The Nikkei Stock Average has reached an all-time high for the first time in 34 years, approaching an unprecedented 40,000 yen level.

Some observers point out that the growing interest in Japanese companies from foreign investors, who are increasing their presence in the Tokyo market, is due to the spread of corporate management that is conscious of capital efficiency, such as the sale of ``cross-shareholdings.''

Why are companies now drastically reconsidering Japan's unique customs regarding capital relationships, which have continued for many years despite criticism from institutional investors?

(Economics Department reporter Mitsutsune Saito)

Historical stock price growth The industries that grew

The Tokyo market is experiencing historic high stock prices.

The Nikkei Stock Average has increased by more than 6,000 yen this year, and looking at the industries with the highest rate of increase in stock prices during this period, the industries with the highest rate of increase were ``Transportation Equipment'', ``Securities Commodity Futures'', and ``Insurance''.

While the depreciation of the yen in transportation equipment and the launch of the new NISA in securities were factors that raised investors' performance expectations, ironically, it was the scandals surrounding the industry that brought insurance to the attention of investors.

Zero cross-shareholdings in the wake of scandals

Last December, the Financial Services Agency issued business improvement orders to four major non-life insurance companies, accusing them of adjusting premiums for commercial insurance in advance.

In this regard, the Financial Services Agency points out that the holding ratio of cross-shareholdings may affect the allocation of insurance contracts, and calls for concrete measures to be taken to ensure fair competition, numerical targets, and immediate implementation. I asked.

On the 13th of last month, the insurance industry's stock prices rose sharply after it was reported that Finance Minister Suzuki had asked the four companies to accelerate the sale of their cross-shareholdings at a press conference.

Two days later, Sompo Holdings announced that it would ultimately aim to reduce its cross-shareholdings in Sompo Japan to zero.

Regarding this move, a senior Financial Services Agency official who responded to an interview pointed out, ``Non-life insurance companies have no choice but to raise the flag of reducing their cross-shareholdings to zero.''

Then, at the end of last month, three other companies announced their intention to reduce their cross-shareholdings to zero.

The role and evaluation of cross-shareholdings has spread in Japan

Cross-shareholdings are stocks held by companies for the purpose of maintaining and strengthening relationships with business partners.

There are many cases of ``cross-holding'' held with business partners, and there are also cases where shares are held with the expectation that they will be effective as a takeover defense measure, and have become widespread among Japanese companies.

However, there were many harsh reviews among institutional investors, with some pointing out that it was a factor in reducing capital efficiency, and a widespread view that it was a symbol of opaque trading practices.

Against this background, the Financial Services Agency and the Tokyo Stock Exchange have stipulated in the Corporate Governance Code, which aims to improve corporate value over the medium to long term, that the investment policy for cross-shareholdings should be disclosed, including the approach to reducing them. We are asking companies to provide explanations to families.

According to the Nomura Institute of Capital Markets Research, during the bubble period in 1989, the percentage of companies with cross-shareholdings was around 50%, but as corporate governance reform progresses, the percentage of companies holding cross-shareholdings has been decreasing, and as of March last year In other words, it had decreased to 11.7%.

Accelerating sale of cross-shareholdings

Furthermore, in March last year, the TSE requested companies listed on Prime and Standard to "take measures to realize management that is conscious of capital costs and stock prices," which led to reductions in cross-shareholdings and cross-shareholdings. There is a widespread view that this has accelerated the pace of review.

Recently, in November of last year, Toyota Motor Corporation announced that it would sell a portion of its shares in Denso, which it holds as a major shareholder, for approximately 290 billion yen, and its former parent company NEC and Hitachi The manufacturing company announced in January this year, and Mitsubishi Electric announced at the end of last month that they would sell all of their products.

What's next for corporate reform expectations?

In addition to that, the Financial Services Agency, mentioned at the beginning, requested major non-life insurance companies to accelerate the sale of cross-shareholdings, and each company announced a zero-holding policy.

Experts analyze that this series of movements reflects investors' expectations for changes in Japanese companies, and is one of the factors behind the rise in Japanese stocks.

Kengo Nishiyama, Senior Researcher, Nomura Capital Markets Research Institute

Kengo Nishiyama, a senior researcher at the Nomura Capital Markets Research Institute, said, ``Some companies say that the cross-shareholdings that remain today are like a bedrock that they simply cannot sell, but in response to the problems with major non-life insurance companies, there are The negative aspects of owning stockholdings are becoming more noticeable, and I think companies will be forced to reevaluate their responses.In order to increase profitability, companies are expected to continue to review their asset structure, such as by selecting businesses, and policies are expected to continue. I think there will be further sales of holdings."

On the other hand, some point out that going forward, it will be important how the funds obtained from the sale of cross-shareholdings are used.

Daiwa Research Institute Daiki Fujino Researcher

Daiki Fujino, a researcher at Daiwa Institute of Research, said, ``If companies do not use the funds obtained from sales to generate profits for growth investments such as production equipment and human capital, investors' expectations for Japanese companies will not last long and stock prices will rise.'' But it will only be temporary."

Companies' attitudes and actions regarding cross-shareholdings are being questioned as to whether they will be the next catalyst for the Japanese stock market, which has entered a new stage after hitting an all-time high during the bubble period.

Featured plans

On the 5th, one of the most important political events in China, the National People's Congress, begins.

Amid growing uncertainty about the economic outlook due to factors such as the prolonged slump in the real estate market, it will be interesting to see how the government's economic growth rate targets will turn out.

Additionally, on the 8th Japan time, President Biden is scheduled to deliver a State of the Union address to the U.S. Congress in which he will outline his policy for the coming year.

With the US presidential election coming up this fall, it will be interesting to see what he says.