Buyback regulation concerns are overblown, Tokyo Stock Exchange chief says

Prime Minister Fumio Kishida sent a chill through local markets late last year with talk of introducing restrictions on share buybacks, but the head of the Tokyo Stock Exchange says investors have little to fear.

Hiromi Yamaji, the president of the exchange, said in an interview that Kishida was unlikely to consider blanket regulation on share repurchases as part of his goal to better distribute the fruits of economic growth.

“Kishida has a quite cautious stance on the uniform regulation of share buybacks, because he is giving consideration to each company’s individual circumstance and decisions,” Yamaji said. “I don’t think it is going to be an impact on capital markets.”

Kishida’s “new capitalism” has been among the major themes for investors in Japan since he became leader last autumn, and it’s a dramatic step away from a decade of more market-friendly neoliberal policies under his predecessors. The prime minister’s talk of increasing capital gains taxes continues to hang over Japanese markets: the Topix index has dropped nearly 8% since he took power, outpacing the fall in Asia Pacific shares during the period.

Kishida also said last week that a shift away from “shareholder capitalism” was one important idea that merited consideration.

Nomura Holdings Inc. veteran Yamaji, who previously headed the Osaka Stock Exchange, took over as president of the Tokyo bourse last April, after his predecessor stepped down following a trading outage.

Here are the other key comments from the interview with Yamaji:

Market reform

A long-awaited shake-up of the TSE’s market segments that takes effect in April has so far largely fallen flat, with more than 1,800 constituents set to join the new Prime section, which will replace the current First Section that forms the benchmark Topix index.

Investors have expressed disappointment that more minnows weren’t trimmed from the list. But Yamaji urged investors to be patient and focus on the potential for lifting standards, rather than just the number of companies.

Firms that are in the Prime segment will have to work harder on their corporate governance and bear overseas investors in mind, he said.

SPACs

One specific area that Kishida has highlighted to boost growth in Japan’s markets has been the introduction of special purpose acquisition companies, which are currently not allowed on the country’s markets.

While Singapore also recently started offering the vehicles, there are concerns that investor interest in SPACs is already waning in the U.S. Yamaji played down concerns that Tokyo is late to the party.

“It’s possible to make SPACs possible in Japan,” he said. “It’s not useless to discuss it now, even if it looks a little bit too late.”

Yamaji said that it was important to promote the diversification of fundraising for unlisted companies, and Japan Exchange Group formed a study group last year to discuss the issue. Yamaji also highlighted the need to ensure protections for those most likely to buy into new listings, because “in Japan, the main investors in the IPO market are individual investors.”

Overseas listings

One area of success for the Tokyo Stock Exchange in recent years has been an increasing number of overseas listings. While the exchange has struggled to attract the type of large listings it once sought, such as the likes of Saudi Arabian Oil Co., an increasing number of Asian startups with Japanese links are showing interest.

Artificial intelligence startup Appier Group Inc. became the first Taiwan-based firm in more than 20 years to list in Tokyo when it went public in 2021. A total of five “cross-border companies” listed in Tokyo last year, Yamaji said.

As a result, “we are getting more and more inquiries, and also requests for advice,” Yamaji said. “For those cross-border companies with links to Japan, listing on the Tokyo Stock Exchange would be an optimal way to improve corporate value.”

Foreign investors

While foreign listings might be increasing, Japanese equities have struggled recently to attract overseas investors in the shadow of China’s growing might.

Foreign investors still make up the bulk of Japanese trading — up to 65% in the cash equity market and 75% in derivatives — but Japanese markets need to further boost their attractiveness for overseas investors by, for example, providing more English-language disclosure from Japanese companies, he said.