

The four categories so far – first part, second part, Jasdaq standard and growth as well as the start-up market “Mothers” – are divided into the areas Prime, Standard and Growth.

But what was intended as a bang for more transparency to attract new and, above all, more foreign investors threatens to fizzle out as a short and weak drum roll.

After months of preparation, the reaction of analysts and investors in the Tokyo financial center is sobering.

Martin Hock

Editor in Business.

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In fact, nothing will change, according to 56 percent of 120 representatives of securities firms and institutional investors in a survey by the Nikkei financial service Quick.

Only 3 percent of those surveyed believe that the reform will contribute to the internationalization of the stock market and make Japanese companies better known internationally.

Jesper Koll from the financial service provider Monex speaks of window dressing.

Japan matters less

For international investors, however, national indices such as the Topix or the Nikkei 225 are no longer very relevant, says Koll. These investors orient their investments towards global indices from MSCI, for example.

But Japan's special problem is that its weight in the MSCI index has fallen significantly.

As of the end of February 2022, MSCI gives Japan a weight of 5.6 percent in the general ACWI index, a global measure of the value of equity investments.

In 1999 it was almost 14 percent.

The decline reflects the anemic development of the Japanese economy over the past few decades, but also the low market capitalization of publicly traded companies in the Tokyo financial center.

Japan's market leader Toyota Motor brings it to a market capitalization of the equivalent of 296.1 billion dollars.

In neighboring Asian countries, which are seen as competitors in the global investment business, that's not much.

In South Korea, the large publicly traded company Samsung Electronics creates a market capitalization of $345 billion.

In Taiwan, Taiwan Semiconductor Manufacturing Corporation (TSMC) raises $544.9 billion.

Former Prime Minister Shinzo Abe, who exclaimed in a speech on the New York Stock Exchange in 2013: "Buy my Abenomics - buy my Abenomics" created greater interest from foreign investors in Japanese stocks.

But this boost associated with the expansive monetary and fiscal policy is already over.

Analysts say that the reclassification on the Tokyo stock exchange will not follow suit.

With the first major marketplace reform since 1962, and since the Tokyo Stock Exchange merged with the Osaka Stock Exchange in 2013, the rules for inclusion in the top trading tier of top-tier companies are generally tightened.

Among other things, this involves the proportion of freely tradable shares and market capitalization.

It's about the disclosure of climate protection standards in accordance with global rules or the publication of financial statements in English.

What could prove more resounding is that the code of good corporate governance requires top companies to have at least one-third independent directors on their boards.

However, criticism is directed at the fact that the reform was watered down during the months of preparation.

Originally, for example, there were ideas of linking prime market affiliation with incentives to reduce the cross-shareholdings notorious in Japan.

Critics complain that the selection for the new categories is not strict enough.

Currently, around 58 percent or 2,176 of Tokyo-listed companies belong to the first category.

The future prime market will still comprise 49 percent.

Of the approximately 1,841 first-class companies in the future, 296 will only be admitted on probation.

But in surveys, the majority of investors say that the first category should be between 500 and 1000 companies.

The standard market will cover about 39 percent of the publicly traded companies and the growth market about 12 percent.